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Wednesday, 06 December 2017 00:00

Client Bulletin Select Dec 2017

What’s Inside

Pros and Cons of Asset Management Fees
Win With a Roth IRA Reversal
Year-End Thank You Gifts From Business Owners
Tax Calendar

 

Factoid : Pet Purchases

Pet industry spending in the United States during 2016 set a record high at $66.75 billion, led by food ($28.23 billion), veterinary care ($15.95 billion), and supplies and over-the-counter medicine ($14.71 billion).

Did You Know ?

Individual standalone long-term care insurance sales declined nearly 60% from 2012 to 2016. Premiums fell from $550 million to $228 million. During that period, new premiums for life and long-term care insurance combination policies increased from $2.4 billion to $3.6 billion.

 

Source: LIMRA

 

Article: Pros and Cons of Asset Management Fees 

 

A transition is underway within investment firms. Increasingly, the people you hire to manage your money don’t refer to themselves as brokers or stockbrokers. Instead, they’re now financial advisers, financial planners, or financial consultants.

 

The titles may not be important, but the method of compensation can be crucial. Traditionally, brokers were paid by commissions. When you bought or sold stocks or certain mutual funds, you paid money to the broker. That’s still true for some investment professionals.

 

However, many financial advisers are reducing or eliminating commission income in favor of fees; therefore, the money you pay these advisers does not depend on the trading you do. Various types of fees may apply, but an “assets under management (AUM)” approach is probably the most common.

 

With AUM, you pay a fee to the adviser that’s based on your portfolio value.

 

Example 1: Nora Collins has a $500,000 portfolio that’s managed by a financial adviser. The adviser has a 1% AUM fee. Thus, Nora pays $5,000 (1% of $500,000) a year to the adviser. If her portfolio increases to $550,000, Nora’s annualized fee would increase to $5,500; if her portfolio drops to $450,000, the fee would be $4,500, and so on. (Many advisers reduce AUM percentages as portfolio size increases.)

 

Common interest

 

Advisers who favor the AUM method may contrast it with the traditional way of paying commissions on trades. Some brokers have been charged with “churning” clients’ accounts—trading heavily to boost their income, even if there was no good reason to do so. With AUM, churning isn’t an issue; Nora will pay the 1% fee no matter how many or how few trades are made.

 

Instead, AUM supporters assert they are on “the same side of the table” as investors. The better these advisers perform, the more money clients will have and the more fees advisers can collect. Investment losses, on the other hand, will decrease AUM fees. So, advisers charging this way have ample incentive to perform well.

 

After all, if Nora sees her account grow by $50,000, she probably won’t mind paying an extra $500 to her adviser, will she?

 

Getting your money’s worth

 

Those reasons have merit, but there are possible drawbacks to paying AUM to an adviser. For instance, the amounts involved may not be inconsequential. Nora might be paying $4,000–$6,000 a year to her adviser, depending on investment results. 

 

Will Nora be getting value for her money with a truly personalized investment plan? Will her adviser help her reduce the tax impact on her investment activity? Will he or she advise her on which investments go inside her 401(k) plan and which go into taxable accounts? Ultimately, it’s up to Nora and other clients paying advisers by AUM to decide if the investment advice they’re receiving, perhaps supplemented by other financial planning, is worth the money they pay every year.

 

In addition, some investors may not have easy access to advisers who charge AUM fees.

 

Example 2: Mark Lane invests largely in real estate and has relatively little in stocks, bonds, or mutual funds. Advisers who work on an AUM basis may have a minimum portfolio size for clients, so Mark won’t qualify. 

 

The same is true for Mark’s sister, Kathy, who runs a small business and puts most of her spare cash back into the company. However, Mark and Kathy both have some investment assets that could benefit from astute advice, as well as a substantial need for personal financial guidance.

 

Other options

 

Besides AUM, what alternatives do you have for investment management? You can do it yourself, if you have the time and inclination, by choosing no-load mutual funds and perhaps paying discount brokerage commissions for selected securities transactions. Another possibility is to work with an adviser who still charges commissions, if the total of those commissions is less than an AUM fee.

 

Some financial advisers work on a retainer basis for clients such as Mark and Kathy, who have significant net worth but relatively little in the way of liquid assets to manage. The retainer typically is based on the adviser’s estimate of the time necessary for financial planning. The retainer might be high for a new client, reflecting considerable planning, but then drop in subsequent years until an event such as a business sale requires more effort again. 

