Author: Service2Client

Funding the Government, Protecting Americans from Misuse of Data, Expanding Internet Access and Improving Recycling

4 min read

HR 4366, HR 7521, HR 7520, HR 1752, HR 6276, HR 1046Consolidated Appropriations Act, 2024 (HR 4366) – On March 9, the president signed the latest appropriations bill passed in time to halt a government shutdown. While this bill does authorize funding through the end of the fiscal year (Sept. 30), it only addresses six of the 12 bills necessary to fully fund the government. The recent legislation covers Military Construction, Veterans Affairs, Agriculture, Rural Development, the Food and Drug Administration, the Commerce, Justice and Science-related departments, the Energy Department, the Department of the Interior and the Environment, and Transportation, Housing and Urban Development. On March 23, the president signed the Further Consolidated Appropriations Act, 2024 (HR 2882) in the nick of time to prevent a government shutdown. This subsequent budget legislation includes the remaining spending bills to fully fund the federal government through the end of the fiscal year (Sept. 30).

Protecting Americans from Foreign Adversary ControlledApplications Act (HR 7521) – Congress is currently considering a bill designed to force the sale of the social media app Tik Tok, which is currently owned by ByteDance Ltd. This Chinese firm is subject to the laws of China, which has the right to seize all data procured by the app as well as influence content for political purposes – which is considered a threat to U.S. national security.This roundly bipartisan bill was introduced by Rep. Mike Gallagher (R-WI) on March 5. It was passed by the House on March 13 and is under consideration in the Senate.

Protecting Americans’ Data from Foreign Adversaries Act of 2024 (HR 7520) – The purpose of this bill is to prevent the current targeting, surveilling, and manipulation of user data from apps by brokers who sell sensitive information to foreign adversaries, such as China. Examples of data collected and sold include individual physical and mental health, as well as where and when they travel outside the country. This bipartisan bill was introduced by Rep. Frank Pallone (D-NJ) on March 7. It is currently assigned to a committee for review in the House.

E-BRIDGE Act (HR 1752) – This legislation was introduced by Rep. Sam Graves (R-MO) in March 2023. It would authorize the Department of Commerce to issue economic development grants for the purpose of expanding and improving high-speed broadband service in underserved and geographically diverse markets. The bill passed in the House on March 11 and currently lies with the Senate.

USE IT Act of 2023 (HR 6276) – This Act would require the Office of Management and Budget (OMB) and the General Services Administration (GSA), through the use of technology sensors, to ensure federal government building utilization and federally leased spaces average at least 60 percent in each public building over each one-year period. The bill, introduced by Rep. Scott Perry (R-PA) on Nov. 7, 2023, passed in the House on March 12 and is now under consideration in the Senate.

A bill to require the Administrator of the Environmental Protection Agency to carry out certain activities to improve recycling and composting programs in the United States and for other purposes (S 1194) – This Act was introduced by Sen. Thomas Carper (D-DE) on April 19, 2023, and passed in the Senate on March 12. This bipartisan bill would require the Environmental Protection Agency (EPA) to collect data and issue reports on nationwide composting and recycling efforts, including implementing a national composting strategy to help reduce contamination rates for recycling. The legislation is currently under consideration in the House.

A bill to establish a pilot grant program to improve recycling accessibility and for other purposes (S 1189) – A companion bipartisan bill to S 1194, this Act would authorize the EPA to issue grants to states, local governments, Indian tribes, or public-private partnerships to fund improved recycling accessibility within communities. It was introduced by Sen. Shelley Moore Capito (R-VA) on April 19, 2023, and passed in the Senate on March 12. It is also under consideration in the House.

Social Security Expansion Act (HR 1046) – This new bill is designed to enhance Social Security benefits and ensure the long-term solvency of the Social Security program. It was introduced on Feb. 14 by Rep. Jan Schakowsky (D-IL). The bill includes the following provisions: 1) increase benefits for low earners; 2) restore student education benefits to children of deceased or disabled parents, up to age 22; 3) revise the calculation to yield higher annual COLA benefits; 3) make active trade or business income subject to the net investment income tax; 4) make all earnings above $250,000 subject to Social Security payroll taxes. The bill has yet to be assigned to a committee and has virtually no chance of being enacted by the current Congress.

Part 1: Pre-Retirement Planning Guide

4 min read

Pre-Retirement Planning GuideOne of the more insightful quotes of baseball great Yogi Berra was, “If you don’t know where you’re going, you’ll end up someplace else.”

