Will the Inflation Reduction Act Affect Your Small Business?:
This Act could increase the operating costs for your small to midsize business. According to Kiplinger, there are two main ways in which this could occur. One way in which operating costs could rise is by the increased chance of being audited. The IRS budget is increasing by $80 billion; the Commissioner of the IRS has assured the senate that this funding is “not about increasing audit scrutiny on small businesses,” however, there is still certainly a possibility of more audits occurring given the increase in auditing technology and IRS personal sifting through returns. Secondly, as tax-breaks/incentives revolve around green energy, most small-businesses do not have the infrastructure to make the switch to “going green.” The cost of fuel and electricity is likely to continue gradually increasing with minimal relief for those that rely on it for power.
There are steps you can take to combat the increased operating costs. The first way is a good rule to run your business even without high operating costs and that is just to assume you will be audited. If there is something on a previous return or in the bookkeeping records that may be cause for penalty, it is best to get ahead of it and make it right. Additionally, moving forward, increasing your record keeping and organization of those records so that you can prove your expenses (via receipt, etc.) and provide them in a timely manner. Simply recording your expenses is often not enough, you need proof of those expenses. Unfortunately, it doesn’t appear the cost of energy, fuel, etc. will be going down any time soon. To keep your business solvent, you must strategically adjust the cost of your services or products so that your customers absorb that cost. It is never easy to increase the price of your services to your loyal customer base, it can feel like a betrayal, but it is necessary to keep up with your operating costs.
There is still time to make strategic moves and reduce your tax liability:
Kiplinger recently came out with an article regarding tax tips of actions that can be taken before the end of the year to reduce your tax liability. Following some of these tips that make sense for your situation could have a favorable affect on how much you may have to pay in April. One of the best ways to plan for taxes is to stay up to date on your withholding. The IRS as an estimating tool ( Tax Withholding Estimator – About You | Internal Revenue Service (irs.gov) ) to determine whether or not you should file a new form W-4. Paying certain bills such as medical expenses, tuition and property taxes can also have an impact on lowering your tax liability. Maxing out your employer’s retirement saving plan if they offer one can be a great way to save on taxes while planning for the future at the same time. If you have been considering increasing your charitable giving / donating items, now is a great time to do it. Ensure you get an appraisal for items of significant value (more than $5,000 USD) before donating. These few tips are a great way to help you save this coming tax season.
How to create an exit plan away from your business and into retirement:
Leaving a business to enter the wonderful world of retirement can be a cause of great anxiety for some. Many business owners have great emotional ties to their business. They feel as though no one will care for the business as much as they do or work as hard to ensure the business is successful. Unfortunately, this mentality creates a trap that does not allow individuals to move into retirement. Kiplinger has three tips to aid in the transition into retirement. The first being to set a timeline well in advance of your retirement. Individuals often think about retirement but don’t start planning until it is far to late to create a good strategy. If you plan on retiring at or around the age of 65, beginning that planning in your 50’s is strongly encouraged. The second tip is to decide who is going to purchase the business. Finding an individual or business that shares the same value system and has a similar vision is important to ensure the business will continue to be run how you would want it long after you have moved on. Finally, determining how you want the transaction to be carried out is important. Some individuals will want the business to be purchased in one lump sum so that they can be done with the process, other will have a financed option where payments will be made over time. There are other strategic options that take considerable planning but also offer tax breaks. Finding the plan that works best for you is important before the transaction is carried out.
Building wealth is difficult, keeping it can be just as challenging:
Many of us spend our working life strategically putting money away with the plan to create a comfortable retirement. Planning how to spend that money in retirement to keep your wealth is just as important as the process of building it. The biggest concern for most individuals put bluntly is running out of money before they pass away, with the recent market corrections that have been occurring, those concerns have been multiplied. A well-made plan can help alleviate some of these concerns and allow retirement to be less stressful. The plan should boil down to what you intend to spend your money on and how you intend to provide the money for spending. The what, for most individuals include travel, donations, leaving an inheritance for children/grandchildren and in some cases buying an a second home. The how, is often through social security benefits as well as retirement funds and investments. A recent Kiplinger article discusses how creating a plan that can be revisited often is crucial for keeping wealth throughout retirement.