 

Hourly fees and flat fees for an upfront financial plan also may be among possible modes of compensation for financial advice. Some advisers will offer a combination of compensation arrangements to suit a client’s needs. For investors, the key is to get complete disclosure of an adviser’s compensation method and periodically confirm that you’re getting value for the amount you pay.

 

Download Full Article

 

 

 

 

Factoid[Office1] : Pet Purchases

 

Pet industry spending in the United States during 2016 set a record high at $66.75 billion, led by food ($28.23 billion), veterinary care ($15.95 billion), and supplies and over-the-counter medicine ($14.71 billion).

 

Did You Know[Office2] ?

 

Individual standalone long-term care insurance sales declined nearly 60% from 2012 to 2016. Premiums fell from $550 million to $228 million. During that period, new premiums for life and long-term care insurance combination policies increased from $2.4 billion to $3.6 billion.


 [Office1]Email

Include a Factoid section in your next client email, then copy and paste this item.

 

Image tip: Include a photo of a domesticated animal in your posts.

 

Twitter

#Factoid: In 2016, the #Pet industry outspent the food industry by 136% in $Billions. That’s a lot of kibble! #Pets #Trivia

 

Facebook/LinkedIn/GooglePlus

Factoid:  That’s a lot of kibble.

In 2016, the pet industry spending in the United States set a record high at $66.75 billion. That’s 136 percent higher than the next industry—food. [link to newsletter] #Factoid #Trivia #Pets

 [Office2]Email

Include a “Did You Know” section in your monthly email and include this tip.

 

Image tip: Consider a graph with a declining arrow.

 

Twitter

Individual, standalone LTC #insurance decreased 60% since 2012. But new premiums …  [link to newsletter] #DidYouKnow #Business

 

Facebook/LinkedIn/GooglePlus

Long-Term Care Insurance Declined—New Premiums Increase

Did you know? Individual standalone, long-term care insurance sales declined nearly 60% from 2012 to 2016. Premiums fell from $550 million to $228 million. During that period, new premiums for life and long-term care insurance combination policies increased from $2.4 billion to $3.6 billion. [link to newsletter] #DidYouKnow #Insurance #Business 

Tuesday, 14 November 2017 00:00

CPA Client Bulletin Select Nov 2017

CPA Client Bulletin Select


November 2017

What’s Inside

Uncertainty Hampers Year-End Tax Planning
Year-End Planning for Investors
Year-End Retirement Tax Planning
Year-End Tax Planning for Charitable Donations
Year-End Business Tax Planning
Tax Calendar

 

Factoid : Shrinking Share

Union membership in the United States peaked in 1954 at nearly 35% of all U.S. wage and salary workers, but that number is now around 11%.

 

Did You Know?

Baby boomers are delaying retirement. In the first quarter of 2017, the 55 and older age group had 4.8% job growth, more than any other age group. Key implications are that many older boomers still need to work, and there is strong demand for these workers and their skills.

 

Source: Automatic Data Processing

 

Article : Uncertainty Hampers Year-End Tax Planning

As of this writing, year-end tax planning is clouded by questions about federal legislation. President Trump and many of the Republicans in Congress favor changes that would affect the tax code. Currently, the success they’ll have in their efforts is difficult to predict.

One undecided issue is the future of the Affordable Care Act (known as Obamacare), which might be retained, replaced, or repealed. Although this act addresses health insurance, it includes several provisions relating to taxes. For instance, it includes a 3.8% surtax on net investment income reported by certain high-income taxpayers—this surtax could be abolished.

In addition, President Trump urged far-reaching changes to the Internal Revenue Code. Full details of this plan have yet to be revealed but could include lower tax rates for individuals and businesses. As an offset, some itemized deductions, including those for medical expenses, as well as state and local taxes, could be eliminated.

 

Be prepared

 

How can you plan for tax savings at year-end in this environment? One vital step is to arrange for a tax planning meeting in late 2017. By November or December, we may know more about changes to the tax code and the effective dates.

For now, a basic strategy might be to delay certain income-generating events until 2018 and to accelerate deductions into 2017, when practical. 

