Retirement Planning Made Simple

It’s not as hard as you think to start saving for retirement.

For many of my clients, when I bring up the subject of retirement planning, they start squirming in their chairs. Their discomfort is obvious — they feel guilty or ashamed about not having saved much (if anything), and they may even joke, “Oh, I’ll never be able to retire. I’ll just work until I die!”

Most people, it seems, believe they’ll need millions upon millions of dollars to properly retire. Recently I heard $5 million was the approximate amount. And some are so overwhelmed by this presumed sum that they throw up their hands and say, “Why bother? I’ll never have enough.” Retirement, for them, is as elusive and dreamlike as unicorns or the Loch Ness monster.

But you may not need as much as you think. Sure, we’d all like to have $5 million in the bank to retire with — that sure would make life comfortable. But chances are, to maintain your current lifestyle, you should follow this good rule of thumb: Figure that you’ll need 70 percent of your pre-retirement salary to live comfortably in retirement. So if you earn $100,000 a year now, you should plan to have 70% of that, or $70,000 per year saved, for each year of your retirement. There are several caveats to that rule, which I’ll go into in a minute, but here’s the basic formula for calculating your retirement savings goal:

(Current gross salary x 70%) x (the number of retirement years) = Retirement savings goal

So if your pre-retirement gross salary is $100,000, and you plan to retire at age 65, you can generally expect that retirement to last for 20-30 years. So here’s what that formula would look like for you:

$70,000 x 30 (years) = $2.1 million

That total would need to be adjusted for inflation as well as the growth of your savings. The 2019 rate of inflation was 2.3%, but it literally changes every day — especially in these turbulent times we’re living in. For simplicity, using 2% as annual inflation rate should work for this analysis. For annualized average returns on investments, one can safely use 6% based on historical market performance.

Right about now, you’re probably looking at your own total and worried that you’ll never have millions of dollars of cash in the bank. Don’t panic. The majority of us won’t have it.

But remember: This doesn’t mean you need to have $2.1 million (or whatever your final total is) in the bank as cash upon retirement. This is a cumulative total of assets. Remember that Social Security, pensions, real estate, businesses, and anything in your investment portfolio is included in that total.

I don’t know about you, but having a specific figure as a goal makes it seem more doable. Rather than socking money away blindly toward a vague, undefined goal, you can be more strategic about how much you can put away each year, or even each month or week.

Typically, you want a mix of the following retirement income:

  • Taxable income: This “bucket” contains money put in AFTER taxes, but any growth is entirely taxable. These accounts are also extremely liquid and easily accessed. Your emergency fund should be in this bucket. It includes interest income earned from such sources as mutual funds or Certificates of Deposit, stock dividends, or capital gains, as well as income earned from rental properties.
  • Tax-deferred income: This include withdrawals from any retirement plans to which you contributed pre-tax dollars, such as a traditional IRA, 401(k), most pensions, annuities, etc.
  • Tax-free income: This bucket contains money for which you have already been taxed. It would include Roth IRAs or whole life insurance policies.

Obviously, the less tax we pay, the more cash we have available for ourselves, so you want to emphasize as much tax-free income as possible, but you should also have slow-growth, liquid accounts such as money markets or savings accounts, readily accessible for short-term expenses. Your next-best option would be to seek investments that generate qualified dividends and capital gains, because of their comparatively low tax rates. Know that your taxes may account for up to 37 percent of your income (or more if you live in the state which also levies income tax). It’s likely that tax rates will be significantly higher during your retirement than they are now, partially due to the expenditures currently being used to deal with the coronavirus crisis.

These are just the basics when it comes to retirement planning, but everyone’s situation is unique. My point here is that the time to plan for retirement is now, whether you’re young and plan to work for several more decades, squarely in the middle of your career, or rapidly approaching retirement. It’s never too late, but every day you wait to plan is a day you miss an opportunity to put a little more aside.

Arriving at your “magic number” is complicated, and we can help. Sitting down with a CPA can help with forecasting, goal setting and retirement planning, and as a Professional Financial Specialist (PFS), I can assist with this and much more. Contact us today to see how we can help you stop squirming in your chair whenever you hear the word “retirement”!retirement planning

How to Make Savings a Habit

Tips for saving more money and watching it grow.

