Tax day might seem far away, but waiting until year-end to
make your tax moves may prove costly to you. Maximizing your tax savings starts
with an effective mid-year strategy! Detailed here are some ideas to kick-start
your summer tax planning. This issue also includes some unique and free summer
travel destinations, an infographic with key IRS audit information, and five
steps to help your business set the right salaries for your employees.
Call if you would like to discuss how this information
relates to you. If you know someone who can benefit from this newsletter, feel
free to send it to them.
Effective Tax Planning Starts Now!
With summertime activities in full swing, tax planning is
probably not on the top of your to-do list. But putting it off creates a
problem at the end of the year when there’s little time for changes to take
effect. If you take the time to plan now, you’ll have six months for your
actions to make a difference on your 2019 tax return. Here are some ideas to
get you started.
- Know
your upcoming tax breaks.
Pull out your 2018 tax return and take a
look at your income, deductions and credits. Ask yourself whether all
these breaks will be available again this year. For example:Any changes to
your tax situation will make planning now much more important.
- Are
you expecting more income that will bump you to a higher tax rate?
- Will
increased income cause a benefit to phase out?
- Will
any of your children outgrow a tax credit?
- Make
tax-wise investment decisions.
Have some loser stocks you were hoping
would rebound? If the prospects for revival aren’t great, and you’ve owned
them for less than one year (short-term), selling them now before they
change to long-term stocks can offset up to $3,000 in ordinary income this
year. Conversely, appreciated stocks held longer than one year may be
candidates for potential charitable contributions or possible choices to
optimize your taxes with proper planning.
- Adjust
your retirement plan contributions.
Are you still making contributions
based on last year’s limits? Maximum savings amounts increase for
retirement plans in 2019. You can contribute up to $13,000 to a SIMPLE
IRA, up to $19,000 to a 401(k) and up to $6,000 to a traditional or Roth
IRA. Remember to add catch-up contributions if you’ll be 50 by the end of
December!
- Plan
for upcoming college expenses.
With the school year around the corner,
understanding the various tax breaks for college expenses before you start
doling out your cash for post-secondary education will ensure the maximum
tax savings. There are two tax credits available, the American Opportunity
Tax Credit (AOTC) and the Lifetime Learning Credit. Plus there are tax
benefits for student loan interest and Coverdell Savings accounts. Add 529
college savings plans, and you quickly realize an educational tax strategy
is best established early in the year.
- Add
some business to your summer vacation.
If you own a business, you
might be able to deduct some of your travel expenses as a business
expense. To qualify, the primary reason for your trip must be
business-related. Keep detailed records of where and when you work, plus
get receipts for all ordinary and necessary expenses!
Great tax planning is a year-round process, but it’s
especially effective at midyear. Making time now not only helps reduce your
taxes, it puts you in control of your entire financial situation.
Can’t Miss Stops for Your Summer Road Trip
School is out, the weather is warm, and it’s time to head
out on a summer road trip! Tired of the same old locations? Every state has a
number of unique destinations for the every day explorer. Here are some free
ideas for the creative vacation seeker in all of us:
- The
World’s Largest Yard Sale.
Stretching 690 miles through six states,
the World’s Largest Yard sale includes over 2,000 vendors. Every year at
the beginning of August, you can drive for four days (from Addison,
Michigan to Gadsden, Alabama) in search of second-hand treasures. Along
the route are more than 35 major vendor stops. These stops include groups
of at least 25 sellers clustered together. But you can also find sales in
individual yards, garages, parking lots or even right on the side of the
road.
- The
Wave Organ.
Located in San Francisco, California, the Wave Organ is a
sprawling sculpture that incorporates multiple pipes that enter the ocean
at different levels to create musical tones when they’re struck by the
waves. The sculpture itself is made of granite and marble from an old
cemetery. When planning a visit, shoot to be there during high tide when
the organ is at its best.
- Miss
Crustacean Hermit Crab Beauty Pageant.
