Do Millennials Ever Think about Retirement?

When retirement seems so far away, the common thinking is, “I have plenty of time before I start to save”.  However, suddenly those thirty years fly by and you are ill prepared for that big day.  As a Certified Public Accountant, I can help guide my clients towards that day in which they retire.

It’s never too early; whether you have a six- figure job in Silicon Valley, or you are working at a fast-food restaurant.  According to a handful of financial advisors, that day is more nigh than they may think.  The first thing is to save now.  No amount is too small, just start now.  You can always increase the amount of your contribution at a later time.  It is a good habit to start and try not to miss any contribution to your plan.

There are five things to remember:

  1. It’s never too early to start:  This is an often-repeated recommendation.  Generation X benefitted from this advice just as Boomers did.  Millennials are no exceptions to this advice.  If you wait until you are 30 instead of when you are 25, that means you could have 20% less in savings when the time comes, due to compounding interest and value appreciation.  If you wait until you are 35 you could be missing out on 40%.     
  2. Your challenges get greater:  You’ve probably noticed that five to six-figure college debt you accumulatedIt’s tough to balance retirement savings with paying down student loans and paying for a house.  Other generations did not experience these issues.  You can start with a small contribution to your retirement and increase it 1% per year.
  3. Don’t rely on Social Security:  FinancialPlanners say it is a misnomer that Social Security will not be there for millennials.  It’ll still be there, but not at the generous levels of today.  You can plan on it being there, but don’t use it as a crutch.  If your company has a 401(k), at the very least, save what it takes in order to get the maximum match from your company; otherwise you’re giving away free money.  Index funds, exchange traded funds, and mutual funds are sound investment vehicles.
  4. Get advice from anywhere:  A good starting point might be your parents, who experienced the financial crisis of 2008 – 2009.  This could be a learning experience to help avoid the   related hardships.  You can also get advice from mutual fund companies, stock brokerages and financial advisors, who usually have retirement advice on their websites. 
  5. Visit the tool box: There are countless digital tools on line and retirement calculators.  You should check the website of the financial institution you are using.        

What To Do With That IRS Refund

Tax season has already started, despite the delay of the government shut-down.

If you are like most taxpayers, that anticipated refund is already spent. However, you might want to give serious consideration to some options. The average refund on 2017 returns paid in 2018 was $2,825. Financial advisors are quick to offer suggestions that take into consideration your greatest needs, as well as your financial goals.

How you spend your refunds depend on your priorities, so don’t make the mistake of acting impulsively and foolishly.

  1. Build emergency savings. Most Americans are not prepared to meet an
    emergency. Many Americans don’t even have enough savings to cover a $400 emergency expense, according to the Federal Reserve.
    A goal should be to have at least three to six months of expenses in your rainy day account, in order to be prepared for that emergency.
  2. Reduce debt. I am always amazed to hear how much debt some consumers have. The logical approach is not to buy it if you can’t
    comfortably pay for it. Increasing interest rates can make such a burden grow beyond control. The average rate was 14.14% as of January 9, 2019. You would be much better off with an investment earning that much, instead of paying that much on a credit card bill each month.
  3. Increase your 401(k) contributions. If you are lucky enough to have an employer contribute towards your 401K, you should match that contribution, in order to maximize it. It’s free money in your account.
  4. Add to your IRA contributions. It is a no-brainer to build up your nest egg. A Roth IRA is preferable to a traditional one, if you qualify. Younger taxpayers have the advantage of being able to withdraw from it tax-free, when they are ready to retire.
  5. Start or add to a health savings account (HSA). One of Americans’ biggest fears is running out of money in their old age. You can prevent this by making contributions. A high-deductible insurance plan is required to open an HSA. What are the advantages? It has a triple tax benefit: a deduction for contributions being made, your money grows tax free, and withdrawals made for medical bills are also tax free.
  6. Pay down student loans. With increasing interest rates, student loans are becoming more expensive than government loans. It’s worth it for taxpayers to eliminate the debt, since it prevents workers from saving for their retirement.
  7. Reward yourself. You may feel you deserve to treat yourself. You can use part of your tax refund to purchase a new TV, have a nice family dinner at a fine restaurant, or even splurge on a long awaited vacation. Just remember that it is advised that you shouldn’t spend more than 10% of your tax refund.
  8. Begin saving in a 529 account. The earlier such a plan is started the better. Don’t be the taxpayer who regrets not taking out a savings plan early in your child’s life, for their secondary or college education. While you do not get a deduction for these contributions, your savings grow tax-free and qualified withdrawals are tax-free as well. You can set up one at any financial institution.

Who is Filing Your Tax Returns?

There are several choices when one is deciding upon a tax preparer. We will discuss all of your options and you decide which is best for you.

