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Long-Term Investing 101

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African American Accountant Or Auditor With CalculatorInvesting for retirement can be intimidating for many people. Keeping these basic principles in mind can help you pursue your long-term goals.

Have Realistic Expectations

Be realistic about how well your investments will perform. If you are too optimistic, you could underestimate how much you should be contributing to your retirement account to reach your savings target. Instead of counting on big stock gains, it’s generally smarter in the long run to diversify* your investments. And always contribute an adequate amount, regardless of how the investment markets are performing.

Avoid Hot Trends

Hot investing trends can catch the attention of inexperienced investors. However, trends tend to fizzle out as quickly as they started, leaving inexperienced investors with losses. Rather than chasing trends, choose investments that are an appropriate match for your risk tolerance, the amount of time you have to invest, and your investing objectives.

Learn to Live With Volatility

The stock market rises on some days and falls on others — sometimes by a lot. When the market tumbles, you might be tempted to sell your stock funds or portfolios and buy less risky investments. However, periods of poor market performance are to be expected when you’re investing to reach long-term goals. While downturns are discouraging, the stock market historically has recovered from every downturn.** Over time, periodic setbacks may be followed by periods of strong growth. Unless you’ll need your money soon, it may be better to look beyond short-term volatility and stick with your investment strategy.

*Diversification does not ensure a profit or protect against loss in a declining market.

**Past performance does not guarantee future results.

Saving for a Child’s Future

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Smiling young 30s woman in eyewear looking at smartphone screen, feeling satisfied with fast secure online service, paying household bills taxes or insurance, managing budget, calculating expenses.Giving money to children or grandchildren is a planning strategy that benefits donors and beneficiaries. You can make annual gifts of up to $15,000 each to an unlimited number of recipients in 2021, free of gift and generation-skipping transfer tax, without using any of the lifetime gift exemption. But consider your options for holding gifted assets carefully.

Custodial Accounts

Custodial accounts established under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) allow you to set aside money for any activities that benefit your child. But custodial accounts may not be your best option. Your child will be able to access the funds at a young age — often 18 or 21, depending on state law — and may not have the maturity to use the funds wisely.

Crummey Trust

With a Crummey trust, you specify how the money in the trust should be used and when the beneficiary can receive the assets. If desired, the trust can continue for the beneficiary’s entire lifetime. However, to avoid forfeiting the gift tax annual exclusion, you must notify the beneficiary when you make an annual gift to the trust and give the beneficiary a limited amount of time (e.g., 30 days) to withdraw those funds. A Crummey trust allows more control over the funds, since a beneficiary may be reluctant to go against a donor’s wishes.

Retirement Savings Tips for Millennials

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Coworkers team at work. Group of young business people in trendy casual wear working together in creative office.If you’re a millennial, retirement may barely register in your consciousness. Between paying down student loans, trying to take that first step on the housing ladder, or other financial priorities, you may have little time to think much about your life 35 years from now.

However, you shouldn’t wait until later to start planning for retirement. Retirement success can depend greatly on getting an early start on saving for your future. Here are some basic tips that can help put you on the path to retirement security.

Live Within Your Means

Tip number one is to spend less than you make. That way, you will have some money left over from your paychecks for other purposes, such as saving and investing.

Be a Disciplined Saver

Save as much as you can as early as possible. Give yourself a savings target and stick to it. Decide, for example, to save 3% of your income for retirement and increase that percentage every year. It won’t be long before you are contributing the maximum allowed for an employer-provided retirement plan. Set aside some or all of any tax refunds, bonuses, and pay raises for an emergency fund and your retirement savings account.

Understand the Time Value of Money

Compounding is the magic ingredient when it comes to building your retirement nest egg. It is simply the process of earning money on your savings and then earning money on your earnings as well as your savings. The longer your money is invested, the greater the potential benefit from compounding.

Learn About Investments and Investing

Knowledge is power when it comes to investing. If you feel you lack the patience to study investing, see if your employer’s plan has a target date retirement fund you can consider.

Focus on Your Goal

Remember, saving and investing for retirement is a long-term goal. Have a plan and stick with it. Stay focused on your long-term goal of retirement security and don’t let short-term market changes knock you off course.