Do you have a hermit crab that
really likes to flaunt its shell? Then Ocean City, New Jersey is the place
for you! Every August, contestants vie for the Coveted Cucumber Rind Cup
by showcasing their elaborately decorated hermit crabs. Registering your
charming hermit crab is free – just make sure you get there early.
- Carhenge.
If you don’t have time to travel across the ocean to see Stonehenge,
you’re in luck! Head to Alliance, Nebraska to visit Carhenge instead.
Built in 1987 as a replica of the iconic stone circle in England, Carhenge
uses vintage cars as building blocks instead of the 25-ton stones used in
the original. It’s located in the middle of farmland and includes a
walking path with some other, let’s just say, interesting sculptures.
- The
Austin bats.
Hidden under the Congress Avenue Bridge in Austin, Texas
from late March until early fall lives the largest urban colony of Mexican
free-tailed bats in the world. At its peak, (sometime in August) the
colony has as many as 1.5 million bats! Every night around sunset,
onlookers pack the bridge, sidewalks and river below to experience the
colony taking flight in search of insects. If you decide to watch from the
water, you might want to bring an umbrella – unprepared spectators are
known to be hit with guano (AKA bat poop)!
Hitting the road is a great way to spend some time with
loved ones this summer. Adding quirky stops that will be remembered for a
lifetime make it even better!
What You Need To Know About IRS Audits
The IRS recently released its 2018 Data Book, including
information on its audit activities for the last fiscal year. This details what
you need to know regarding your audit risk, how to prepare for and what to
expect in an IRS audit.
- An IRS
audit is a review to ensure your tax filings are reported correctly
according to tax laws.
- Both
individual and business tax returns can be audited.
- The
IRS won’t initiate an audit by telephone.
What are your chances of being audited?
It depends. But for most taxpayers, LOW.
Approximately 1 in 198 tax returns were audited in 2018.
The IRS audited 0.6% of all individual income tax returns
filed in 2018, and 0.91% of corporation tax returns (excluding S corporations)
There are two types of audits:
- Field
audit: An in-person interview and review of records. It often happens at
taxpayer’s home, business or accountant’s office.
- Correspondence
audit: A written request for more info about a specific tax return item or
issue handled via mail.
Did you know? Approximately 2/3 of audits are handled
through the mail.
Reasons you may be audited
Although the IRS uses random selection as one method to
choose tax returns to audit, it may also flag returns because:
- You’re
in a higher income tax bracket.
- You
have math errors on your tax return.
- You
report no income or not all of your income.
- Your
tax return involves issues with other taxpayers whose returns are being
audited.
Other reasons: reporting too many losses, deducting too many
work expenses and claiming too many charitable contributions may also trigger
an audit.
Use your past tax return as a checklist of items to keep on
hand:
- A copy
of your signed tax return and all supporting documents
- Worksheets
that support your return
- Forms
W-2
- Forms
1099 (all versions)
- Forms
1095
- Business
Forms K-1
- Canceled
checks of deducted items
- Receipts
supporting deducted items
- Itemized
deduction support
- Child
care receipts and reporting documents
- Bank
statements
- Investment
statements
- Mortgage
statements
- Credit
card statements
- Major
purchases or sales
- Receipts
for any charitable donations
- Proof
of fair market value for any inherited items
- Mileage
logs for business, charitable and medical transportation
- Business
meals and cellphone use documentation
- Educational
expenses
FYI: Always use copies of records during an audit. Keep your
original documents.
More ways to prepare: Check IRS.gov to review its Audit
Techniques Guides (ATGs). They are used by IRS examiners and can identify areas
for potential audits, as well as help you understand what the IRS may question.
What to do if you’re audited
Your tax return may never be audited. But if it happens,
here are a few tips to make the process go more smoothly:
- Respond
to the IRS in a timely manner. If you don’t, an in-person meeting may
happen.
- Ask
for help. NEVER tackle the IRS alone!