Example: Marge Wilson is planning a sale of income-producing property, which she expects to produce a substantial long-term capital gain. Marge anticipates that such a gain would be taxed at a 20% rate, as well as the 3.8% surtax on net investment income. Unless there is a pressing reason to close the deal by the end of 2017, Marge could wait until 2018 in the hope of avoiding the 3.8% surtax.

Regarding health insurance, business owners and employees and self-employed individuals should weigh the pros and cons of high deductible plans when choosing coverage for next year. High deductible policies may be linked with health savings accounts (HSAs), if certain requirements are met. HSAs, in turn, offer unique tax benefits: deductible contributions, untaxed investment income inside the account, and tax-free distributions for qualified healthcare. However, high deductible health plans may lead to greater expenses for medical care before the insurance takes effect.

 

Taxing issues

 

Deferring income may pay off if Trump’s tax plan leads to lower rates. Self-employed individuals might consider delaying year-end billing for work done in hopes they’ll owe tax at, say, 25% instead of 28% or 33%.

 

That said, the proposed demise of certain itemized deductions might be worrisome. In some circumstances, accelerating expenses for medical bills, state estimated tax, and property tax from 2018 to 2017 could provide deductions in 2017 that might no longer be available in 2018. At year-end tax planning meetings, our office can recommend moves that are suitable in your specific situation.

 

Article : Year-End Planning for Investors

 

Regardless of future legislation, some tried and true strategies will help investors trim their tax bill in 2017. Year-end loss harvesting can be worthwhile.

 

 Link to full Article

Be prepared

 

How can you plan for tax savings at year-end in this environment? One vital step is to arrange for a tax planning meeting in late 2017. By November or December, we may know more about changes to the tax code and the effective dates.

            For now, a basic strategy might be to delay certain income-generating events until 2018 and to accelerate deductions into 2017, when practical.

            Example: Marge Wilson is planning a sale of income-producing property, which she expects to produce a substantial long-term capital gain. Marge anticipates that such a gain would be taxed at a 20% rate, as well as the 3.8% surtax on net investment income. Unless there is a pressing reason to close the deal by the end of 2017, Marge could wait until 2018 in the hope of avoiding the 3.8% surtax.

            Regarding health insurance, business owners and employees and self-employed individuals should weigh the pros and cons of high deductible plans when choosing coverage for next year. High deductible policies may be linked with health savings accounts (HSAs), if certain requirements are met. HSAs, in turn, offer unique tax benefits: deductible contributions, untaxed investment income inside the account, and tax-free distributions for qualified healthcare. However, high deductible health plans may lead to greater expenses for medical care before the insurance takes effect.

Wednesday, 11 October 2017 00:00

CPA CLIENT BULLETIN Select October 2017

CPA CLIENT BULLETIN Select
October 2017

 

What’s Inside

Prepare Your Kids for Financial Independence
New IRS Ruling May Rescue Estate Plans
Tax Court Approves 100% Business Meal Deduction
Tax Calendar

Factoid : Costlier Care

The maximum monthly premium paid by high income seniors for Medicare Part B medical insurance grew from $161.40 in 2007 to $428.60 this year (a 10-year increase of 166%).


Did You Know ?

Nationwide, the median home sales price in the second quarter of 2017 rose 7.7% to $253,000, the biggest annual increase since the first quarter of 2014. However, the average weekly wage in the United States fell 1.4%, leading to a decrease in home affordability. Median priced homes are relatively affordable in the Detroit, Philadelphia, Cleveland, Pittsburgh, and St. Louis metro areas, but such homes require a high portion of wages in the San Francisco, New York, Los Angeles, and San Diego areas.

Source: Attom Data Solutions


Article: Prepare Your Kids for Financial Independence

 

An AICPA survey discovered that parents are more likely to talk with their children about manners, eating habits, school grades, and substance abuse than about finances. All these topics are important, but it’s also vital to teach your kids the basics of handling money.

This conversation can begin when children are very young—even before they start kindergarten. One tactic is to give each child a piggy bank, which might hold spare change and even dollar bills. Once the children reach the age when they start learning counting skills, you can explain how five pennies make a nickel, two nickels make a dime, and so on, until you have dollars that can buy things in a store.
Parents also can open up bank accounts for youngsters; banks may have low or no minimums for children’s savings accounts. Parents can take their kids to the bank to make deposits and show them the results on bank statements. If the child’s account earns interest, that can offer another teaching opportunity.