Lately, it seems we’re constantly bombarded with terrible news stemming from the coronavirus. So it was a pleasant surprise to read recently about one silver lining to come from the outbreak: the historic rise in personal income and savings.

That’s right. Americans saved a record-breaking 33% of their income in April 2020, creating an increase of 10.5% in personal income.

In the face of tremendous financial uncertainty caused by the virus, with economic stimulus payments in hand, stores closed, and travel and leisure activities almost totally off the table, Americans have been stockpiling cash at unprecedented levels. That’s great news and is sure to help many of us weather the economic storm many experts say is sure to come our way.

But putting money aside in savings hasn’t typically been a habit many of us have cultivated. The vast majority of Americans have no savings — or at least haven’t saved regularly. Now seems like the perfect time to turn our current savings trend into a long-lasting habit that helps us meet future financial challenges, meet savings goals, and develop peace of mind.

How to Save

When I was just starting out in my career, my money was tight. I remember thinking, “There’s no way I can afford to put money aside in savings — I need every dollar I get!” But for most of us, this simply isn’t true. A good household budget will reveal where your money is going each month, and often you’ll find that you’re spending more than necessary on non-essential expenses. Even putting aside $50 a paycheck can add up to more than $1,200 a year. You can decide the maximum amount you can set aside each pay period or month and work with your employer and bank to have those funds automatically deposited or transferred into your savings account regularly. When you don’t actually see that money showing up in your checking account, it will be out of sight and out of mind, which allows it to grow untouched.

Create Your Emergency Fund

The upside of squirreling money away these days is that we’re creating an emergency fund for ourselves in the case of job losses, unforeseen medical issues, or repairs on cars to get to essential jobs. Even when the economy begins to normalize and virus shutdowns are in the rearview mirror, keeping an emergency fund intact is critical. Financial guru Dave Ramsey recommends that everyone have an emergency fund of at least $1,000, and this is advice we subscribe to here at Ludmila CPA. If you don’t currently have this much set aside, you should make this a top priority.

Put anything extra after you’ve done your monthly budget into a separate savings account that you can access for true emergencies. This is not for buying clothes, taking trips, or paying bills, which are expenses you should be anticipating and budgeting for. Rather, this emergency fund is for the expenses we don’t see coming — like a new tire or car repair, a busted air conditioner, or a burst pipe in your plumbing — and it should sit outside the accounts you use to pay bills. It should be fairly liquid, so not an investment, but not so easy to use that you’re tempted to. Once you have an emergency fund in place, you’ll enjoy peace of mind from knowing that a true emergency won’t wipe you out financially.

Then you can move to the next step: creating a safety net.

Save 3 to 6 Months’ Worth of Expenses

It’s always a good idea to plan for the worst — a job loss, a catastrophic illness, etc. — by accumulating enough money to live on if you lose your income. With the cloud of virus-related economic uncertainty expected to linger for months or even years, it’s especially wise to start growing your financial safety net of three to six months’ worth of household expenses. You’ll find that having this amount set aside provides tremendous reassurance that you could survive a loss of income. And if you have lost your job, this fund buys you time to find the best job for you, rather than feeling rushed into taking the first one you can find out of desperation.

Once you have this in place, put as much savings as you can into your retirement account(s).

Where to Keep Your Savings

Depending on your purpose and goals, you have several types of savings accounts to choose from:

  • Basic Savings Account: This is an easy option — ideal for having direct deposits automatically placed into it and liquid enough to access in case of emergency. However, interest rates on savings accounts are so low — lower than inflation — that it’s not a great way to grow your money.
  • Money Market: A money market offers more interest — though only slightly more — enabling your money to grow a bit faster. And it’s just a touch less convenient to access, which can be a good thing, as it won’t tempt you to dip into it for non-emergencies.
  • Certificates of Deposit: A CD is a good, conservative savings option that forces you to hold off on using your savings. With this time deposit, you wait for the CD to mature and accrue interest, based on a specified fixed interest rate. These offer slightly higher interest rates than savings accounts, but rates are so low right now that it might be best to select a CD with a shorter term that will mature more quickly. When interest rates are higher, go for a longer period to see that savings maximized.
  • Investments: To grow money, experts recommend a portfolio of diverse assets — real estate, businesses, mutual funds, and other financial instruments offered by brokerage firms. Many tax-favorable accounts deserve attention, namely the traditional and Roth IRA, which you should contribute to regularly. Consult a professional to discuss which one is best for your situation.
  • Health Savings Accounts: An HSA is for families or singles who have high-deductible health plans to accrue savings for medical expenses. The nice thing about this plan is that it enables you to pay for medical expenses with pre-tax money.
  • Education Savings Plans: Plans such as the 529 are designed to help families afford the rising costs of college. Speak to a financial professional to set this up or determine how best to save for your child’s college education.