- Know
what is being asked. Get a clear understanding of the core questions.
- Understand
how the auditor has been trained. IRS auditors are trained in certain
areas. These are published in the ATGs.
The bright side: If you are audited, you may end up with a
refund. In FY 2018, approximately 30,000 audits resulted in refunds, totaling
$6 million.
Sources: IRS.gov, Kiplinger.com, Forbes.com,
Nerdwallet.com
Make Setting Salaries Easier With These 5 Steps
Whether you are hiring for the first time, filling an open
position, or conducting annual performance reviews, finding a salary range that
attracts and retains valued employees can be a difficult task. Here are some
suggestions to help make the process a bit easier for you and your company:
- Know
what your business can afford.
Like any business expense, you need to
know how it will affect your budget and cash flow. Make a twelve-month
profitability and cash forecast and then plug in the high end of the annual
salary range you are considering to see if it’s something your business
can absorb. After all, the greatest employee in the world can’t help you
if you don’t have the money to pay them. Don’t forget to account for
increases in benefit costs, especially the escalating cost to provide
healthcare. Once you establish a budget, you can allocate your spending
plan to your payroll.
- Understand
the laws.
In general, the federal government sets the minimum
requirements (minimum wage of $7.25 per hour, overtime rules and record
keeping requirements). States and localities often add their own set of
rules. For example, the state of Illinois, Cook County and the city of
Chicago all have different minimum wage requirements. If you are located
in Chicago you need to adhere to the highest rate. So research all payroll
rules that apply to your location at the beginning of the process. When
reviewing the rules, don’t forget that different rules often apply
depending on the number of employees in your business.
- Review
and update job descriptions.
Take some time to review key jobs and
update them as appropriate. With new positions, note the exact tasks and
responsibilities you envision for the role. Then, think about the type of
person that will succeed performing these responsibilities. Once you have
a clear picture of who you are looking for, you can begin to build a
detailed job description and narrow in on a specific salary range.
- Establish
value ranges and apply them.
Value is key when determining the perfect
salary amount. Define the range of value for the position and then apply
that valuation to the current person’s performance within the defined pay
range. Use websites and recruiters to establish the correct range of pay,
then apply experience and employee performance to obtain a potential new
salary amount. Remember, size of company, location and competitiveness of
the job market are all factors to consider.
- Factor
in company benefits.
A strong suite of employee benefits is a powerful
tool to couple with a competitive salary. Don’t be afraid to communicate
their value to prospective and current employees (they help with
retention, too!). According to Glassdoor, health and dental insurance are
the most important, but flexibility is close behind – over 80 percent of
job seekers take flexible hours, vacation time and work-from-home options
into consideration before accepting a position.
Finding the right salary can be tricky, but with some
preparation and research, you can find the balance that satisfies the needs of
your business and your employees.
How To Protect Your Social Security Number
Very few things in life can create a higher degree of stress
than having your Social Security Number (SSN) stolen. This is because, unlike
other forms of ID, your SSN is virtually permanent. While most instances of SSN
theft are outside your control, there are some things that you can do to
minimize the risk of this ever happening to you.
- Never
carry your card.
Place your SSN card in a safe place. That place is
never your wallet or purse. Only take the card with you when you need it.
- Know
who needs it.
As identity theft continues to evolve, there are fewer
who really need to know your SSN. Here is that list:
- The
government.
The federal and state governments use this number to keep
track of your earnings for retirement benefits and to ensure you pay
proper taxes.
- Your
employer.
The SSN is used to keep track of your wages and
withholdings. It also is used to prove citizenship and to contribute to
your Social Security and Medicare accounts.
- Certain
financial institutions.
Your SSN is used by various financial
institutions to prove citizenship, open bank accounts, provide loans,
establish other forms of credit, report your credit history or confirm
your identity. In no case should you be required to confirm more than the
last four digits of your number.
- Challenge
all other requests.