When you’re young, first starting out in life and career, the path to professional success and personal fulfillment isn’t always clear. Most people start out on a track and then adjust as they go along — based on what they learn, who they meet, and cultivate their choices given their opportunities.

Fortunately, the path to retirement need not be so nebulous. By the time you start thinking about retirement, most people have quite a few certainties in their life, such as career, family and assets they hold like their home and investment portfolio. Clearly, this is a great foundation for retirement planning. But it is only the beginning.

There are a lot of factors to be considered before entering this new phase of life. The following is Part 1 of a two-part series on the steps to take in pre-retirement planning.

1. Budget

Most people live on a budget, whether they mean to or not. That’s because, barring excessive spending on credit, most people can only spend as much as they earn. Once you retire and are no longer earning income, spending is generally reduced to match your new income sources, such as Social Security, a pension, investment interest, and dividends, etc. For most retirees, that means they need to spend less than they did before, at least in terms of regular monthly expenses.

Therefore, the first step in planning for retirement is to identify what your income sources will be, how much they will provide each month, and compare that to how much you will need. It is generally advisable to keep working until you have paid off major debts such as your mortgage(s), car payment(s), and any significant balances on credit cards, home equity or personal loans. The ideal plan is to retire when your annual household expenses match or are less than your long-term retirement income sources.

2. Goals

Just as you did as a young adult, you should establish goals for your retirement years. You may have already accomplished buying a house, having a family, and working a fulfilling career — but life doesn’t end at retirement, and neither should goal setting. Otherwise, days can turn into months and years, and you’ll wonder why you never landscaped the backyard the way you wanted or took that trip to Europe. Setting goals and funding sources before retirement gives you these projects to look forward to.

3. Finances

Up until now, your finances may be all over the place. You may have one or more 401(k) plans still managed by former employer custodians. You may have investment accounts in various places, having been persuaded to open new accounts by different brokers, college savings plans, and health savings accounts. If you’re married to someone with lifelong income and investments, double that scenario.

When you start thinking seriously about retirement, consider consolidation. It’s time to roll over old accounts into a Roth or traditional IRA. It’s time to think about whether it’s more efficient to pay taxes on tax-deferred money now or after you retire, depending on your current and future income tax brackets. It’s also time to buckle down and max out your current investment options, such as a 401(k) and IRAs. In 2024:

  • Each spouse over age 55 may contribute up to $23,000 to an employer retirement plan (e.g., 401(k), 403(b), 457(b), or Thrift Savings Plan), plus an additional $7,500 in catch-up contributions, for a total of $30,500 on the year (up to $61,000 for a working couple).
  • Each spouse over age 55 may contribute up to $7,000 to a traditional or Roth IRA (or combined between the two), plus an additional $1,000 catch-up for a total of $8,000 (up to $16,000 for a working couple).

For a two-income household behind on retirement savings, these opportunities alone offer the ability to save $77,000 a year until retirement. But you may ask: How can you afford to save that much and still maintain household expenses? Check out next month’s Part II: Pre-Retirement Planning Guide for additional steps on how to design a comfortable and secure retirement.

Reduce Your Taxes by Putting the Right Assets in Your IRA

5 min read

Reduce Your Taxes by Putting the Right Assets in Your IRAMost people know the basic concept that certain types of investment accounts are tax sheltered while others are not. Think 401(k), 403(b), IRA and Roth IRA accounts, for example. What most people are not aware of is how you split your investment positions between your taxable and non-taxable accounts can result in major tax savings.

Asset Allocation and Location

One of the core principles of investing is to have an appropriate asset allocation that aligns with your risk tolerance and goals. In other words, how much of your investable net worth is in cash, stocks, bonds, precious metals, real estate, alternative assets, private investments, etc? Once you have this determined, the next consideration should be the location of these assets, primarily meaning whether you hold them in a taxable or tax-sheltered account.

The first, core principle behind asset location positioning is that bonds and other fixed income investments get the highest priority within tax sheltered accounts because they pay high-taxed ordinary income. Stocks that pay qualified dividends may be taxed at the more advantageous long-term capital gains rate, so they are typically better in taxable accounts.

What Are the Stakes?