Tax Fraud vs. Tax Negligence: Understand the Difference

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Payment of tax, invoices, bills concept. Financial calendar, money, tax form on clipboard, magnifying glass, calculator, pen, folder. Payday icon. Vector illustration When running a small business, it is essential to understand the difference between tax fraud and tax negligence. In this article, we clarify these terms so that you can avoid unsavory business practices and stay on the right side of the law.

Let’s start with some basic definitions to understand the difference between tax fraud and negligence.

Fraud is wrongful or criminal deception that results in financial or personal gain.

Negligence is failure to take proper care in doing something.

Tax Fraud

The IRS defines tax fraud as “the willful and material submission of false statements or documents in connection with an application and/or return.” From this and the above definition, the key terms are “intended” and “willful.” Tax fraud is intentional. In other words, someone who commits tax fraud is willfully doing so.

Two primary examples of tax fraud are failing to file a tax return or filing a false return. If the IRS suspects tax fraud, they look for key factors:

  • Underreported income
  • Use of a false social security number
  • Falsified documents
  • Intentional failure to file or pay taxes

Of course, not everyone fails to pay taxes if committing intentional fraud. That’s where negligence comes into play.

Tax Negligence

The key point to focus on with negligence is that it is unintentional. For example, let’s say you’re completing your business taxes and accidentally typing in an incorrect amount by mistake. You weren’t intentionally or purposefully entering the wrong amount; you simply made a human error. While you were negligent in that act, you were not behaving fraudulently.

You can think of negligence as a careless error.

If the IRS suspects tax negligence, they will definitely let you know. A penalty will be added to the unpaid or misreported tax up to about 20% of the tax due, so you do not get off easy. In fact, tax negligence is more common than you think. The IRS estimates that about 17% of all taxpayers in the U.S. are non-compliant when filing taxes. In other words, it’s easy to make a mistake.

It’s easy to avoid tax fraud – pay your taxes promptly, honestly. Avoiding tax negligence may be more complicated since it can result from human error. To ensure that you’re not negligent when it comes to filing your small business taxes, employ the services of a qualified tax accountant or CPA. They are trained to find issues that could get you into trouble with the IRS and are up to date on the latest tax laws and regulations. A skilled accountant can save you time, stress, and money in the long run!

The 5 Most Common Small Business Accounting Mistakes

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Young finance market analyst in eyeglasses working at sunny office on laptop while sitting at wooden table.Businessman analyze document in his hands.Graphs and diagramm on notebook screen.BlurredSmall businesses make accounting errors and oversights regularly. Here, we cover five of the most common small business accounting mistakes. Read on to see if you’re making any of these mistakes and how to avoid them in the future.

1. You don’t take bookkeeping as seriously as you should.

Recording everything is an excellent rule to follow for bookkeeping and accounting for a small business. Ensuring that everything is recorded and categorized correctly in your accounts is essential, from small transactions like purchasing office supplies to large payments from customers and clients. No matter how small your company is, accurate bookkeeping and accounting methods are essential for a reliable assessment of your company’s health.

If you’ve slacked in this area, find the weak spots. For example, you may need to: categorize your assets and liabilities correctly, have a monthly accounts review, or establish a new bookkeeping system. A sound bookkeeping and accounting system is the only way to know how your business performs.

2. You refuse to outsource your accounting needs.

If you read point one above and the need to establish a new bookkeeping and accounting system rings true, you’ve identified a serious issue. Many small business owners decide to handle bookkeeping and accounting in-house because they feel “too small” to justify outsourcing those tasks. While the temptation to reduce costs by controlling the books in-house is tempting, it can be overwhelming when trying to manage a business and wear the accountant hat.

Handling your own accounting could be costing you money. Accountants understand ways to save businesses money that can escape others. They know all the ins and outs of taxes, deductions, write-offs, etc. It’s what they do all day, every day. Consider outsourcing your accounting to a qualified firm instead of missing out on opportunities to save money.

3. You outsource, but you fail to communicate with your accountant.

So, maybe you have already outsourced your business’s accounting. Are you communicating with your accountant? Does your bookkeeper know what’s happening in your business? Keeping up with all transactions – great or small – and sharing those with your accountant is vital. Overlooking even a small purchase can lead to costly issues over time.