Personal finance

At some point, children may receive an allowance, earn money for doing household chores, or both. Parents might explain the choices they’ll then face. Do they want to spend the money on something they want right away, put the money in their piggy bank to save for a larger purchase, or put it in the regular bank for a long-term goal? Yet another possibility is to give some of their income to those who are less fortunate. Altogether, such an exercise can give your kids the idea that there are many options for handling money, and they should consider the alternatives carefully.
Taking your child with you when you go to the supermarket, pharmacy, or hardware store can also be an educational experience. Children can see goods that are available at different prices; for example, buying a larger package often will require more money. Again, kids can see that handling finances involves making decisions. Even at a young age, children might be allowed to pick out one cereal from the rest or one type of treat for the family pet.
As children grow older, their desired items likely will become more expensive (such as an electronic device or an article of clothing). Through online, catalog, or in-store shopping, you can show them the price of the thing they’ve requested and explain that this is so many weeks of allowance or hours of household chores. You might set up a plan to save for this outlay, with a parental match as an incentive.
One worthwhile activity is to have your child keep a record of all the things he or she would like to have. The child can then organize those items based on “need” or “want.” New shoes might be needed, for instance, but a smartphone might be wanted.

From this list, you could lead into a discussion of what’s needed versus what’s wanted for you as a parent. Milk and juice from the supermarket might fall into the needed category, but a new car every year may be wanted yet not necessary. Explain that it’s fine to have things you want, but you may have to save for them over a time and forgo other items on the want list.
With preteens and teens, other topics can be discussed. You might show your child your checkbook, for example, and describe how you balance it every month. As they approach college, it’s time to talk about college costs at various schools and the results of using student loans to pay for higher education. When children get their first credit card, they should be told how credit scores are calculated and the importance of maintaining a good record of debt repayment.

 

Link to full article

I am happy to announce we have secured a date for our volunteer project with Atlanta Community Food Bank on Friday, August 4th, from 9am – 12pm. We will be working at the food sorting facility, same place as last year for those of you that volunteered. We will be inspecting, sorting, and packing grocery items and health and beauty products for distribution to over 600 non-profit organizations in the Metro Atlanta and North Georgia Area. ACFB is an awesome organization, you can read more about it here: http://acfb.org/what-we-do

 

 

Tuesday, 15 August 2017 00:00

CPA Client Bulletin Select August 2017

What’s Inside

College Costs Really Are Increasing Again
Start FAFSA Planning Earlier
Asset Allocation in 529 Plans
Outlining the Trump Tax Plan
How Small Business Retirement Plans Compare
Tax Calendar

 

Factoid: Vacation Destinations 

 

Among recent vacation home buyers, 36% purchased in a beach location, 21% bought lakefront property, and 20% bought elsewhere in the country. 

 

 

Did You Know ?

 

In the 2016–17 academic year, the average undergraduate cost for tuition and fees was $9,650 at public, four-year colleges for in-state residents. On average, out-of-state students paid $24,930. Therefore, the amount paid by out-of-staters at public colleges is closer to the cost for private institutions ($33,480 on average) than to the amounts paid by state residents at their schools.

 

Source: The College Board


Article: College Costs Really Are Increasing Again 

 

The College Board reports that the average published charges for tuition, fees, room, and board at private, nonprofit, four-year schools were over $45,000 in the 2016–17 academic year. At public universities, the average charge was around $20,000 for state residents. Both numbers are the highest on record.

 

Such expenses for higher education are daunting, but the reality may be less onerous. Many collegians receive some form of financial aid that brings down the actual cost. The College Board also reports “net” prices, estimating the true cost of a year in college after recognizing financial aid and the savings from certain education-related tax benefits. 

 

For the 2006–07 academic year to 2010–11, net prices declined in constant 2016 dollars. Even as published prices continued to rise, the average net price at private colleges fell from $24,580 to $23,620.

 

Since then, however, net prices have begun to move up. In 2016–17, the average figure at four-year private colleges reached $26,080. In-state students at public universities saw average net prices hold steady in the $11,000–$12,000 range from 2006–07 to 2010–11, but shoot up to $14,210 in 2016–17. In recent years, increases in grants have not kept up with rising published prices, creating more expensive net prices for higher education.