I’m heartened to see so many people putting aside savings during this difficult time, but for it to make a real difference, now’s the time to start making this a habit, for your long-term financial health. We’d love to help guide you toward the right savings solution — contact us today.

And enjoy your summer!

Tips for Trimming Your Budget

Part 2 of 2-part Budgeting Tips Series

What should you cut? What shouldn’t you touch?

Earlier this month, I shared my advice about budgeting tips — why it’s important, why it’s less scary and limiting than you think, and how to get started. As we face the uncertain times ahead that COVID-19 has only begun to show us, it’s more important than ever to get a clear sense of our finances and prepare for the worst.

Once you’ve got the facts in front of you with your newly created budget, and you know exactly how much money is coming in and going out the door, now it’s time to make some decisions. If you’re fortunate enough to be making more than you’re spending, you should be looking for ways to save the excess. But if you’re like most of us and living beyond your means, don’t beat yourself up. You aren’t alone. You’re already in more control and headed toward better financial health.

Here are my budgeting tips for cutting expenses and bringing spending down to a manageable level.

Start Trimming the Fat

Where can you make spending cuts? Chances are, a few cuts here and there will make a big difference, and they won’t be as painful as you’d think.

Perhaps you can carry our current norm of dining at home a bit more into the future, allowing you to curb some of that restaurant spending. And now that you’re drinking most of your coffee at home, maybe you realize that your afternoon latte can be an occasional treat, not a frequent habit. What about the baby magazine you’re still receiving, now that your “baby” is 11, or the magazine you’re getting that you’ve never read? Maybe now that you’ve had to miss your bimonthly manicure, you realize you could probably do your own nails from now on and save that $100+ a month. Or maybe your Disney+ subscription isn’t worth the one show you’re watching on it. The point is to identify expenses that aren’t necessary. Many of these things cost very little each month, but when added together, they come to hundreds, even thousands of dollars that could be put to better use. These are small budgeting tips that can make a big difference.

Set Priorities

Of course many expenses are not optional. Food, shelter, utilities, a vehicle, and gas … these things are vital to our survival. Pay those things first. You must have food to eat, a roof over your head, electricity, water, and a ride to work.

That said, however, it’s also important to point out that those expenses can be lowered. Eating at home is less expensive than eating out, for sure, but some stores may also be less expensive than others. Take note of how much food in your home is wasted; perhaps you can buy less at the store to ensure more is eaten. Not that you should restrict yourself to a diet of rice and beans, but look for ways to trim spending on your food items — buying generic brands, for example, or only paying with cash to prevent you from impulse buying.

The bottom line here is that if you’re struggling to afford even these most basic of needs, and cutting your other spending still doesn’t help, it’s time to take further steps to negotiate some lower living expenses. Your main goal, especially if your income for the near future is uncertain, is to conserve cash until you know you’re in a safer position.

Start Negotiating

Once you’ve cancelled unnecessary expenses, it’s time to play hardball and start negotiating lower payments on the necessary ones. Consider the following:

  • If you rent, talk to your landlord about options. In the midst of the COVID crisis, many landlords are accepting partial rent payments, waiving late fees, or even waiving rents altogether. Perhaps yours can work with you. You should know, however, that a federal freeze was placed on evictions due to the pandemic, so rest assured you won’t be thrown out in the cold as this crisis rages on.
  • If you have a mortgage, there may be resources available to help you. The Federal Housing Finance Agency has rounded up a page full of COVID-19 information and resources regarding mortgage assistance. Talk to your lender about your options.
  • The stimulus package enacted by Congress provided student loan holders a six-month break from payments. If you currently owe student loans, this is a great opportunity to save that money and put it toward other debts. No interest will accrue during those six months. After that six months is up, it may be possible to qualify for a hardship forbearance, which allows you to pause payments during times of financial hardship (although interest may accrue). Talk to your lender about your options.
  • Now may be the time to look for a better interest rate on your credit card. Call your creditor to ask for a lower rate, and if you can’t get one, maybe it’s time to shop around for a lower-rate card, then transfer your balance to the new card to lower your overall balance. Then look at paying down that debt, even if it means paying only the minimum each month and not adding to the existing balance.

