Author: Service2Client

Defining an Impaired Asset

3 min read

Defining an Impaired Asset, What is Impaired AssetWhen it comes to defining an impaired asset, its fair market value is worth less than the original cost of the asset – or, more formally, its carrying value. As a company re-evaluates its assets’ value, and when it determines there’s a discrepancy between the book or original value and the current market value, impaired assets that are lower in value are written down on the balance sheet. The business’ income statement shows a loss for the negative difference in value. Impaired assets can be Property, Plant, and Equipment (PP&E), goodwill, or fixed assets.

Making a Judgment on Asset Impairment  

One more consideration to get an accurate calculation, according to generally accepted accounting principles (GAAP), is to ensure that accumulated depreciation is subtracted from the asset’s historical or original cost before assessing the difference between the fair market and carrying values. Equally as important is the GAAP recommendation for businesses to perform impairment tests annually.

Assets could be damaged physically, consumer demand may change, or legal factors could reduce its fair market value. These reasons may cause lowered projected future cash flows – lower than an asset’s current carrying value. It, therefore, requires an impairment assessment.  

Illustrating With a Real-World Example

Take a business that bought a piece of equipment 24 months ago worth $500,000 and depreciates it $25,000 annually. Using these two figures, we can determine the equipment’s carrying value is as follows for the present year:

[($500,000 – ($25,000 x 2 years)] = $450,000

If the same type of asset (same age, usage, etc.) can be purchased on the open market but is able to be purchased for $400,000 (market value), the asset the business owns would be considered an impaired asset.

The difference between the current market value and the carrying value is: $450,000 – $400,000 = $50,000. The $50,000 would be written down.

It’s important to note that once an asset is impaired, depreciation going forward must be recalculated based upon the new valuation figure.

Criteria to Establish Impairment

According to GAAP, businesses must begin with a recoverability test. If the initial cost of an asset (minus any depreciation or amortization) is more than the non-discount rate adjusted cash flows it’s projected to produce, the asset is considered impaired.

Assuming the asset is deemed impaired, the second part determines how much impairment exists, which is the gap between the original and market value of the asset in question. If the fair value is unspecified, the total of the discount rate adjusted future cash flows is acceptable.

Assuming the total of non-discount rate adjusted future cash flows is $90,000 – the projected undiscounted cash flows through the next 36 months, which is lower than the estimated carry amount (or book value) of $115,000. The recoverability test is passed, so the asset should be impaired. Based on the second step, the impairment loss will be $25,000 ($115,000 – $90,000). If, however, the fair market value is unknown, the projected cash flows of $30,000 per year for the next 36 months should be discounted to present value. This example can assume a 5 percent discount rate:

Year 1 – $30,000 / (1+0.05) = $30,000 / 1.05 = ($28,571.43)

Year 2 – $30,000 / (1+0.05)^2 = $30,000 / (1.1025) = ($27,210.88)

Year 3 – $30,000 / (1+0.05)^3 = $30,000 / (1.1576) = ($25,915.69)

To calculate the impairment loss with an unknown fair market value: $115,000 – ($28,571.43 + $27,210.88 + $25,915.69) = $115,000 – $81,698.00 = $33,302.00

Whether it’s a time of economic uncertainty or the economy is firing on full cylinders, assets can change value. Businesses that effectively navigate changing conditions are able to increase their chances of surviving or thriving amid the challenges they might face.

Overhauling the National Tax System, Eliminating Oil Sales to China, and Criminalizing Late Abortion Attempts

Overhauling the National Tax System, Eliminating Oil Sales to China, and Criminalizing Late Abortion Attempts

3 min read

Overhauling the National Tax System, Eliminating Oil Sales to China, and Criminalizing Late Abortion AttemptsTo rescind certain balances made available to the Internal Revenue Service (HR 23) – Introduced by Rep. Adrian Smith (R-NE) on Jan. 9, this bill would rescind funds allocated to the Internal Revenue Service by the Inflation Reduction Act of 2022. The bill is designed to “defund” specific enforcement activities, operational support, enhancement to the e-file tax return system, and allocations to the U.S. Tax Court and other Department of the Treasury tax agencies. The bill passed in the House on Jan. 9 and has moved to the Senate, 

Protecting America’s Strategic Petroleum Reserve from China Act (HR 22) – This bill would prohibit the Department of Energy (DOE) from selling crude oil to any entity under the ownership, control, or influence of the Chinese Communist Party. The bill was introduced on Jan. 9 by Rep. Cathy Anne McMorris Rogers (R-WA). It passed in the House on Jan. 12 and is currently under consideration in the Senate.