 

For parents of collegians and younger students, the message is that they may have to put more effort into competing for college grants. Some strategies for dealing with the Free Application for Federal Student Aid (FAFSA) can be found on page 2 of this issue of the CPA Client Bulletin. Savvy investing of college funds can also help; on page 3, you’ll find suggestions on how to manage 529 college savings accounts.

 

Article: Start FAFSA Planning Earlier 

 

The “new” FAFSA schedule (introduced in 2016) makes summer the time for FAFSA prep. On October 1, 2017, financial aid applications for the 2018-19 school year can be filed. In prior years, students had to wait until January 1 to request financial aid for the coming academic year.

 

Why is this important? Some observers believe that financial aid may be granted on a first come, first served basis, so the early filer may have more of a chance to receive aid. Also, filing a FAFSA early may increase the chance for merit (not need-based) aid because some colleges require the FAFSA for such grants.

 

In addition, FAFSA will now have real family income numbers from federal income tax returns, rather than estimates.

 

Example 1: Mark Thompson will start college in the fall of 2020. In October 2019, Mark can file the FAFSA. He’ll use his family’s income from 2018 based on the tax return filed in 2019. (Even if Mark’s family gets a filing extension from April 15, 2019, the return must still be filed by October 15 of that year, so the 2018 income numbers will be available for a FAFSA filing in October 2019.)

 

Under the previous FAFSA schedule, Mark would have filed the FAFSA in early 2020, using estimated income numbers for 2019. Then, he would have amended the FAFSA, if necessary, to conform with the actual 2019 numbers. That won’t be necessary now that the Thompsons’ 2018 income will help determine Mark’s need-based aid in the 2020-21 school year. 

 

Link to Full Article

 

 

 

 

Factoid: Vacation Destinations[Office1] 

 

Among recent vacation home buyers, 36% purchased in a beach location, 21% bought lakefront property, and 20% bought elsewhere in the country.

 

 

Did You Know[Office2] ?

 

In the 2016–17 academic year, the average undergraduate cost for tuition and fees was $9,650 at public, four-year colleges for in-state residents. On average, out-of-state students paid $24,930. Therefore, the amount paid by out-of-staters at public colleges is closer to the cost for private institutions ($33,480 on average) than to the amounts paid by state residents at their schools.

 

Source: The College Board


 [Office1]Email

Include a Factoid section in your next client email, then copy and paste this item.

 

Twitter/Instagram

Factoid: 36% of #vacation home buyers bought at a beach location. Can you guess where 21% bought? #RealEstate

 

Facebook/LinkedIn/GooglePlus

Where would you buy a vacation home? Among recent vacation home buyers, 36% buy at the beach, 21% buy near a lakefront, and 20% bought elsewhere. #Vacation #RealEstate

 [Office2] [Office2]Email

Include a “Did You Know” section in your monthly email and include this tip.

 

Twitter

Did U Know? Out-of-State #College students pay nearly the same as if they went to a private school. [link] #Education

 

Facebook/LinkedIn/GooglePlus

Did You Know?
College students paying public, out-of-state tuition spend nearly the same as in-state students going to a private institution.
Source: The College Board [Link to CPA Client Bulletin or blog page] #College #Education

Wednesday, 12 July 2017 00:00

CPA Client Bulletin Select July 2017

CPA Client Bulletin Select
July 2017

What’s Inside

Calculating Retirement Needs
Taxable Versus Tax-Deferred Accounts
Small Companies Can Do Well While Doing Good
Tax Calendar


Factoid: Exporting Energy

From January to February 2017, U.S. oil exports jumped by 35% to a record high of over 1 million barrels per day.

Did You Know?
Up to 43% of U.S. employees spend some time working outside of the office. Moreover, 35% of employees say they would change jobs to have flexible working locations where they can choose to work off-site full time. Employees who sometimes work remotely show greater levels of engagement; the optimal engagement boost occurs when employees spend 60—80% of their workweek (or three to four days) working off-site.
Source: Gallup


Article: Calculating Retirement Needs

A staple in retirement planning is the search for “your number.” That is, how much money do you need to accumulate in savings and investment accounts so you can afford to stop working? Life expectancy is increasing, so the amount you have when you retire might have to last for decades.
To find the number, you can start with a target for cash flow in retirement. Then determine how much you can expect from all anticipated sources of income: Social Security, a pension, rental income from investment property, and so on. The gap will probably be filled from your financial resources.
Example 1: Linda Morgan, age 52, hopes to retire at 65. Linda expects to need about $75,000 a year for a comfortable retirement, with approximately $25,000–$30,000 coming from Social Security. She will not receive a pension from any employer and has no other obvious source of retirement income. Therefore, Linda will need about $45,000–$50,000 a year from her savings and investment accounts.