Most creditors realize that something is better than nothing. If you find you’re unable to make a full monthly payment, let them know ahead of time and try to work out a payment plan. This can keep bill collectors off your back and help you stay in good financial standing as you get through this rough patch.

Pay Yourself

It’s important that every budget includes payments to yourself in the form of savings. I’ll talk in more detail in my June blog about savings tips, but you should make it a priority to put some money away each month into savings, even if it’s only $50. Work to build up an emergency fund of at least $1,000 so that you can deal with unexpected costs like car or home repair without breaking your budget or dipping into credit cards.

Money isn’t just for paying bills. We work hard and should be able to enjoy it, so by all means, budget a certain amount of money each month for discretionary spending. Knowing you have the freedom to spend a certain amount each month on whatever you want is a wonderful feeling and makes other limits easier to accept.

And if you can afford to save a lot more money, do. In this time of great uncertainty, it can be reassuring to know you’re putting money aside for the future, and encouraging to save for that trip you will eventually be able to take.

In the end, you’ll be surprised by how empowering it can be to create a budget. When you know that every expense you will encounter is accounted for and that you can live within your means, you will feel the opposite of restricted: You’ll feel freedom, and you’ll be relieved to know you have some control in a world that often — especially right now — feels out of control.

All of us here at Ludmila CPA are happy to help you get started with your budget, whether it’s recommending tools, helping you make ends meet, or setting financial goals. Contact us today to see how we can help. Hang in there, utilize these budgeting tips — we’ll get through this together.

There’s Never Been a Better Time to Create a Budget

Creating a budget is more empowering — and less scary — than you think.

I’ve been advising individuals and small businesses on financial matters for over a decade, and in that time there’s one suggestion I always make that consistently makes my clients squirm: It’s when I suggest that they make a budget.

I get it. The idea of creating a budget is scary. It means taking a hard, even embarrassing, look at what you’re spending. It means coming to grips with what money you have — or don’t have — coming in, and how that compares to with the money that’s flowing out. As they say, ignorance is bliss. Plus, it seems to involve will power, which many of us lack.

And we tend to equate the word “budget” with “limitations” or “restrictions,” which have negative connotations.

I’d like to offer a new way to think of budgeting: as a freeing exercise, not a limiting one, and as a way to feel IN control, rather than out of control.

Now that we’ve sheltered in place for two months due to COVID-19, our feelings of fear about the unknown and powerlessness in the face of unprecedented restrictions are overwhelming. For many in our community, the financial uncertainties we face have yet to rear their ugly heads. So while we’re still safe in our homes, worrying about what comes next, there’s never been a better time than right now to get an accurate picture of our finances and take control of them. Making a budget doesn’t have to be hard, and I promise it’s more freeing and empowering than you think.

How to Get Started

First, find a system that works for you. There are a million tools out there to help you get started. Personally, I like applications that connect to your personal accounts, so they can automatically track your income and expenses. Xero Cashbook software is what we use here at Ludmila CPA; contact us and we’ll be happy to help you set it up. This is a subscription-based program that costs $7 per month, but we’ve found its exceptional functionality to be worth that small expense, particularly for small businesses.

If you prefer something simpler without the bells and whistles, a simple Excel spreadsheet works fine as well, as do several personal budgeting apps. Many existing budget templates can be found online, which you can customize according to the types of expenses you have.

Track Spending

Once you determine your preferred system, it’s time to get a picture of your current spending. Contrary to what many believe, budgeting doesn’t begin with immediately imposing restrictions. Rather, it starts by taking some vital statistics. Hopefully you have records of your expenditures — if you don’t balance a checkbook, perhaps your credit card statements are a good measure of spending. Or simply comb through your online bank account summaries. Go through your statements for various monthly obligations, such as utilities, phone and Internet bills, grocery receipts, etc. Tally your receipts from restaurants or Starbucks runs. Consider how much you’ve spent in the last six months (typical months, that is) on dry cleaning, gas, parking, child care, and more. And don’t forget all your subscriptions! Not only do those magazine and newspaper subscriptions sneak up on us, but so do our cloud storage, email, domain hosting, virus protection, Netflix, Amazon, and other monthly subscription draws as well.