Born-Alive Abortion Survivors Protection Act (HR 26) – An example of one of many abortion-related bills introduced by the House in the new 118th Congressional Session, this Act would require healthcare practitioners to exercise the proper degree of care in cases where a fetus survives an attempted abortion – including ensuring the neonate is immediately admitted to a hospital. Failure to provide such care or failure of others to report the crime would be subject to a fine and/or up to five years in prison. Furthermore, anyone who intentionally kills the neonate would be subject to prosecution for murder. However, this bill would bar criminal prosecution of the birth mother in these circumstances and permit her to bring civil action for these violations if perpetrated by others. The bill was introduced by Rep. Ann Wagner (R-MO) on Jan. 9 and is under assignment in a House committee.

Fair Tax Act of 2023 (HR 25) – This legislation was introduced in the House by Rep. Buddy Carter (R-GA) on Jan. 9. It is currently assigned to committee for consideration.  The purpose of the bill is to replace the current income tax system (including payroll, estate, and gift taxes) with a national consumption sales tax on goods and services. Instead of paying the current 10 percent to 37 percent tax rates based on income bracket, as well as eliminating all deductions and credits, U.S. residents would pay a minimum 23 percent federal tax (in addition to state and local taxes) on all purchases, regardless of income bracket. Exemptions would include property or services purchased for business, export, investment, or state government functions. The flat rate would essentially tax a higher percentage of income from low earners while high-income earners would have more assets available for savings and investment that would not be taxable. Each state would bear the responsibility for collecting and remitting this federal sales tax to the Treasury.

Handling Talent Shortages in Tech Departments

4 min read

Handling Talent Shortages in Tech DepartmentsTechnology advancement has brought about great digital transformation. Unfortunately, this has come with a global tech talent shortage. IT executives highlight the shortage as a huge barrier to the adoption of emerging technologies, as reported by this Gartner study.

It is estimated that the demand for tech talent will keep increasing, and this could result in an estimated 85 million global talent shortage by the year 2030. Therefore, companies need to rethink their approach to hiring and retention.

Reasons Behind the Tech Talent Shortage

It is worth trying to first understand what is causing the tech talent shortage. A few of the reasons that have led to the shortage include:

  • Advances in technology – technology is advancing at high speed, requiring workers with skills to match the new technology. Unfortunately, the tech education system can’t keep up with the speed, hence a shortage of people with the required skills.
  • The great resignation – this became a buzzword with work from home that came with the Covid pandemic; unfortunately, even after the pandemic, people are still leaving jobs. A survey by TalentLMS and Workable found 72 percent of employees working in tech are considering quitting their jobs or exploring other opportunities.
  • High demand for tech talent – There has been an increase in the demand for tech workers in recent years as more businesses and industries turn to technology for daily operations. New technology creates new roles, such as data professionals, data security specialists, and software engineers, among others that are highly competitive.
  • Challenges in training and development – some companies might not have the resources and time to invest in employee development.

Business Challenges of IT Talent Shortage

Businesses are feeling the effect of the tech talent shortage, especially when it comes to digital transformation. Emerging technologies such as robotic process automation (RPA), artificial intelligence, blockchain, and augmented reality that promise to keep a business ahead of its competition require skilled workers.

Hiring new talent or reskilling employees also comes at a cost, and companies struggle to fill positions. On the other hand, failing to have skilled employees results in unrealized annual revenues.

As a result, businesses of all sizes find themselves failing to develop projects on time and hence fail to meet deadlines. In other cases, the existing employees end up overburdened with too much work, and this may lead to them quitting. Eventually, a business experiences slow innovation and slow growth.

How to Handle the Tech Talent Shortage

A few strategies to help address this issue include:

  • Investing in employee development and training
    Providing ongoing training and development opportunities for current employees can help them acquire new skills and knowledge. This will not only make them more valuable to your organization, but also less likely to leave.
  • Attract top talent through a strong employer brand
    Building a strong employer brand can help in attracting top talent to your organization. This can involve highlighting your company’s culture, values and mission, as well as offering competitive compensation and benefits packages. A good reputation will also help attract new talent.
  • Partnering with educational institutions
    A company may also partner with local colleges and universities to gain access to a pool of talented students who are looking for internships or entry-level positions. Additionally, setting up mentorship or internship programs helps build a pipeline of talent for your organization.
  • Increase recruitment efforts
    Sometimes it might be difficult to find the right talent, which makes it necessary to increase recruitment efforts. This could involve working with recruitment agencies, posting job openings on job boards and social media platforms, and attending job fairs and industry events.
  • Consider hiring remote workers
    Even with all efforts in place, it may still be difficult to find the right talent in a business location. Today, technology has enabled people to work remotely. This offers access to a larger pool of candidates and also can help attract top talent from other parts of the country or even the world. It is also possible to work with freelancers or contractors to fill specific skills gaps on a project-by-project basis.
  • Enhance the recruitment process
    An inefficient recruitment process will cost the company good talent. Therefore, any poor communication or delayed communication will affect talent acquisition. A company might need to streamline its recruitment process.