You can use inflation to your advantage and potentially receive tax breaks:
Hearing about inflation has become a point of exhaustion, it is nearly impossible to hide from the subject between being reminded of it on our grocery store receipts and seeing it on every news headline. This is not without reason, per the U.S. Bureau of Labor Statistics, (WWW.BLS.gov) inflation is the highest it has been in over 40 years. Many individuals have been forced to start spending strategically as this financial hardship has been interjected into all areas of our purchases. There is, however, a small shimmer of hope. Federal income taxes do not reflect the same harsh result inflation has on our spending, in fact, it has the opposite effect. With proper tax planning, you can maximize the adjustments made to the tax code to offset the current inflation rate. Between changes made to the tax brackets, standard deductions, and 401k/IRA contribution limits, there are a few ways you can help yourself for the upcoming tax season.
Is your personal inflation rate different from the national average? :
Regardless of how consumers are choosing to spend their money, inflation has affected almost every arena of expenditures. According to Kiplinger, the current inflation rate is riding around 9%, a daunting number to look at when trying to budget, however, for some it may be more, or less. For example, individuals who need to drive frequently or drive a vehicle that consumes gas at a high rate have felt the 48.7% increase in gasoline prices significantly more than those that are able to reduce their driving needs. Those in the market for a new vehicle will face a 12.6% increase and for a used vehicle, a 16.1% increase. The housing market has been on a steady increase for some time now, but the current increase is right around 20%, a massive number for someone seeking to buy a new home. Some purchases are unavoidable, food, transportation and a roof over one’s head are necessary, being strategic on purchases that are able to be delayed such as buying a new car or home can greatly reduce the impact inflation has on you. Looking up inflation rates at the U.S. Bureau of Labor Statistics (WWW.BLS.gov) can help guide when a good time to purchase some of the larger items or luxury items in our life.
USA Today Top 6 Ways to Lose Clients:
In a recent issue of USA Today, the problem of losing clients is discussed. They lay out the top 6 ways to lose customers.
- The first is, taking them for granted. It is important to remember that you need your customers more than they need you. Each customer should be treated with the utmost importance, your success likely depends on it.
- The second point is selling shoddy work or products. No matter what product or service it is, people assume they will get value for their dollar. Treat every transaction as if you were on the receiving end.
- Ignoring customer feedback is another surefire way to lose business. The mentality that “the customer is always right” may be a bit of a stretch, however, each customer should be listened to especially in the days of yelp, etc. where bad reviews can reach anyone with internet access instantly.
- Guaranteeing your work is important. Although it is difficult for some companies to have a return policy or fix something that was not done well enough the first time, it is crucial for customer satisfaction. There are enough services out there that do guarantee their work, to compete, you need to as well.
- Next, when a customer feels ignored, they will either seek another service or, at a minimum, not be a repeat customer. Responding to voicemails, emails, etc. is time-consuming and can feel unproductive, but quick responses lead to happy customers and more business.
- Similar to ignoring customer feedback, insisting on being right can lose a customer very quickly. Remember, serving someone will always go farther than selling something to someone. Customers value your product or service, give them the respect of valuing their opinion.
Expenses That Increase After Retirement
Retirement is an exciting time for most individuals, planning for it, however, can prove to be a challenging process. Determining how much money one needs to put away to retire comfortably is difficult, especially when certain costs are often not taken into account. In a recent Kiplinger article, they point out a few expenses that are likely to increase after retirement. There are a few obvious ones, such as travel, relocating, financial planning, and healthcare. Some expenses that typically increase may come as a surprise to retirees. Being home more leads to an increase in utility costs. Many individuals join fitness clubs or purchase equipment to stay fit and active. Individuals who retire typically start or increase the amount of charitable giving they do. Reading is something that many folks partake in during retirement, the average household spends almost 200 dollars on books a year in retirement according to the Bureau of Labor Statistics. Though these costs may be small, they do add up and affect the amount of money you need to be considering when planning for retirement.
Is Buying Bonds the Right Decision For You?
Diversifying one’s financial portfolio is always a good option. Participating wisely in stock investments is often a good way to generate high yield interest, because of this, it eclipses the thought of other options. Bonds, for several folks, are also a good option to diversify their portfolio. Kiplinger recommends the following tips for those who choose to utilize bonds. Build a core bond position with bond index funds or EFTs, add active management where it makes sense, consider buying from the private market, and use an annuity for a portion of the bonds. Depending on your situation and goals, different types of bonds will make the most sense for you and help you to achieve your financial goals sooner.