To put it simply, big money. Take the example of a hypothetical $2 million portfolio evenly split between stocks and bonds. In the case where an investor has $1 million each in a taxable account (50/50 stock and bonds) and another $1 million in a tax-sheltered account (again 50/50 stock and bonds); this would cost about $148,000 over 30 years versus placing all the stock in a taxable account and all the bonds in a tax-sheltered account.

Asset Class Location Ranking

Of course, there are many more nuances and types of investments. Below we review 10 different types of assets, ranking them in order of those that get the most benefit from being in a tax-sheltered account with an explanation of why.

  1. K-1-Free Commodity Funds
    Popular for investing in futures, these are typically structured as Cayman Islands holding companies. As a result, they often kick-off highly taxed ordinary income even when the fund is losing money. Keep these in a tax-sheltered account at all costs.
  2. Junk Bonds
    High-yield corporate bonds typically come with large coupons (often 7 percent to 9 percent) and a small capital loss in the 1 percent to 2 percent range. Since the large coupon payment is taxed as ordinary income, while capital losses are worth less from a tax perspective, junk bonds are a prime candidate to go into a tax-sheltered account.
  3. Income Stocks
    Preferred shares and real estate investment trusts are characterized by their high unqualified dividends, so they are not eligible for preferential capital gains tax rates. This makes them best suited for a tax-sheltered account.
  4. High-Grade Bonds
    Similar to junk bonds, but with lower coupons and smaller capital losses, the benefits of holding these in a tax-sheltered account is less than the items above, but it is still preferable to place them in a tax-sheltered account.
  5. U.S. Treasuries
    The interest on U.S. Treasuries is taxed as ordinary income; however, it is exempt from state income tax. Depending on the state in which you are subject to taxes, these fall in the middle ground and could be held in either a taxable or tax-sheltered account.
  6. Actively Managed Mutual Funds
    The frequent churn of the holdings in actively managed funds typically creates more short-term capital gains versus long-term. Again, depending on total returns and how active the fund manager is, these could be held in either a taxable or tax-sheltered account.
  7. K-1 Commodity Funds
    Usually taxed as partnerships, profits typically get a 60/40 treatment, with 60 percent of gains classified as long-term and qualifying for favorable rates, putting them in the middle ground as well.
  8. High-Dividend Stocks
    For some investors, dividends are king. Think utility stocks and big-name blue chips with a steady track record of paying consistent dividends, like Altria. Since most, if not all, the dividend income is usually in the form of qualified dividends, holding these in a taxable account is much less painful.
  9. Stock Index Funds and Low Dividend Stocks
    Broader market mutual funds and ETFs have lower dividends. For example, on average, a total U.S. market ETF yields approximately 0.3 percent. Given this and their low churn, these funds are prime to be held in a taxable account, especially if the intended holding period is more than a year and will qualify you for long-term capital gains treatment and defer any taxable event until sale.
  10. Master Limited Partnerships (MLPs) and Private Real Estate Funds
    Typical of oil and natural gas pipeline investments, MLPs pay big dividends early on and they usually are not taxed in early years. Similarly, private placement real estate fund investments are shielded from the income they produce due to the upfront benefits of depreciation. Given their structure and the fact that they hold debt attributable to the owner, however, makes them a no-go for a tax-sheltered account since they create what is considered “unrelated business taxable income.” This makes these investments only suitable for a regular taxable account.

Conclusion

The decision of which types of investments you keep in either taxable or tax-sheltered accounts can make a big difference in how your investments grow and how much you keep. Consider evaluating not only your asset allocation but also your asset location to optimize for taxes.

Importance of Fostering Digital Trust in Today’s Businesses

4 min read

Fostering Digital TrustModern business today is dominated by digital transactions and interactions. Businesses are increasingly storing customers’ personal information, which is potentially accessible without the customers’ knowledge or consent. Therefore, understanding the significance and implications of digital trust will help businesses foster it, as it is crucial for success. 

What is Digital Trust?

Digital trust is the faith customers and business partners have in a business’ secure, reliable, and transparent existence on digital platforms. It involves protecting business and customer data, respecting privacy, managing cybersecurity threats, and enhancing transparency around data usage. Customers expect that when they share their personal and sensitive data with a business, it will be protected from unauthorized access or usage.

The Importance of Digital Trust

Digital trust is a factor that drives customer decisions. Investing in digital trust can lead to sustained growth and competitiveness. See below for more reasons why establishing a sense of digital trust is so important.