Doing the math

How can Linda find “her number,” the amount of financial assets she’ll need to generate $45,000–$50,000 a year in retirement? One tactic is to go online, where she’ll find many retirement calculators to crunch the numbers. Social Security, for instance, has a “Quick Calculator” at ssa.gov/OACT/quickcalc/ to help you estimate future payouts from that source.
Many other websites offer more comprehensive retirement calculators. Frequently, they allow people to enter their personal information, then make various adjustments to future plans to see what methods might increase their chances for financial security after the paychecks stop.
Example 2: Linda uses a retirement calculator provided by the AICPA at www.360financialliteracy.org/Calculators/Retirement-Planner.
She enters the information from example 1 and other requested data into the calculator. In this hypothetical illustration, Linda is single, earning $100,000 a year, and saving 15% of her earnings for retirement. Her future expectations include salary increases (2% a year), investment returns (6%), inflation (3%), and living until age 95. Linda has $300,000 in current retirement savings.

 

Download Full Article

 

Rodney L. Chandler, CPA, partner at Smith, Adcock and Company LLP of Athens, has been elected chair of The Georgia Society of Certified Public Accountants' (GSCPA) Board of Directors for the 2017-18 fiscal year. Mr. Chandler was selected at the Society's annual business meeting in Atlantic Beach, Florida.
"Rodney’s commitment to the profession and the Society is admirable,” said GSCPA CEO Boyd Search. “He believes in the importance of mentoring young professionals, professional involvement, and giving back to the community."

 

During his one-year term as Chair, Mr. Chandler hopes to help strengthen the legacy of the profession in Georgia. "I want to be involved in a professional community that’s looking toward the highest and best aspirations for our profession and that holds each other accountable to those standards, so we set ourselves apart from the rest," says Chandler.
A 25-year member of GSCPA, Mr. Chandler has served as chair-elect, treasurer, and director of the GSCPA Board of Directors as well as a member of the GSCPA Leadership Council. He is a former chair of GSCPA's Professional Ethics Committee, Investment Committee, and Budget Committee. He is also an active member of the Northeast Georgia Chapter of GSCPA and of the American Institute of CPAs' (AICPA) Governing Council.
In addition to his service to GSCPA, Mr. Chandler serves as a director of Jackson EMC and is a member, past president, and past treasurer of the Rotary Club of Madison County. He holds a Bachelor of Science in accounting and political science from Berry College.

Tuesday, 20 June 2017 00:00

CPA Client Bulletin Select June 2017

CPA Client Bulletin Select
June 2017

What’s Inside

The Third Best Investment You Can Make
Prenups Can Serve Many Purposes
Solo 401(k) Plans for Companies Without Employees
Tax Calendar


Factoid: Going Higher

Nearly 40% of people under 65 with employer-based insurance had high-deductible health plans in 2016, up from over 25% in 2010.


Did You Know ?

For the lowest air travel prices, purchase tickets on a Sunday. If you’re traveling within the United States, buying on Sunday can cut prices by 11% compared with the average for other days. Sunday savings for flights from the United States to Europe are even better for travelers: 16%.

Source: expedia.com


Article: The Third Best Investment You Can Make

The second-best investment you can make is paying off high interest rate debt (see CPA Client Bulletin, August 2016). That could come after you’ve contributed enough to your 401(k) to get a full match from your employer. What should come next? If you have no expensive debt to pay down and you’re getting the full employer match, where should you direct your money? Here are some suggestions.

Unmatched 401(k) contributions

In 2017, employees can contribute up to $18,000, or $24,000 if they’re at least age 50. Few (if any) company matches are that generous.
Example 1: Julie Benson earns $100,000 a year. Her employer’s 401(k) match is dollar-for-dollar, up to 6% of pay, so Julie will put at least $6,000 into the plan this year to get $6,000 in “free money” from the match. Julie, age 45, could contribute another $12,000.