  1. “Ghost preparers”– These are “tax preparers” who will not sign a return or disclose their social security number in the preparer section. The Internal Revenue is engaged in a major program to register all tax preparers. Those who participate will then pay a fee to the Internal Revenue Service and be assigned a PTIN (Preparer Tax Identification Number). This will ensure that they have met some minimum requirements. The main purpose of this program is to identify and eliminate “ghost preparers” and subject those returns to the increased possibility of being audited.
  2. Tax software such as Turbo Tax, Tax Alert and H & R Block Tax Cut- The purpose of these software programs is to allow taxpayers with “simple returns” to file their own returns. These software programs will indicate “self-prepared” on the “preparer’s signature” line. This will support the limited knowledge of the preparer who could then be more likely to be audited. Those taxpayers filing more complicated returns may find themselves at the mercy of the software, with no idea of the subject matter they are dealing with.
  3. Tax legal services such as “Tax Masters” and Ronnie Deutch have become ubiquitous on the television screen. Websites such as “Ripoff.com” , “Complaintsboard.com” and Pissedconsumers.com are filled with complaints about these services. They are not local providers but merely agents of the principals located in other states. Their exorbitant fees are well known and the questionable nature of their services have been documented on the internet and in an SNL (Saturday Night Live) skit.
  4. H & R Block, Liberty Tax Service and Jackson Hewitt– these are all franchise operations. The franchisee might be an EA (enrolled agent) but the preparers usually have limited experience and knowledge. After April 15th, don’t expect the office that you used to be open. After that deadline these franchises usually have only one regional office open which makes it impossible to meet with the preparer of your return. The fees charged by the franchises are often the same or more than those charged by a Certified Public Accountant.
  5. Certified Public Accountants– They can be classified as “best in field”. They are the preferred source for tax preparation, due to their extensive education and breadth of knowledge. They are licensed by the state they are located in, have PTINS and prepare the most accurate returns for a fair rate. Only Certified Public Accountants are required to complete an extensive CPE (continuing education program). They must complete 40 hours every year in defined areas (accounting & auditing, taxes or management advisory services) or 24 hours of concentrated study in one area. In addition they must complete 4 hours of ethics during every triennial of their current certification period. This insures that they are the most knowledgeable and current in the latest changes in tax laws and regulations.

Beware of services that claim to offer the greatest refund and those that provide RALS (refund anticipation loans). Offices that offer RALS seem to be the source of the most questionable returns and those more likely to be examined by the tax authoriti

Buying or Selling a Business?

When business owners first think about selling their business, they are often offered far less than they expect.  You should first compare the relationship between the receivables and the payables.  The greater the ratio (receivables/payables), the better.  Are there any major liabilities to consider and is the building owned by the seller?

Why do many business owners find out their business is worth less than they thought?   It is important to take care of the intangibles.  For example, they should have a database of its customers.  Programs like QuickBooks include vital information such as customer contacts, customer emails and other vital information in the customer master.  The importance of customer profiles cannot be understated.

The products customers bought, frequency of those purchases and reminders at the time of reordering is information that should be collected for prospects.  Failure to do so could cause large numbers of interested customers to pass through the owner’s hands over the years.  Quotes or callbacks from salesmen should be stored.  Besides being stored, this type of information should be updated.

Buyers of businesses are looking for more than cash, receivables and inventory.  They would be willing to pay a lot more for solid intangibles.  A thorough and accurate customer database would bring even more value to the seller.

Many times, the sellers feel that the completion of the sale is the signal for them to disassociate themselves from their former business.  Without the seller staying for a few years to ensure a successful transition, the value of the acquisition can quickly decline.  A potential buyer of qa small company rarely buys unless they intend to bring the existing management on for some time.  Any buyer would have second thoughts if they knew the seller had plans to leave immediately upon the completion of the sale.  The selling process continues even after the seller no longer is the owner.   They would have to stay for a while.  This would maximize the value of the assets sold.

The owners may have long term relationships with their customers.  Their presence can affect the decision to remain a customer of the buyer.  Otherwise, customers can jump to a competitor without recourse.  The departure of key employees could seriously affect the future success of the buyer.  We can help you take the necessary steps to enhance the value of your business.

10 Requirements to Start a Business

  1. A business plan is imperative.  As a Certified Public Accountant, I am often approached by potential clients asking me to write a business plan for them.  I explain that I can help but certainly cannot do it alone.  A business plan would be a guide to help map out how you will start and run your business successfully.  This would include the management experience of the owner, sales and expense projections and business strategy.
  2. Get training and assistance from the many sources available.  Courses are offered at community colleges, local economic development organizations and the Small Business Administration .  This could include a single session or a series of classes designed to help you succeed.
  3. Plan for the financing of your business.  Some sources could include loans from family and friends and your own personal savings.  Some people are under the false assumption that the government provides financing for those starting a business.  Entrepreneurs should be prepared to assume some of the risk with their own finances.
  4. Determine the proper structure of your business.  You should consider sole proprietorship, corporation, S corporation, partnership or Limited Liability Company (LLC).  Taxes and liability should be part of the decision.
  5. Register a business name (“Doing Business As”) is one type.  Usually the business name has to be registered with the county clerk in the county where the business is located.
  6. Get a tax identification number (EIN).  This is typically obtained online from the Internal Revenue Service.  It is a requirement before a business can establish a bank account.
  7. Register for state and local taxes.  In many cases an application for state taxes (sales and payroll) will automatically register a business for any local taxes.  It is important to remember that after a business registers for state and local taxes, forms must be filed even if there is no activity or zero balance.  Not doing so may result in a penalty.
  8. Obtain permits and business licenses that might be required.  Such information can usually be obtained from the town hall or county clerk’s office where the business is located.
  9. Understand the responsibilities of having employees.  This includes the payment of payroll, payroll taxes and maintaining proper employee records, as well as the steps needed to hire employees.
  10. Obtain the necessary insurance to limit any liabilities/losses.  This includes property, liability, worker’s compensation and disability insurance.  Workers’ compensation and disability are required if you have employees.

Protect Your Business From Fraud

The risk of fraud is greatest in this period of a downturn in the economy when the financial pressure on a business increases.  The current state of the anti-fraud program  must be evaluated to minimize the duration and potential loss.  You should evaluate the current state of the anti-fraud program and the preventive measures as well as the detective measures that are implemented.

According to a report to the National Association of Certified Fraud Examiners, companies lose an average of 7 percent of revenues through fraud.  This is hard to measure when you consider the intangible such as brand name, loss of reputation and a deteriorating employee morale.  Despite the many efforts a company takes to detect fraud, over 60 percent are identified by accident or by a tip.  It is extremely difficult to identify the fraudster since more incidents are committed by longer term employees with no history of committing such acts in the past.