Five Tax Breaks You Should Be Taking Advantage Of
Each tax year, it is typically the goal of most individuals to pay as little taxes as possible. There are a few strategic ways to pay yourself before income is taxed. According to Kiplinger, there are a few things you can do that will achieve this goal. The first is to make retirement plan contributions, you will be saving on your taxes in the short term while simultaneously building wealth for the future. Second, putting money into a health savings account (HSA) or a flexible saving account (FSA) depending on what is offered employer/insurance can give you money to spend that was put away before being taxed. Similar to this, would be to put money into a dependent care FSA which could be utilized for daycare, summer camp, etc. Finally, another good opportunity to save on taxes would be to purchase life insurance through your employer if they offer it. Many organizations allow an individual to pay for life insurance via pre-tax contributions.
What can you do right now to cut down on gas expenses?
It is no secret that gas prices are becoming a force to be reckoned with. Many folks in these times consolidate trips to conserve gas, however, there are a few more steps one can take to decrease gas consumption. According to Kiplinger, removing unnecessary cargo from the trunk can save on gas by reducing the weight of your vehicle. On this note, removal of bike/kayak racks when not in use will eliminate drag and increase your miles per gallon. As we move away from the cold months, there is less of a reason to allow your car to idle, especially for an extended period. Allowing your vehicle to run while not in use burns a surprising amount of gas. Ensure your tires are filled to the optimal pressure, although many cars come with a pressure monitoring system, it is a good idea to check on your own as the monitoring system only lets you know when it is too low, not necessarily when it isn’t optimal. Finally, there are a few available apps that will help you find the cheapest gas around, these apps may also be used to find the “best” quality gas to improve the longevity of your vehicle.
Many changes are being made for the tax year 2022, how should you prepare?
While gathering your documents and collecting your thoughts to process your 2021 taxes, you could also be considering the changes in the tax code that will affect the year 2022 and how you should plan. According to Kiplinger, things such as child tax credits, earned income tax credits, tax brackets, standard deductions and more are changing. Planning for these changes as early as possible will help to lessen the impact they may have on your bottom line.
When is the last day to file your 2021 tax return?
According to Kiplinger.com, the due date for filing your 2021 Federal income tax return is April 18th (except for Maine and Massachusetts which is April 19th). However, some individuals will have extra time depending on the circumstance. Additionally, if you are not able to file in time, an individual can file a Form 4868 and get a six-month extension, putting the due date to October 18th. This does not extend the period to pay your taxes, so, if you end up owing and file an extension, you will likely be penalized.
Your Business Should Not Be Your Retirement Plan
Many individuals have most of their net worth tied up in their business with the intent of growing and maximizing profits. Ultimately, the hope is to sell to an eager buyer looking to take over the business when it comes time to retire. Unfortunately, even for the most profitable of businesses, roughly 80% do not sell. This leaves the individuals faced with the dilemma of liquidating what they can of the business or continuing to work throughout their retirement years. Investing into assets outside of your business is crucial for a well-diversified portfolio. The growth of a business is important, but managing personal finances aside from a business will lead to a much smoother transition into retirement.
CD’s versus Fixed-Rate Annuities
The top five CDs are currently earning approximately 1.30% annually whereas you can earn up to 3.15% annually on a five-year fixed annuity. Additionally, annuities offer tax advantages that CDs do not.
High Yield Savings Suggestion
Currently, US Savings Bonds Series I is paying 3.54% annually. You can purchase savings bonds at home.treasury.gov
The IRS recently published the inflation adjustments for many tax-related figures for tax year 2023. These changes include:
Standard Deduction: The 2023 standard deduction for married taxpayers filing jointly will be $27,700, an increase of …
The IRS recently issued a warning about a dramatic increase in the number of tax-related texting scams (also called “smishing”) occurring across the U.S. The scammers typically send a text message that appears to be …
Employees Who Work for Tips – If you received $20 or more in tips during October, you must report them to your employer (employees are required to keep a daily record of tips). All tips …