Such a contribution is easy to do, with the money flowing directly into the 401(k) with every paycheck. The deferred income won’t be subject to income tax and any investment earnings can compound, untaxed. Other possible advantages include access to plan loans, offered by many companies, and considerable shelter from creditors.

That said, the main benefit of an unmatched 401(k) contribution is income tax deferral. If you are in a relatively high tax bracket now and expect to be in a lower bracket when you take withdrawals in retirement, maximizing 401(k) contributions could pay off. On the other hand, tax deferral might not appeal to workers in their 20s with modest incomes, perhaps deferring tax in a 15% bracket, who will face uncertain tax rates on distributions decades from now.

 

Download Full Article

Thursday, 09 March 2017 00:00

CPA Client Bulletin Select March 2017

What’sInside

Playing Defense as Stock Prices Soar
Holding Down Premiums for Medicare Part B
Safe Harbor 401(k) Plans for Small Companies
Tax Calendar

Factoid: States for Seniors

Of more than 55 million total Medicare beneficiaries, about 10 million live in just two states: California and Florida.

Did You Know ?

The average published cost for tuition, fees, room and board at private nonprofit colleges and universities is $45,570 in the 2016-17 academic year. At public institutions, that average cost is $35,370 for out-of-state students, while state residents pay $20,090, on average. Financial aid and tax benefits may reduce the actual cost of higher education.

Source: collegeboard.org

 

Article: Playing Defense as Stock Prices Soar

As of this writing, major U.S. stock market indexes are at or near record highs. This bullish run might continue...or it might end with a severe slide. Here are some strategies to consider.

Stay the course

Many investors will prefer to keep their current stock market positions. For nearly a century, every stock market reversal has been followed by a recovery. Even the severe shock of late 2008 through early 2009 has led to new peaks, less than a decade later.

What’s more, holding onto stocks and stock funds won’t trigger any tax on capital gains.

Move into cash

Investors who are truly nervous about pricey stocks can sell some or all of those holdings, then put the sales proceeds into vehicles that historically have been safe havens, such as bank accounts and money market funds. This would reduce or eliminate the risk of steep losses from a market crash. In both the 2000–2002 and the 2007–2009 bear markets, the S&P 500 Index of large-company stocks fell about 50%. After a loss of that magnitude, investors need a 100% rebound, just to regain their portfolio value.

However, cash equivalents have negligible yields right now, so investors would essentially be treading water in bank accounts and money funds. Timing the market has proven to be extremely difficult, so investors who go to cash risk missing out on future gains as well as possible losses. In addition, investors who sell appreciated equities held in taxable accounts will owe capital gains tax, which could be substantial.

 

Download Full Article

What’sInside[AS1] 

 

Playing Defense as Stock Prices Soar

Holding Down Premiums for Medicare Part B

Safe Harbor 401(k) Plans for Small Companies

Tax Calendar


 [AS1]Marketing Tip:Five-Step Spring Cleaning Marketing Strategy

Now that winter is coming to a close, it’s time for spring cleaning. Here’s what you can do in the marketing area to keep things fresh and consistent.

1.      Review your goals. How are the marketing efforts you’ve been doing helping you to attain the firm’s goals? Have you checked recently? A monthly update is best, but quarterly is good too. Now is a good time to revisit those efforts and determine successes, failures, and areas for adjustment.

2.      Is it time for something new? If efforts you’ve liked in the past just don’t “fit” any longer, it’s time for a new effort. Sometimes you have to get rid of the good to find the great.

3.      Go shopping! If your marketing efforts feel a little stale, it might be time to shop around for marketers with fresh ideas, graphic designers with a new perspective, or vendors with better pricing advantages.

4.      Sharpen your pencils and create some new content. Develop a spring and summer content strategy that you can leverage the rest of the year. Start with 5 to 10 topics you can quickly write about (e.g., “Top 3 Advantages of [fill in the blank]” or “5 Ways Small [industry] Companies Can Save on Taxes”). Then post them on your website over the next several weeks. You can future date most blogs to release on the same date each month. Voila, content through fall.

5.      Stop trying to be everywhere on social media. Focus on one or two platforms, where your target market is, and form a strategic plan to reach new leads through those channels.

 

Bonus Tip

Consider adding a paid promotion element to your efforts to increase exposure in niche markets. This can be done with sponsored Tweets, Facebook and LinkedIn posts. Google and Bing AdWords are also a great tool.