1. Address Security and Privacy Concerns  

One of the primary reasons why fostering digital trust is vital is the increasing concern over security and privacy. Due to the rise in frequency and sophistication of cyber threats, businesses face substantial risks related to data breaches, fraud, and identity theft.

Therefore, businesses must instill confidence in their customers and stakeholders by implementing robust security measures and strict privacy protocols. This includes employing encryption technologies, multi-factor authentication, and regular security audits to safeguard sensitive customer data and mitigate risks effectively.

2. Build Credibility and Reputation

A company’s reputation can make or break its success in today’s interconnected world. Trust is the foundation upon which credibility is built, and establishing a solid digital presence can significantly enhance a business’ reputation.  Customers and other stakeholders are more likely to engage with organizations that demonstrate transparency, integrity, and reliability in their digital interactions.

A business can build trust and credibility by leveraging digital tools and platforms to streamline processes and enhance transparency. This, in turn, strengthens their relationships with stakeholders and fosters long-term success.

3. Enhance Customer Relationships

Customer relationships are increasingly forged and maintained online in our digital age. Whether communicating via email, interacting on social media or conducting transactions through e-commerce platforms, businesses rely on digital channels to engage with their audience.

Enhancing customer relationships while ensuring data security and privacy will require measures such as implementing secure payment gateways, providing transparent financial reporting, and offering personalized digital experiences tailored to each client’s needs. Businesses can cultivate stronger customer bonds and drive loyalty over time by demonstrating a commitment to transparency and accountability.

4. Comply With Regulations

Businesses must navigate complex legal and regulatory requirements in an increasingly regulated environment. From data protection laws to financial reporting standards, non-compliance can have severe consequences, including fines, legal penalties, and reputational damage. Fostering digital trust involves ensuring businesses adhere to regulations and standards governing their operations.

Every business has a responsibility to stay up to date with the latest regulatory developments. This may involve implementing internal controls, conducting risk assessments, and providing guidance on best practices for data management and governance. Navigating regulatory challenges helps build trust and confidence among stakeholders while mitigating legal and financial risks.

5. Drive Innovation and Growth

Fostering digital trust enables businesses to embrace innovation and drive growth in a rapidly evolving marketplace. By leveraging emerging technologies such as artificial intelligence, cloud computing, and blockchain, a business can enhance operational efficiency, expand its reach, and deliver innovative products and services to customers.

However, it is crucial to consider the implications that emerging technologies can have on digital trust. Chasing emerging trends and innovations may result in some oversight of ethics and transparency. Therefore, businesses require strategies to help adopt new technologies and harness their potential to drive value and competitive advantage.

Conclusion

In conclusion, fostering digital trust is essential for businesses to thrive in today’s interconnected world. Therefore, businesses must build trust, enhance credibility, and drive growth through secure and transparent digital interactions. By prioritizing security, privacy, compliance, and innovation, businesses can confidently navigate the digital landscape’s complexities and achieve their strategic objectives. 

Defining Burn Rate, Gross Burn and Net Burn

3 min read

What is Burn Rate, Defining Burn Rate, Gross Burn and Net BurnWhen it comes to any business, but especially for a start-up, it’s essential to determine how long a company can survive before it must declare bankruptcy and/or close its doors. The biggest metric, especially for a start-up, is to determine how much money a company has to keep its lights on.

The term “burn rate” is defined as how much money a company spends monthly to maintain its operations. It is essential for a company to know how long it can operate before it begins to generate income and hopefully becomes cash flow positive.

It is important to look at two differences between the two sub-meanings of this term: the first is “gross burn” and the other is “net burn.” When it comes to “gross burn,” we are talking about how much a business uses in monthly operating costs. The following formula shows a business how long they have in months to operate.

For example, if a business has $2.5 million available for overhead and it spends $200,000 in monthly overhead costs, it would last 12.5 months. Expressed as a formula:

Available financial resources ($2,500,000)/monthly overhead($200,000) = 12.5 (months)

This assumes the company makes no revenue, which will be accounted for in the next example. However, this is where “net burn” comes into consideration. Net burn looks at how much money a business loses every month, but the difference with this calculation is that it looks at if it can be lowered by any incoming revenue.