A great way to make sure your accountant is fully apprised of any and all expenditures. Keep receipts and a record of all transactions. You can use receipt tracking software or keep a paper or digital log. Regardless of the method, your accountant will appreciate your efforts. Their job will be easier, and it can save you money in the long run.

4. You don’t record every expense, even the small ones.

This point cannot be emphasized enough. It is essential to record all business spending, no matter how insignificant you think. That $5 of petty cash you took out of the register to send your employee to pick up stamps for the business counts! This is particularly crucial for cash-based (i.e., retail) businesses. No expense is insignificant. This is a fundamental rule to follow for new companies. While it is easy to overlook the small stuff, as your business grows, you will be glad you were attentive because it makes managing your books so much easier. Again, this can be a big money-saver in the long run.

The bottom line: No transaction is too small to record. Save receipts, keep a record, tell your bookkeeper.

5. You assume that profit always equals healthy cash flow.

If you make a sale of $1000 that cost your business $300, did you profit $700? Not necessarily. Depending on the type of business you are in, additional costs could be associated with the sale that reduces the profit. For example, if you’re in retail sales, you must account for expenditures like overhead. What if the merchandise is returned and refunded? Handling the refund costs you money, and that cuts into profit. Suppose you’re in a business that provides services like construction or home improvements. In that case, you must consider setbacks and delays due to receiving materials, weather, etc. Any setback you experience in completing a job means less profit to your firm.

Not accounting for costly setbacks can give you a false sense of how your business is performing. While the numbers may look good on paper, a distorted picture of its financial health is detrimental to your success.

Awareness of these small business accounting pitfalls can help you improve in weak areas and position your business for long-term success and a healthy financial future.

Contact our accounting professionals now for more help managing your small business finances.

6 Key Facts About Excise Taxes

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Matthew J. Rice CPA - Excise TaxesEveryone knows about income taxes and sales taxes, but we tend to forget about excise taxes, because they’re not obvious. Click through for an introduction to this important class of taxes, and see what’s changed.

Excise taxes are paid when purchases are made on specific goods or activities, such as wagering or highway usage by trucks. The producers or merchants pay the tax and typically include the additional tax in the price to the end consumer. Governments levy excise taxes on goods and services that have a high social cost, such as cigarettes, alcohol and gambling. Excise taxes are also referred to as selective sales or differential commodity taxes.

Here are six key facts regarding common, little-known excise taxes —

  • The tax reform bill exempted certain payments made by an aircraft owner or sometimes a lessee, related to the management of private aircraft, from excise taxes imposed on taxable transportation by air.
  • To support the use of alternative fuels, fuel tax credits are allowed on certain types of fuel including the following: biodiesel, including renewable diesel and mixture; alternative fuel credit and mixture; and second-generation biofuel producer.
  • Indoor tanning service providers may need to file a federal excise tax return. These services are subject to a 10 percent excise tax under the Affordable Care Act. This is an example of how excise taxes are often levied on goods and services that are considered unnecessary.
  • Taxpayers who engage in certain specified activities related to excise tax must be registered by the IRS before engaging in the activity. This is known as the 637 registration program. The taxpayer can go online to confirm whether they or a specific company has a valid IRS registration.
  • You may be surprised to know that there is an archery federal excise tax, including the importation and manufacture of archery and fishing products. These, of course, affect relatively few people, but are good examples of how a product or service may be subject to a particular excise tax that is not necessarily obvious.
  • The Environmental Protection Agency’s list of devices to reduce high tractor idling may be exempt from the 12 percent retail excise tax. This shows that a major component of the excise program is motor fuel, and different rates may apply to different types of fuel — gasoline, diesel and gasohol.

The idea is to limit the use of certain products, such as alcohol and tobacco. States also levy excise taxes. Some people say that excise taxes are stopgap measures to solve short-term problems. In fact, some note that discriminatory excises on the consumption of specified products is a step back in development of fiscal systems, postponing a more proper reform for the country or state.

Are you unsure how excise taxes may affect you? Call us at 704-609-1119 now or request a consultation online to learn more.