Final Thoughts

The global tech talent shortage is already negatively affecting businesses. Since the shortage is expected to rise, business leaders need to decide on the best way forward so they are not left behind in digital transformation. A good decision should fit business goals whether choosing to hire internal talent, remote workers, or outsource technology needs.

Expanding Options for Marriage, Defense, Medical Marijuana, Amateur Athletes and Rail Workers

Respect for Marriage Act (HR 8404) – Introduced by Sen. Jerry Nadler (D-NY) on July 18, this Act replaces previous provisions that defined marriage as strictly between a man and…

4 min read

Expanding Options for Marriage, Defense, Medical Marijuana, Amateur Athletes and Rail WorkersRespect for Marriage Act (HR 8404) – Introduced by Sen. Jerry Nadler (D-NY) on July 18, this Act replaces previous provisions that defined marriage as strictly between a man and a woman. It codifies marriage to state that a spouse may be a person of the opposite sex as long as the contract between the two individuals is valid under state law, and prohibits any state from denying out-of-state marriages on the basis of sex, race, ethnicity or national origin. The bill passed in the Senate on Nov. 29 and the final bill passed in the House on Dec. 8. President Biden signed the Act into law on Dec. 13.

James M. Inhofe National Defense Authorization Act for Fiscal Year 2023 (HR 7776) – This bill authorizes defense spending at $858 billion, an approximate 10 percent increase over last year and $37 billion more than President Biden requested in his budget. This bill is expected to increase pay for service members and civilians by 4.6 percent and include inflation bonuses for those earning less than $45,000 a year. The bill was initially introduced on May 16 and the final bill was agreed upon by a bipartisan committee comprised of Sens. Jim Inhofe (R-Okla.) and Jack Reed (D-R.I.), and Reps Adam Smith (D-Wash.) and Mike Rogers (R-Ala.) The bill first passed in the House on July 14. It was signed into law by the President on Dec. 23.

Help Find the Missing Act (S 5230) – This Act is designed to facilitate data sharing between the National Missing and Unidentified Persons System and the National Crime Information Center database of the Federal Bureau of Investigation, in order to improve efforts in finding missing persons. The bill was introduced by Sen. Chris Murphy (D-Conn.) on Dec. 8 and passed in the Senate on the same day. It passed in the House on Dec. 14 and is currently awaiting the President’s signature.

Medical Marijuana and Cannabidiol Research Expansion Act (HR 8454) – This legislation was introduced by Rep. Earl Blumenauer (D-Ore.) on July 21. The purpose of the bill is to increase the supply of marijuana that may be used in government studies. It expands the number of registered entities (e.g., academia, practitioners, manufacturers) that may manufacture, distribute, dispense or possess marijuana or cannabidiol (CBD) for the purposes of medical research. The bill also enables physicians to discuss with patients the potential harms and therapeutic potential of marijuana and its derivatives (such as CBD). Going forward, the Department of Health and Human Services will report on marijuana’s impact on various conditions, such as epilepsy; its impact on adolescent brains; and on the ability to operate a motor vehicle. The bill passed in the House on July 26 and in the Senate on Nov. 16. It was signed into law by the President on Dec. 2.

Equal Pay for Team USA Act of 2022 (S 2333) – This bill was introduced by Sen. Maria Cantwell (D-Wash.) on July 13, 2021, and was passed in the Senate on Dec. 8. The legislation would require equal compensation and benefits for all athletes representing the United States in international amateur athletic competitions, regardless of gender. The bill would require each sport’s national governing body to submit annual compliance reports pertaining to this requirement. The bill’s fate currently lies in the House.

To provide for a resolution with respect to the unresolved disputes between certain railroads represented by the National Carriers’ Conference Committee of the National Railway Labor Conference and certain of their employees (HJ Res 100) – Passage of this bill was successful in averting a nationwide strike of rail workers, but it did not satisfactorily address all of their demands. The Act provides improved healthcare benefits and a 24 percent pay raise, as well as the ability to take limited unpaid sick leave without being subject to penalties. However, the bill failed to provide the five days of paid medical leave sought. The bill was introduced by Rep. Donald Payne Jr (D-N.J.) on Nov. 29, passed in the House on Nov. 30 and the Senate on Dec. 1. It was signed into law on Dec. 2.