If a company spends $10,000 on rent/office space, $20,000 on IT expenses, and $25,000 on employee wages, the gross burn rate would be: $55,000. However, if the company is generating sales at $17,500 per month, for example, and the cost of goods sold (COGS) is $5,000, the following calculation would determine its “net burn rate:”

Net Burn Rate = [Monthly Revenue – Cost of Goods Sold (COGS)] – Gross Burn Rate

Net Burn Rate = ($17,500 – $5,000) – $55,000

Net Burn Rate = (12,500) – 55,000 = -$42,500 Gross Burn Rate

The difference between the net burn rate and the gross burn rate may seem obvious or intuitive, but depending on how much money the start-up has available, and factoring in how much the revenue brings in and offsets the COGS, it can make a stark difference for the business’ prospects.

Once a business has determined what its “gross burn rate” and/or “net burn rate” is, the next step is to look at how to reduce costs and/or increase revenue to keep working toward positive cash flow. 

Two considerations for the company include what the business can do and what it must do to make more revenue and increase profit margins. For example, companies could look at the cost-benefit analysis of incorporating AI to see if it would have an overall positive impact on labor costs. They also could look at how to create effective marketing campaigns that cost less (using backlinks instead of paid search engine marketing, for example).

Another consideration is that if the company has enough time and is able to re-strategize its model, this can have a material impact on the business receiving a cash injection from outside investors.  

Determining these timeframes and figures are one way a company can reduce costs and/or pivot to more profitable products and/or services. These two calculations can provide avenues to re-invigorate a business in hopes of providing a path to profitability.

What to Know About the Art Donation Deduction

4 min read

Art Donation DeductionIf you would like to donate artwork to an eligible charitable organization, you might be able to take a deduction on your tax return. However, the rules are complex. There are different requirements for different values, and there are scams you want to avoid that could lead to severe consequences for taxpayers who abuse this deduction.

Generally, the deduction for donated art is based on the fair market value of the property. This refers to the price the artwork could reasonably be expected to sell for on the open market. To qualify for the deduction, note that the value of an art donation may be limited to between 20 percent and 60 percent of the taxpayer’s adjusted gross income, based on the type of organization and whether the deduction must be reduced.

For the donation to qualify for a deduction at the full fair market value, the artwork must be used by the charitable organization in a way that relates back to its charitable purpose. For example, art is donated to an art museum or school. Otherwise, the deduction is limited to the amount of capital gain realized had you sold the property instead of giving it to a charity.

Requisite Tax Documentation

The IRS requires the following records to claim a charitable art donation deduction:

  • Name and address of qualified receiving charitable organization
  • Date and location of the donation
  • Detailed description of the artwork

The following details require additional documentation based on the value of the art donation:

  • $250 or more requires a documented acknowledgment from the recipient
  • $500 or more must file Form 8283 with a tax return, and records must be retained documenting how and when you obtained the artwork as well as its cost basis
  • $5,000 or more, the donor must obtain a documented qualified appraisal no more than 60 days before the contribution date
  • $20,000 or more must include the signed appraisal with your tax return
  • $50,000 or more, request that the IRS appraise the artwork and issue a Statement of Value to substantiate the value

Fractional Gift/Deduction

It is possible to make fractional deductions for an art donation as long as the artwork is wholly owned by the donor or shared between the donor and the charity. Furthermore, fractional donations must be completed within 10 years of the initial fractional gift or the donor’s date of death.

Artist Donation

The art tax deduction is more beneficial to collectors than artists. If an artist decides to donate a piece to a charity, he can deduct only the cost of the materials used to create the art – assuming he hasn’t already claimed them as a business deduction.

IRS Caution

Recently, the IRS has published warnings about art tax deduction schemes being promoted by fraudsters. It starts with a promotion encouraging (usually high net) taxpayers to buy art at a “discounted” price. The entity or person will offer various accompanying services, such as appraisal, storage, and shipping. The promoter may then help the taxpayer donate the artwork to one or more specific charities in order to claim a higher deduction than the purchase price.

The scheme generally involves waiting a least a year before donating in order to claim the deduction at an inflated fair market value. Some promoters work with taxpayers to donate art on a rotating basis every year in order to continue receiving the artificially inflated deduction. The following are some red flags from the IRS that indicate an art deduction scheme.

  • Be wary of buying multiple works by the same artist, especially when the art appears to have little to no market value beyond what the promoter is advertising.
  • Be wary of an appraisal that does not adequately describe the art in terms of rarity, age, quality, condition, the stature of the artist, the price paid, and the quantity purchased.
  • Remember that taxpayers are ultimately responsible for the accuracy of information reported on their tax returns. Avoiding taxes by participating in an overvalued art scheme could lead to back-tax payments, additional penalties and interest, additional fines, and even imprisonment.