 

Now that you have the cleaning supplies you need, what will you tackle this spring?

Thursday, 23 February 2017 00:00

CPA Client Bulletin Select February 2017

What’s Inside

After-Tax Dollars in Traditional IRAs
“Combo” Products for Long-Term Care Coverage
Defined Benefit Plans for (Very) Small Companies
Tax Calendar


Factoid: Costly care

In 2016, the national median daily rate for a private room in a nursing home was $253 a day; that’s $92,345 a year.

Did You Know?

Online sales are driving in-store traffic. Half of shoppers who buy online will ship their purchase to a physical store. Of these, 46% make additional purchases while picking up their items. A majority of shoppers (60%) also prefer to return items to a store, at which time 70% of them make additional purchases.

Source: ups.com


Article: After-Tax Dollars in Traditional IRAs

Workers under age 70½ can deduct contributions to a traditional IRA, as long as they are not covered by an employer’s retirement plan. The same is true for those workers’ spouses.
If these taxpayers are covered by an employer plan, they may or may not be able to deduct IRA contributions, depending on the taxpayer’s income. (See Trusted Advice, “Deducting IRA Contributions.”) However, all eligible workers and spouses can make nondeductible contributions to a traditional IRA, regardless of income. Inside a traditional IRA, any investment earnings will be untaxed.

 

Dealing with distributions

Problems can arise for people who hold nondeductible dollars in their IRAs when they take distributions. Unless they’re careful, they may pay tax twice on the same dollars.


Example 1: Marge Barnes has $100,000 in her traditional IRA on February 15, 2017. Over the years, she has made deductible and nondeductible contributions. Assume that $25,000 came from nondeductible contributions, $45,000 came from deductible contributions, and $30,000 came from investment earnings inside Marge’s IRA.


Now Marge wants to take a $20,000 distribution from her IRA. She might report $20,000 of taxable income from that distribution; indeed, Marge’s IRA custodian may report a $20,000 distribution to the IRS. However, Marge would be making a mistake, resulting in a tax overpayment.

Cream in the coffee

 

To the IRS, a taxpayer’s IRA money must be stirred together to include pre-tax and after-tax dollars. Any distribution is considered to be proportionate. If Marge were to pay tax on a full $20,000 distribution, she would effectively be paying tax twice on the after-tax dollars included in this distribution.
Example 2: After hearing about this rule, Marge calculates that her $25,000 of after-tax money (her nondeductible contributions) was 25% of her $100,000 IRA on the date of the distribution. Thus, 25% of the $20,000 ($5,000) represented after-tax dollars, so Marge reports the $15,000 remainder of the distribution as a taxable withdrawal of pre-tax dollars. Again, this would be incorrect.

 

Year-end calculation

Tax rules require an IRA’s after-tax contributions to be compared with the year-end IRA balance, plus distributions during the year, to calculate the ratio of pre-tax and after-tax dollars involved in a distribution.


Example 3: Assume that Marge’s IRA holds $90,000 on December 31, 2017. Her $100,000 IRA was reduced by the $20,000 distribution in February, but increased by subsequent contributions and investment earnings. Therefore, Marge’s IRA balance for this calculation is $110,000 (the $90,000 at year-end plus the $20,000 distribution). This assumes no other distributions in 2017.


Accordingly, Marge divides her $110,000 IRA balance into the $25,000 of after-tax money used in this example. The result22.7%is the portion of her distribution representing after-tax dollars. Of Marge’s $20,000 distribution, $4,540 (22.7%) is a tax-free return of after-tax dollars, and the balance ($15,460) is reported as taxable income. Marge reduces the after-tax dollars in her IRA by that $4,540, from $25,000 to $20,460, so the tax on future IRA distributions can be computed.

 

Form 8606

As you can see, paying the correct amount of tax on distributions from IRAs with after-tax dollars can be complicated. Without knowledge of the rules, an IRA owner may overpay tax by reporting already-taxed dollars as income. However, keeping track of after-tax and pre-tax dollars may not be simple, especially for taxpayers with multiple IRAs and multiple transactions during that year.
The best way to deal with this issue is to track pre-tax and after-tax IRA money by filing IRS Form 8606 with your federal income tax return each year that your IRA holds after-tax dollars. Our office can help prepare Form 8606 for you, when it’s indicated, and, thus, prevent this type of double taxation.

 

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