Many other vendors may ask for your SSN but having
it may not be essential. The most common requests come from health care
providers and insurance companies, but requests can also come from
subscription services when setting up a new account. When asked on a form
for your number, leave it blank. If your supplier really needs it, they
will ask you for it. This allows you to challenge their request.
- Destroy
and distort documents.
Shred any documents that have your number
listed. When providing copies of your tax return to anyone, distort or
cover your SSN. Remember, your number is printed on the top of each page
of Form 1040. If the government requests your SSN on a check payment, only
place the last four digits on the check, and replace the first five digits
with Xs.
- Keep
your scammer alert on high.
Never give out any part of the number over
the phone or via email. Do not even confirm your SSN to someone who
happens to read it back to you on the phone. If this happens to you, file
a police report and report the theft to the IRS and Federal Trade
Commission.
- Proactively
check for use.
Periodically check your credit reports for potential
use of your SSN. If suspicious activity is found, have the credit agencies
place a fraud alert on your account. Remember, everyone is entitled to a
free credit report once a year. You can obtain yours on the Annual Credit Report website.
Replacing a stolen SSN is not only hard to do, it can create
many problems. Your best defense is to stop the theft before it happens.
Basic Customer Retention Questions You Need to Answer
Your business’s ability to retain customers is one of the
most important components to sustain growth and profitability. Here are the
three retention questions every business owner should be able to answer:
- What
percentage of your customers return each year?
The first step to
understanding retention is to know your customer retention rate. First,
take your total customers from the end of a period and subtract the total
customers you added during the period. Then, take that number and divide
it by the total customers from the start of the same period. The result is
your retention rate for that period. That rate by itself doesn’t tell you
much, so you need to compare it to the same time period last month and for
prior years. A rising rate means you are on the right track; a shrinking
rate means you need to make changes. According to the Harvard Business
Review, a 5 percent increase in your retention rate increases profits by
25-95 percent! Example:
Cut’em Nail Salon starts the year
with 700 active clients. They add 300 new customers during the year, and
their active client base is 800 at the end of the year. On the surface
things look good, right? This increase of 100 clients is over 14 percent!
But when you calculate the retention rate, it is 71.4 percent (800 clients
minus 300 new clients means 500 of last year’s clients still use Cut’em.
500 divided by 700 equals 71.4 percent). But Cut’em doesn’t know if this
is good or bad news, as it only makes sense when comparing it to the last
few years’ retention performance.
- What
percentage of your revenue comes from returning clients?
Core
customers almost always contribute the most to your profitability. But how
much? To figure out your returning customer revenue percentage, start with
a list of revenue by customer for the last 12 months. Identify the
returning customers and add up revenue attributed to them. Divide that
number by your total revenue. Use this information to balance your
spending between new customer acquisition and retaining your core
customers. If you are like most businesses, you will realize there is
tremendous value in spending more time and effort on retention, even when
your business is full! Part 2 Cut’em Nail Salon Example:
Assume the nail salon’s total revenue is $1 million and the revenue from
the 500 returning clients is $900,000. In this case, the core customers
represent 90 percent of the revenue but only 62.5 percent (500 divided by
800) of the customers!
- Do
you know who your most valuable customers are?
Now identify which
customers spend the most and buy the most often. Odds are, many of your
top customers have similar characteristics. In the end, your goal should
be to keep these customers happy and get more just like them! Part 3
Cut’em Nail Salon Example:
In the example above, the average
revenue per client is $1,250 per client or over $100 per month ($1 million
divided by 800 clients). If the top 20 clients represent $100,000 in
revenue or $5,000 per client, you can quickly see how important they are!
Don’t make the mistake of assuming business success comes
from constantly adding new customers. Most sustained growth and profitability
comes from first understanding marketing activities targeted to keep your
current customers. The best place to start is to calculate and understand your
base retention numbers.
As always, should you have any questions or concerns
regarding your tax situation please feel free to call.
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