Start inputting the monthly totals into your spreadsheet or other budgeting tool until you have a fairly good picture of the last three to six months’ worth of spending. Remember to include line items for everything, from rent or mortgage, loan, insurance, car, credit card, and utility payments to your monthly clothing, dry cleaning, dining, movie, office supply, and travel expenses, and even savings transfers. Everything should get a line item so nothing is unaccounted for.

Determine Monthly Income

Your budgeting tool will, of course, ask for a total monthly income. If your income is consistent and predictable, this monthly total is easy to calculate. However, if you are self-employed or own a small business such as a restaurant, your monthly income can vary — particularly now as many brick-and-mortar businesses are shuttered. In that case, you could determine what a year’s income would be and divide by 12 to come up with a monthly average. As you proceed with doing a budget each month, you may find that you can predict what income will for sure be coming in over the next month and plan accordingly.

Compare Income to Spending

Here’s where the rubber meets the road: Are you spending more or less than you make?

For many people, this exercise is eye-opening. For some it reveals that they actually have more than they thought. For others, they find more money has been flowing out the door than in. But only when you see what the true picture looks like can you fine tune it.

Determine Spending Habits

With the data you’ve collected, look at trends in your spending habits. Are you subscribing to services you don’t use? Are you paying high interest on a credit card that could potentially be lowered? What about that unused gym membership? Is your twice-a-week latte habit eating into your budget? Are you spending a lot on dining out?

One of the few silver linings to come from the COVID-19 crisis is that much of our spending has been paused, so take advantage of this time at home to get a handle on where your spending has gotten out of control and create a plan to move forward, stronger.

Knowledge is power. Knowing whether or not you need to cut expenses — and by how much — gives you the power to make some choices and take control of your finances, and I promise you it will feel GREAT. Later this month, I’ll share tips with you for cutting expenses and negotiating lower payments.

In the meantime, contact us today to see how we can help. And stay safe!

What Does COVID-19 Mean for Your Taxes?

By now, I’m sure, you’ve heard that the federal government has postponed the deadline for filing your 2019 tax return and paying any tax owed, moving it from April 15 to July 15. This gave me and my team, as I’m sure it did you, a huge sense of relief as we all grapple with the more pressing crisis we all face: COVID-19 and the havoc it continues to wreak on our nation. Your top priority should be keeping yourself and your family safe and healthy.

Rest assured that you don’t have to do anything — no filing of any extension paperwork — in order to take advantage of this new deadline.

Note that this also new deadline also applies to the first installment of estimated tax payments for the first quarter of 2020 — that payment deadline has also been moved from April 15 to July 15.

However, you may be wondering about COVID-19’s impact on certain other deadlines and business or tax-related transactions, particularly at the state level. Here’s some important information for you to be aware of:

No change to Q2 federal estimated tax payment deadline: While the Q1 deadline has been pushed to July, what you may not realize is that at the time of this writing, the June 15 deadline for sending Q2 estimated tax payments has NOT yet changed. You should still plan to submit this estimated payment in June, with the Q1 payment due a month later.

Change to IRA and HSA contributions: There has been an adjustment to the April 15 deadline for making contributions to Traditional and Roth IRAs or Health Savings Accounts (HSAs) for 2019. If you plan to make contributions that count toward 2019, you must do this by July 15.

Depending on the state where you live and do business, you’ll need to take the following state-level information into account as well:

If you do business in Nevada… you file no state income tax, but take note that the Department of Taxation in the state is fully closed due to COVID-19. Taxpayers are advised to file and pay their taxes (this primarily applies to sales tax) through its online portal or by mail. Business license renewals have undergone no COVID-19-related changes; you should plan to renew through the Nevada Secretary of State’s online business portal, SilverFlume.

If you do business in California… you should know that the Franchise Tax Board (FTB) has postponed the filing and payment deadlines for all individuals and business entities to July 15. This applies to the following:

  • 2019 tax returns
  • 2019 tax return payments
  • 2020 Q1 and Q2 estimated payments (*Note: Remember, the federal Q2 deadline of June 15 is still in place as of today).
  • 2020 LLC taxes and fees ($800 LLC payments)

If you are an employer whose business has been affected by COVID-19, you may request an extension, in writing, of up to 60 days from the California Employment Development Department to file your state payroll reports and/or deposit payroll taxes without penalty or interest. This written request must be received within 60 days of the original delinquent date of payment or return.