Safe Connections Act of 2022 (HR 7132) – Introduced on March 17 by Rep. Ann Kuster (D-N.H.), this bill instructs cell phone service providers to waive separation of contract service fees when requested by survivors of domestic violence, human trafficking and related harms. The Act requires that the requestor present verifying documentation that a cosigner of thecontract committed or allegedly committed an act of domestic violence, trafficking or a related criminal act against the survivor. The requestor must assume financial responsibility for services after a line separation. The bill passed in the House on July 27, in the Senate on Nov. 17 and was signed into law on Dec. 7.

No-Heir Estate Planning

4 min read

No-Heir Estate PlanningEven if you have no heirs, you should have an estate plan. Otherwise, the state will determine the fate of your worldly possessions. In fact, if you pass away “intestate” (without a will), the state can even keep all of your assets for itself – if no heirs are found.

The most basic tenet of no-heir estate planning is to write a will. Every state has different rules about what constitutes a legally enforceable will, so be sure to check out your state’s guidelines. If you move, you’ll need to update your will according to the state you live in when you pass away.

In your will, direct who receives which of your assets. There is no edict that says you must leave possessions to a relative. You can choose a friend, a group of people, or even one or more charitable organizations. You also should choose an executor of your will: someone you trust to carry out your wishes. This person can be an attorney or bank custodian of your assets. You should speak with whomever you choose to make sure they are willing to take on the role of executor. It is generally no small task and might entail distributing and even selling your possessions in order to make cash distributions to the beneficiaries.

If you have any pets, be sure to figure out during the planning process who is willing to take care of your animals after you pass or direct their care to a specific shelter.

Also, consider the beneficiaries you will designate for bank and investment accounts, as well as any insurance policies you own. Note that beneficiary designations you assign on these accounts will supersede your will instructions, even if they preceded when you wrote your will. For example, your employer might pay for a life insurance policy in your name that pays out proceeds equaling two to three times your salary. You might not even remember that you completed this paperwork years ago, naming your girl/boyfriend at the time as your beneficiary. If you don’t keep those designations up to date, you may end up leaving a substantial sum to a woman/man who broke your heart instead of the person who embraces it now.

It is also a good idea to name a “Transfer on Death” (TOD) designation on other types of accounts, such as your bank checking and savings accounts. This designation also supersedes will instructions and allows your money to be distributed once the beneficiary presents your death certificate and proper ID. It’s actually advisable to name the executor of your will as TOD, as he may need to access your funds quickly to pay for funeral and burial expenses. Other assets can take longer to distribute, so a TOD designation is a quicker way for your beneficiary to access cash.

Be aware that even if you have prepared a will, your estate will still be subject to probate, in which a judge makes the final determination of your assets. If you wish to avoid this step, you can fold all or a portion of your assets under one or more trusts, which will distribute them according to the trust directions and avoid probate altogether. A trust is particularly beneficial if you have a large estate or wish to leave a substantial donation to one or more charities.

Another estate planning consideration is what to do if, instead of dying, you become incapacitated and cannot make decisions for yourself. As part of the estate planning process, you should name a power of attorney to make financial decisions for you. This can be anyone – a friend or close neighbor or the person you name as executor of your will.

You should also establish a living will, advanced care directive, and/or healthcare proxy. A living will is a directive that states your wishes regarding medical care should you become incapacitated (e.g., permanently unconscious). An advanced care directive can be more specific, such as establishing a “do not resuscitate” (DNR) order if your breathing or heartbeat stops and if you would like to donate tissues or organs after you pass.

A healthcare proxy, which may be referred to as a medical or durable power of attorney, is the assignment of a person who will make all of your healthcare decisions when you no longer can. Note that with medical instructions as well, states have varying guidelines. It’s important to be familiar with your state’s requirements and update your medical care directives if you relocate to another state.

The IRS Versus the Taxpayer

4 min read

The IRS Versus the Taxpayer

According to the IRS, ignorance of tax rules and regulations is no excuse. Therefore, it’s essential to use an experienced tax preparer to assist in filing your taxes. The tax code is complex and only gets more complicated as time goes on, making it almost impossible to ensure they are filing correctly without the help of a CPA, EA, or Tax Professional.

Moreover, the penalty for making what could be deemed an innocent mistake can cost a taxpayer a significant sum. What is worse yet is that defending yourself against the IRS is a costly endeavor in terms of both time and money. Part of the problem is that taxpayers often do not have the option of making an appeal directly to the tax court and instead need to first pay the IRS and then challenge it in either District Court or the Court of Claims. Stated plainly, the average taxpayer simply can not afford to fight the IRS in tax court.