Another option is to simply sell the art and donate the proceeds to a charity. The donor may owe capital gains taxes on the sale, but it’s possible that the charitable donation deduction will offset this expense.

As with all complex tax deductions, it’s a good idea to consult with a tax professional or legal advisor when donating artwork. This can help ensure that both the taxpayer and the charity are able to maximize the potential benefits of the donation.

 

Debating U.S. Border Policies and Foreign Aid, Providing Tax Relief Before Tax Season, and Training More Nurses

3 min read

Debating U.S. Border Policies and Foreign Aid, Providing Tax Relief Before Tax Season, and Training More NursesThe Emergency National Security Supplemental Appropriations Act (HR 815) – Formerly known as the RELIEVE Act, this bill was originally written to improve veteran eligibility for reimbursement for emergency treatment. However, the bill was altered to incorporate the Senate’s effort to combine new U.S. border policies with aid for wars abroad. On Feb. 13, the Senate passed this bill to provide $95.3 billion in aid for Ukraine, Israel, and Taiwan. While the border policy portion of the bill was struck out, the Senate did manage to pass the foreign aid funding. The bill includes $4.83 billion to help deter China’s aggression against Taiwan, $9.15 billion in humanitarian assistance to civilians in conflict zones such as Gaza and the West Bank, $14.1 billion to support Israel’s war against Hamas, and $60 billion in aid to Ukraine. It is worth noting that about 75 percent of the Ukraine funding would be spent in the United States to refill inventories and purchase new weapons from American manufacturers. However, the House speaker has indicated he will not bring the bill to the floor for a vote until they have satisfactorily readdressed immigration policies affecting the U.S. border.

Tax Relief for American Families and Workers Act of 2024 (HR 7024) – This bipartisan legislation was introduced on Jan. 17 by Rep. Jason Smith (R-MO). The bill includes a variety of tax-related provisions, such as enhancing the low-income housing and child tax credits, as well as offering additional tax incentives to promote economic growth for small and private business owners and entrepreneurs. The bill passed in the House on Jan. 31 and has the potential to pass in the Senate before the April tax filing deadline.

No Dollars to Uyghur Forced Labor (HR 4039) – This bill prohibits two U.S. government agencies from spending funds associated with goods procured via forced labor in the Xinjiang Uyghur Autonomous Region (XUAR) of China. However, if the State Department advises Congress of evidence that no forced labor was used in making particular goods, it may waive the prohibition. The act was introduced by Rep. Nathaniel Moran (R-TX) on June 12, 2023. It passed in the House on Feb. 13 and currently lies with the Senate.

A bill to improve performance and accountability in the Federal Government and for other purposes (S 709) – This bipartisan bill was introduced by Sen. Gary Peters (D-MI) on March 8, 2023. It is designed to improve performance and accountability within the Federal Government by re-evaluating the goals of federal agencies and authorizing a Deputy Performance Improvement Officer in addition to a Performance Improvement Officer. The act passed in the Senate on Feb. 8 and is now under consideration in the House.

Train More Nurses Act (S 2853) – This bill requires the Departments of Labor and Health and Human Services to research and prepare recommendations to make grant programs that support nurses more effectively. Specifically, how to increase pathways for experienced nurses to become teachers at nursing schools, particularly in underserved areas, and how to encourage more licensed practical nurses to become registered nurses. The act, which was introduced by Sen. Jacky Rosen (D-NV) on May 3, 2023, passed by unanimous consent in the Senate on Jan. 24. It is currently under review in the House.

March Financial To-Do List

4 min read

March Financial To-Do ListReady or not, spring is right around the corner, and it’s the perfect time to get in fiscal shape for the rest of the year. However, tax preparation isn’t the only thing to put on your list. Here are a few other must-dos to keep you financially fit.

Purge Your Papers

After you finish your taxes, shred papers you don’t need, like credit card or ATM receipts. Then organize the papers you need to keep, such as car titles, loan paperwork, retirement statements, etc. Store them in a fireproof safe or password-protected file. You’ll also want to deactivate accounts (and apps) you no longer use. When you do this and rid yourself of that extra paper, as well as eliminate related files on your computer, it helps minimize the risk of your personal data being stolen should you or any institutions you’re registered with get hacked. Now, all of these tasks assume you’ve already filed with Uncle Sam and aren’t filing an extension. If you are filing an extension, that’s the next task on your list.