In the remainder of this article, we will look at two main areas that tend to be problematic for taxpayers: first assorted penalties for misfiling and mistake, and second obscure international form.

Miscellaneous Mishaps and Mistakes

Taxpayers can get caught up in “gotcha” type situations where they inadvertently make a mistake in the type, accuracy or timing of the filings. Here is a checklist of some of the most common issues in which taxpayers typically make unintentional errors that will not be forgiven by the IRS.

  • Filing late and paying short: Filing a return late and underpaying the tax owed each carry separate penalties. Together, these penalties can add up to 47.5 percent of the original tax owed in a worst-case scenario.
  • Careless Filing Details: If you make a mistake in filing your return and it results in tax liability in your favor, you can owe a penalty of 20 percent of the under-reported taxes. In the case of faulty appraisals for items such as donated property, the penalty can double up to 40 percent.
  • Writing Bad Checks: Technically, it does not matter if it is a physical check or another payment method, but if a taxpayer’s payment to the IRS is declined, the IRS will charge an additional 2 percent penalty.
  • Missing Checklists: Failure to file the two-page “due diligence” checklist before claiming certain credits, such as earned income or college credits, can result in a fine of $545 per credit.

Obscure International Forms

Many compliance-related rules related to international investments and banking activities were originally created to put a stop to drug dealers, terrorists, and flagrant tax cheats. Unfortunately, the regulations are still in force but apply to increasingly more taxpayers as the threshold amounts have not increased yet more U.S. citizens are working, living, or retiring abroad. Moreover, the penalties can be severe. In this section, we will look at some of the most obscure and serious foreign tax compliance issues.

  • Passive Foreign Investments: If you own mutual fund shares incorporated abroad, you must file Form 8621.
  • Personal Holding Companies: If you create a corporation to hold a foreign property, you will need to file Form 5471 for a Controlled Foreign Corporation.
  • FBAR: If you have $10,000 or more in any combination of international bank and brokerage accounts at any single point in the year, you need to file the FBAR form electronically. Note the trigger here is that the bank or brokerage is outside the United States. If you hold securities of foreign companies or foreign currencies with a U.S. institution, the reporting is not required.
  • Fatca Disclosures: Facta disclosures were created to combat money laundering, covering all manner of foreign financial assets, including insurance and retirement assets. It can overlap with the FBAR requirements, but the additional reporting here is triggered by higher thresholds starting at $50,000 in assets for single U.S. residents and up to $400,000 for couples residing abroad and filing joint returns.

Conclusion

Remember that ignorance of the tax law is no excuse, especially in the eyes of the IRS. It does not matter if a mistake you make is truly innocent; there is still a good chance that you will end up with unpleasant fines and penalties and, in the worst case, a big mess. It is best to be timely and diligent in your filings, and if your situation is anything short of vanilla, to engage a competent tax professional. More on whos responsible can usually be found in your annual engagement letter from your tax professional.

Understanding the Weighted Average Cost (WAC) Method for Inventory Valuation

4 min read

Weighted Average Cost (WAC) MethodWhen it comes to businesses and their inventory and accounting methods for managing it, there are a few different ways to approach the task. The three different options to value inventory/implement cost flow assumptions, include: Last In, First Out (LIFO); First In, First Out (FIFO); and Weighted Average Cost Accounting (WAC). This article will focus only on the WAC method.

Weighted Average Cost (WAC) Method

WAC is a way to value inventory based on how much each tranche contributes to the overall valuation of its cost of goods sold (COGS) and inventory. Recognized by both GAAP and IFRS, it’s determined by taking the cost of goods available for sale and dividing it by the quantity of inventory ready to be sold. It’s important to note that while WAC is a generally accepted accounting principle, it’s not as precise as FIFO or LIFO; however, it is effective at assigning average cost of production to a given product.

It’s done primarily for types of inventories where parts are so intertwined that it makes it problematic to attribute clear-cut expenditures to a particular part. This often happens when stockpiles of parts are indistinguishable from each other. It also accounts for businesses offering their inventory for sale all at once. Here’s a visual representation of the formula: 

Weighted Average Cost (WAC) Method Formula

WAC per unit = Cost of goods available for sale / Units available for sale

Costs of goods available for sale is determined by adding new purchases of inventory to the value of what the business already had in its existing stock. Units available for sale is how many saleable items the company possesses. Its value is assessed per item and encompasses starting inventory and additional purchases.

When it comes to calculating WAC, there are two different types of inventory analysis systems: periodic and perpetual.

Periodic Inventory System

In this system, the business tallies its inventory at the end of the accounting period – be it a quarter, half or fiscal year – and analyzes how much the inventory costs. This then determines the value of the remaining inventory. The COGS is then calculated by adding how much starting, final, and additional inventory within the accounting period cost.

Perpetual Inventory System

This system puts a bigger emphasis on more real-time management of its stock levels. The trade-off for such real-time tracking of inventory requires more company financial resources. Looking at an example of how a company began its fiscal year with the following inventory can illustrate how it works.

At the beginning of the year, a company had 1,000 units, costing $50 per unit. It also made three additional inventory purchases going forward.

Jan 20: 75 units costing $100 = $7,500

Feb 17: 150 units costing $150 = $22,500

March 18: 300 units costing $200 = $60,000

During the fiscal year, the business sold:

235 units sold during the last week of February

325 units sold during the last week of March

Looking at the Periodic Inventory System, for the first three months of its fiscal year, the company can determine its COGS and the number of items ready to be sold over the first three months of its fiscal year.

WAC per item – ($50,000 + $7,500 + $22,500 + $60,000) / 1,525 = $91.80

Based on this method, the WAC per unit would be multiplied by the number of units sold during the accounting period, therefore:

560 units x $91.80 = $51,408 (inventory sold)

To calculate the final inventory value, we take the entire purchase cost and subtract the remaining inventory to arrive at the valuation:

$140,000 – $51,408 = $88,592

Perpetual Inventory System

Unlike the periodic inventory system, this looks at determining the mean prior to the transaction of items:

This would calculate the average before the 235 units were sold during the last week of February:

WAC for each item: ($50,000 + $7,500 + $22,500) / 1,225 = $65.31

Looking at the 235 units sold during the last week of February, it’s calculated as follows:

235 x $65.31 = $15,347.85 (inventory sold)

$80,000 – $15,347.85 = $64,652.15 (remaining inventory value)

Before calculating for the 325 units sold the last week of March, the unit valuation per WAC is: ($64,652.15 + $60,000) / (1225 – 235 + 300) = 1290 = $96.63

Looking at the 325 units sold during the last week of March is calculated as follows:

325 x $96.63 = $31,404.75 (inventory sold)

$124,652.15 – $31,404.75 = $93,247.40 (remaining inventory)

Based on these options, businesses have the choice, along with LIFO and FIFO, to decide how they want to vary it based on their own business needs.

5 Financial Resolutions You Can Live With

4 min read

5 Financial Resolutions You Can Live WithFor the most part, New Year’s resolutions are hard to keep because many times you either list too many things or ones that aren’t manageable for the long haul – especially those that involve money. Here are a few simple tricks to help you make changes that are bite-sized, easy to implement, and more likely to stick.

Do a five-minute daily money check-in. Life is so busy that sometimes it’s easy to just spend money, then move on to the next task at hand. You might think, “I’ll check my bank balance later,” and then you never do. But if you’re serious about getting a handle on your finances, you might want to try this one thing: give yourself a “money minute.” Select a time of day, maybe after dinner, to log into your bank account. Take stock of what you spent money on. Did you really need that bottled water? That designer coffee? This way, you can nip those small (perhaps unnecessary) expenditures in the bud and make smarter choices in the coming days.

Get a money-saving app. One of the best ones to help you achieve financial goals is Ibotta. Let’s say you want to buy a new pair of running shoes, a good brand that’ll really last. With this app, you’ll save on everyday purchases, and when you’ve earned enough cash back, you can cash it in for a gift card from your selected store and get what you really want.

Consider micro savings goals. This technique is actually about rewarding yourself financially for changing your behavior. For instance, every time you go to yoga or Pilates, stash away $5. Or if you wake up early or finish a difficult task, stash away $10. When you’ve saved enough money to buy whatever it is you’ve decided on beforehand, you’ve not only avoided the trap of putting your goodie on credit (and paying interest), but also most likely started a new, healthy habit.

Set up an automatic savings plan. After you’ve paid taxes, insurance premiums, and perhaps even your retirement account, you might consider tucking away money for yourself that you’ll never miss. Every. Single. Paycheck. That’s right. When you automatically have a set amount deducted every time you get paid, over time, you’ll accumulate a bucket of money to use in whatever way you deem important – it could be saving for a vacation or a new car. It could also be a fund for emergencies. The point is it’s an easy, failsafe way to save and achieve your goals.