File a Tax Extension

And you’ll probably want to do so with E-File. But know this: an extension of time to file your return does not grant you any extension of time to pay your taxes. You should estimate and pay any owed taxes by your regular deadline to help avoid possible penalties. Finally, you must file your extension request no later than the regular due date of your return. For more info, check out this helpful page.

Evaluate College Aid Offers

If you have a high school senior, March is the time that they learn whether or not they’ve been accepted to colleges. It’s also the prime time to figure out how much money you’ll need for their education. If your child has been lucky enough to have received a financial aid letter, you’ll want to sit down and calculate how much cash you’ll need to supply or borrow. Generally, the universities include info in their letters about federal loans that you qualify for, so you can start that process. However, if you don’t like the offer that’s been extended, you can appeal it. Some schools may increase their offer.

Consider Buying Flood Insurance

April showers are just up ahead, but there are other forces of nature to contend with in spring: hurricanes, mudslides, and melting snow from freak freezes out of nowhere. All of these weather events breed water – and in some cases, too much of it. Check your homeowner’s insurance first to see if these acts of God are covered. If floods aren’t included, then flood insurance is something to look into. Even if you don’t live in a high-risk area, according to the National Flood Insurance Program, 20 percent of claims come from low- to moderate-risk areas. While annual premiums can run around $700 to 800 a year if you live in a low- to moderate-risk area, this could be less. Usually, there’s a 30-day waiting period before the policy kicks in, so it makes sense to buy it before you really need it.

Score on Deep Discounts

Now that winter is a distant memory, retailers are getting rid of cold weather inventory in March. Think winter coats, cozy clothing, and space heaters, for starters. Replacement windows and air purifiers are also priced low. And to get in the mood for spring cleaning, you may find vacuum cleaners on sale. Look for price cuts on (or around) St. Patrick’s Day, too. If you want to find more deals, you don’t need the luck of the Irish – just Google “March markdowns” and dive in.

Getting organized in March sets a great precedent for the rest of the year. Don’t miss this opportunity to get your financial house in order for the coming months.

Sources

https://www.consumerreports.org/financial-planning/march-financial-to-do-list/

https://www.bankrate.com/insurance/homeowners-insurance/cost-of-flood-insurance/#:~:text=The%20average%20U.S.%20homeowner%20may,on%20your%20individual%20rating%20factors.

Contingent Liability Defined

4 min read

Contingent Liability, What is Contingent LiabilityAs the name implies, a contingent liability for a business does not always happen and depends on how the future unfolds. When it comes to a business analyzing a contingent liability, it focuses on the probability of the business realizing it, the time frame within which the liability might occur, and the accuracy of the contingent liability’s estimated amount.  

When to Record and Notify of Contingent Liabilities

Projected contingent liabilities are typically recorded if the contingent liability will materialize and can be reasonably projected with a high level of accuracy. Examples include a company making good on a large-scale product warranty, a business facing a government probe or ongoing litigation, or an organization having to satisfy a guarantee on debt.

When recording contingent liabilities, businesses must adhere to three accounting principles from generally accepted accounting principles (GAAP) and the International Financial Reporting Standards (IFRS):

1. The Full Disclosure Principle

This requires consequential and pertinent financial details and essentials to be documented thoroughly in financial statements. Relevant fiscal circumstances that have a reasonable likelihood to negatively impact a business’s future net profitability, cash flow, and assets highlight the importance of why a company’s solvency is the primary focus of this tenant.   

2. The Materiality Principle

This focuses on the necessity of financial statement disclosure. Preparers of the financial statements must determine if including financial information (or not) on the business’s financial statements would give interested parties substantive information to help them determine whether or not to engage with the company.

3. The Prudence Principle

This last principle focuses on ensuring income and assets are reported accurately, along with requiring liabilities and expenses not to be reported too low. When applying this principle through the lens of contingent liabilities, if there’s more than a 50 percent chance of the event occurring, it and the associated expense are documented. Recording the liability gives a fair reporting of the expenses and obligations.  

Naturally, if there’s a strong likelihood of reducing a business’s ability to sustain profitability, it also can reduce investor interest in buying part (or all) of the company. Similarly, while being transparent by disclosing contingent liabilities, a business might not be able to secure lending if the lender doesn’t have faith that the debt will be repaid according to the loan’s terms.