Do one frugal thing a day. This is all about a little bit of forethought and then just taking action. And when you adopt this mindset, you’ll be working daily toward your financial goals like paying off debt, saving money to quit a job you hate, or even having enough extra cash to invest in real estate or whatever strikes your fancy. Here are a few things to consider: drink more water than soda. Eat at home. Use public transportation instead of driving when you can. But this just scratches the surface. For more smart ways to start living frugally, check out this super helpful article. You’ll be surprised at all the ways you can cut back and save.

All of these tricks are easy and, in some cases, no-brainers. When you take a few minutes, set your mind on what you want, anything’s possible. Here’s to fulfilling your dreams in the New Year!

Sources

11 Financial Resolutions That Will Stick in 2024

The 2022 Tax Guide

4 min read

The 2022 Tax GuideNow is the time of year to do everything you can to minimize taxes and maximize your financial health with proper year-end planning. In this article, we’ll look at several actions to consider taking before the end of 2022.

Thoughtfully Harvest Losses and Gains Before Year-End

Tax loss harvesting by selling securities at a loss to offset capital gains is a classic year-end planning strategy. Just make sure not to violate the wash sale rules. This means you can’t buy back the same security or a substantially identical one within 30 days of the sale.

Reinvest Capital Gains into Opportunity Zones

Another way to offset capital gains is to reinvest those gains into a qualified opportunity fund (QOF). To be eligible, you must make the investment within 180 days of the sale of the asset-bearing gains. QOF investments allow you to defer the recognition of the capital gains tax on the original investment. The details and exact rules can be tricky, so it’s best to check with your tax advisor before making this type of transaction.

Consider Installment Sales Where Applicable

When a taxpayer sells a private asset such as real estate, a business, or private equity in exchange for a series of payments over multiple years through a promissory note, this can constitute an installment sale. Installment sales are generally taxed, with each payment representing a portion of the proceeds; return of basis, interest, and gain are recognized over the life of the note.

There are situations in which installment sales can be structured so that gains are not recognized until principal payments are recouped. If you are considering selling an asset via an installment sale this year-end or next, consult with your tax advisor to determine if it’s possible to structure the sale to defer gains.

Funding Retirement

If you can contribute to a retirement account, now is the time to see if you need to make additional contributions or top-up to the full amount allowable. As you review your situation, keep in mind the annual maximum contribution limits for 2022.

  • IRAs – $6,000. If you are 50 or older, it’s $7,000.
  • 401(k)s/403(b)s —  $20,500. If you are 50 or older, it’s $27,000

Also, converting assets from a traditional IRA to a Roth IRA may be a smart move if: you believe your tax rate will be higher in the future; you can afford to pay the taxes now with spare cash; and you don’t plan to leave the IRA assets to charity.

Take Your Required Minimum Distributions

The annual deadline to take required minimum distributions (RMD) from your own or inherited retirement accounts is Dec. 31, 2022. It’s important to take RMDs because there is a 50 percent penalty on amounts not distributed. The amount needed to be taken were determined on Dec. 31, 2021, even though the value of the investment has likely fluctuated significantly since that time. RMDs are based on a calculation of age and amount of assets. There are online calculators to help you figure out the amount you need to take.

Giving to Charity

Some taxpayers believe that the deduction for charitable donations is no longer applicable to them since it can be hard to make donations large enough to exceed the standard deduction. One strategy to overcome this challenge is to cluster your donations. Instead of making equal gifts every year, consider making more substantial gifts all in one year instead.

When it comes to making donations around year-end, it’s important to understand the rules on timing and when a gift is effectively deemed given for tax purposes. Here are the basic rules on timing of charitable donations.

  • To give to charity by check => the date the check is mailed
  • Gifts of stock certificates => when the transfer occurs, according to the issuer’s records
  • Gifts of stocks by electronic transfer => when the stock is received, according to the issuer’s records
  • Gifts by credit card => date the charge is made

Conclusion

As we enter the final part of the year, now is the time to take stock of your financial and tax situation to see if there are any moves you can make to minimize your 2022 tax liabilities and maximize your wealth.

Your Tax Return “Whose Responsibility Is It?” Reboot

6 min read

Your Tax Return “Whose Responsibility Is It?” RebootThis article is not for those of you who prepare your own tax returns. Let us face it, when you prepare your own return, you are responsible for what is or is not included on the forms. What if you have a CPA or other tax practitioner prepare your annual state and federal income tax returns? Who is responsible for the numbers on your Form 1040, then?