Contingent liabilities that are expected to occur/settle in the short term are usually more impactful. Conversely, contingent liabilities that are anticipated to be settled over the long term are less impactful because there’s a smaller chance of the event actually materializing.     

Another consideration when it comes to generally accepted accounting principles is that there are three categories of contingent liabilities, which are all based on the probability of it occurring.

  1. If the likelihood of the liability arising is more than 50 percent and the loss can be projected with relative certainty, this is recorded as an expense on the income statement and a liability on the balance sheet. This also can be referred to as a probable contingent liability that can be reasonably estimated (and reflected on financial statements).
  2. If the contingency meets one, but not both, of the criteria of a high probability contingency, the contingent liability is required to be documented in the footnotes of the financial statements. This also can be referenced by stating that the liability is as likely to occur as not.
  3. If a contingent liability does not meet either of the first two conditions, the rest fall into this category. Since the probability of a cost arising due to these liabilities is highly unlikely, and while reporting these in financial statements is not required, companies sometimes do disclose them.

With contingent liabilities being naturally uncertain, these approaches give business’ some level of certainty to evaluate and make reasonable judgment calls to manage internal and external expectations.

U.S. Beneficial Ownership Information Reporting Begins

4 min read

The U.S. Treasury recently enacted a new reporting requirement aimed at quashing illicit financial transactions. The agency believes that corporate anonymity is enabling money laundering, terrorism, and drug trafficking. As part of the 2021 Corporate Transparency Act (CTA), certain companies are now required to report information about their beneficial owners. The goal of the new registration requirements is to create a centralized database of beneficial ownership information.

There has been push-back from some lawmakers and small business organizations, citing this as an erroneous regulatory process that just makes life harder for small businesses. Efforts to carve out exceptions or delay the implementation failed. As a result, the Treasury Department officially opened beneficial ownership information reporting on Jan. 1, 2024.

Who is Subject to Reporting?

Generally, a company may need to report beneficial ownership information if it is a corporation, LLC, or other business entity created by the filing with a U.S. secretary of state or a foreign company registered to do business in the United States. Reporting requirements for trusts and other entity types are more dependent on state law.

At first glance, the rules make it look like all businesses are subject to reporting. There are exemptions, however, including nonprofits, publicly traded companies, and certain large operating companies. The FinCEN’s Compliance Guide provides an exemption qualification checklist.

Reporting Timelines and Requirements

First, you only must file an initial report once. There are no annual reporting requirements. Filing deadlines vary based on when a company was created or registered with the relevant secretary of state.

  • Before Jan. 1, 2024, => Deadline of Jan. 1, 2025
  • Between Jan. 1, 2024, and Jan. 1, 2025, => You have 90 calendar days after receiving notice of the company’s creation or registration to file.
  • On or after Jan. 1, 2025, => Deadline is 30 calendar days from the company’s creation or registration.

While there is no annual filing requirement, filing updates are necessary within 30 days of any changes. Ownership activity subject to change reporting includes registering a new business name, a change in beneficial owners, or a beneficial owner’s name, address, or unique identifying number previously provided.

What Do You Need to Report?

Beneficial ownership reporting must identify the following data.

At the company level, it must report:

  • Company name, both legal and trade (if applicable)
  • Company physical address (no post office boxes)
  • Jurisdiction of formation or registration
  • Taxpayer Identification Number

For each beneficial owner, the following must be reported:

  • Name
  • Date of birth
  • Address
  • Driver’s license, passport, or other acceptable identification

Depending on the situation, there also may be reporting requirements about the company applicant. This is generally a person involved in the creation or registration of the company. The same four pieces of data as for a beneficial owner would need to be provided.

As a general rule, a beneficial owner is someone who controls the company or owns 25 percent or more.

The full definition and all exemptions to whom constitutes a beneficial owner or company applicant can be found here.

No financial information or details about the business operations are required.

How and Where to File

You have the option to file online or via PDF. Filing online can be done through the Beneficial Ownership Information (BOI) E-Filing System on the FinCEN site.

There is no cost to file.

Conclusion and Cautions

While the reporting is simple, the requirements should not be taken lightly. Failure to report could result in civil penalties of up to $500 per day and criminal charges of up to two years imprisonment and a fine of up to $10,000.

The message is this: Don’t wait – and don’t forget to file!