Who’s Responsible – You or your Tax Preparer 

Many people have the misconception that once you turn over your tax information to a preparer, all you must do is sign the result and mail it in (or electronically file it). Nothing can be farther from the truth. That is not to say the tax preparer has no responsibility for the numbers included in the return. In fact, in Internal Revenue Service Circular 230, the government specifically states that a practitioner must exercise due diligence in preparing a tax filing, including determining the veracity of oral or written client representations. This does not mean a tax preparer must verify everything you tell him, but he or she must be satisfied that the amounts included on a tax return make sense. 

The real problem in a case like this is not that additional tax was due, though that was bad enough. The real problem is that the understatement of taxes opens a taxpayer up to both penalties and interest. At a minimum, interest would be due because the IRS cannot, by law, forgive or abate interest. Add to that the potential for penalties on the late payment of income taxes, negligence, or filing of fraudulent returns – and it doesn’t take long for your tax bill to double.

Many times, taxpayers sign their returns and put them in the mail (snail or electronic) without reviewing the numbers. Either they trust the preparer implicitly (even if the numbers look wrong) or they are happy to have the tax return chore out of the way for another year. Whatever the reason, many taxpayers fail to double-check the preparer’s numbers.

Reviewing Your Return 

Wait a minute – did you notice the error in that last paragraph? The error is in characterizing amounts on a tax return as the “preparer’s numbers.” Sure, the calculations may come from your CPA’s computer, but those numbers had better be the amounts you provided to your tax accountant. Any good preparer will welcome a second or third set of eyes checking the numbers to make sure the amounts are correct. That is because he or she knows that the taxpayer is ultimately responsible for the amounts included in the return. The preparer makes sure they are in the right place on the return.

Without naming names, there have been many recent cases where taxpayers were held liable for understated taxes plus penalties and interest. Simply put, ignorance of the law, or the numbers, is not considered an excuse for filing false and misleading returns. 

An Army of New Agents?

Now that you know your role and responsibility in filing your tax return, the thought of the IRA hiring 87,000 new agents is keeping you up at night. This figure, which is being bandied about in the news, comes from the projected hiring of new agents from the almost $80 billion in new IRS funding over the next decade as part of the Inflation Reduction Act passed this past summer. 

The truth is, yes, many new IRS agents will be hired. No, there will not be anywhere near 87,000 of them. The 87,000 figure comes from a Department of Treasury report from May 2021, which estimated the number of new hires.

However, many of the 87,000 figures include new hires to replace retiring agents over the next decade. Replacement hires are likely to be the bulk of the new hires, with more than 50% of the agency’s current employees becoming eligible for retirement over the next decade. Furthermore, the funds will not just be for IRS agents but also for IT technicians, taxpayer services support staff, and experienced auditors.

All-in-all, the IRS will be beefing up the number of employees with the new funding; but it will net somewhere between 20,000 – 30,000 new employees of all types. This would bring staffing levels back to where they were a little over a decade ago. 

How Many Agents Will Really Be Armed

Related to the rumor of 87,000 new agents is that they will be armed and coming to bust down the doors of millions of Americans as part of stepped-up tax enforcement. Again, reality and news headlines are not lining up.

Collecting taxes can be a dangerous business. It is not just scouring checkbooks and bank records when it comes to tackling drug dealers, terrorists, and money launderers. In addition to forensic accounting, IRS Criminal Investigation Special Agents also work undercover inside criminal organizations.

In fact, they have been doing this for over one hundred years since the Criminal Investigation division (previously called the Intelligence Unit) was created in 1919 with just six agents. Think of taking down Mobsters like Al Capone based on tax fraud in the 1930s.

So, to put it in perspective, the IRS Criminal Investigation (CI) unit only has about 3,000 employees, of which about 2,100 are special agents. Only special agent carries guns.

Even with the new funding previously mentioned, the CI unit is looking to hire around 300-350 new Special Agents in 2022, with about half of that replacing retirees and those who leave the department. In the end, the IRS is only going to gain about 150 or so new gun-wielding agents. 

What’s Your Best Defense 

Now that you know you will not have an army of armed IRS agents busting down your door, what is your best defense against getting an unexpected bill from the IRS? First, make sure you are dealing with a reputable preparer. Ask for a copy of the practitioner’s license to do business as a tax preparer. Ask your friends for references of reputable CPAs or other tax practitioners.

Finally, review your tax return and ask questions about anything that you do not understand. Reputable preparers take pride in their work and are honest enough to admit when a mistake has been made. Do not be afraid to ask questions for fear of offending your preparer.

Conclusion 

Returning to our original question, just who is responsible for your tax return? The simple answer is you are. Good tax preparers realize this and make every attempt to provide you with an accurate return because protecting you is their job. We congratulate you on your wisdom if you have just such a professional. If you are looking for someone who fits that bill, please consider giving us a call.