Although the Ludmila CPA team are all working from home as we ride out the COVID-19 crisis safely, we want you to know that we are working. We’re available to assist you with filing returns, answering your questions, sharing financial advice, and providing peace of mind in this difficult time. Don’t hesitate to contact us with your questions or concerns.

A final word: If COVID-19 teaches us anything, it’s that nothing is more important than our health and well-being. Be present with your family, take care of yourself, and know that we’ll all get through this. Hang in there, and please let us know if we can help.

Filing Taxes During the Coronavirus | COVID-19 Update

We understand these are turbulent times for many people and it can be really scary. If you haven’t heard yet, to ease the burden of these times, the tax deadline has been extended to July 15 rather than April 15. We are currently out of office and are working from home. Even though we may not be able to help you face-to-face, there are still actions you can take to stay on top of filing your taxes during the coronavirus.

Here are some things you can do for filing your taxes during the coronavirus.

1. Get a scanner and scan all your tax documents. First of all, you will do yourself a favor and have a digital copy of all the documents. As long as you keep a good backup copy of your hard drive, no need to keep paper.

2. You can send your scanned documents to us using the secure file transfer at: We scan all the documents we receive. If you do it for us, you should see some tax prep cost savings.

3. We conduct meetings over the phone and over the Zoom video chat. Industry experts say that virtual meetings are what the majority meetings will be in the future. Learn the new technology to keep up with technology.

4. Be pro-active and scan all your 2020 tax information. It will be helpful to you when the next tax season rolls around.

5. If you are not into all this technology yet, just put all your tax info into an envelope and mail it to: 930 Tahoe Blvd # 802-393 Incline Village, NV 89451.

We cannot wait to go back to normal business when we can be in the same office sharing a cup of coffee together. Until then, we will make it work to the best of our ability. And hopefully, everybody will learn something important that can be utilized in the future (either new technology or the new understanding how important it is for us, human, to be together). If you need help with filing your taxes during the coronavirus, please give us a call!

Tips for a Trouble-Free Tax Time

tax timeTax time ain’t what it used to be — and that’s a good thing! It used to be that you had to lug a box of documents (arduously collected over many months) into your accountant’s office and plan to spend a few excruciating hours poring over your receipts. Not so anymore! In these days of electronic filing, you really don’t even need to be present. At our offices, we can prepare your return quickly without needing to sit through meeting after meeting. We’re able to be far more efficient with our time (and your money) than ever before, and you’re able to get out and enjoy this unseasonably beautiful weather without giving it another thought.

The key is providing your information digitally (and securely) to your CPA or come by our office and drop it off with us. The information you’ll need to provide includes the following (not all may apply to you):

  • Your prior year’s tax return, if you are a new customer
  • Form W-2, if you worked for a company and even if the company is yours
  • Bank-provided Forms 1099-DIVS and INT — your dividend and interest income
  • Your investment portfolio Consolidated Form 1099, which would include all the sales of marketable securities
  • Form(s) 1099-R, if you are retired
  • Social security statement (also for retirees)
  • All Forms K-1, if you have invested in any companies (some may not arrive until sometime in September)
  • Form 1041, if you have been the beneficiary of a trust (if the trust did not make any distributions during the prior year, the form usually shows only zeros and is often not provided)
  • Forms 1099-MISC, if you are self-employed (Note: The IRS is really watching for under-reported income. Sometimes, these forms are issued with errors. We usually make corrections when filing your tax return. Also, bring the summary of your income and expenses.)
  • Forms 1099-MISC, if you are a real estate investor and have collected rent (as well as the schedule of expenses to offset that income, at least partially)
  • Form 1098-T for parents with students, allowing you to take a deduction for some of the tuition paid during the prior year (some parents with higher income will not be able to take advantage of this otherwise-generous tax credit)
  • Form 1098, the mortgage expense statement for homeowners
  • Detailed list of child care expenses, including tax ID of the institutions your child attended
  • Health Savings accounts contribution and distribution statements (Forms 5498-SA and 1099-SA)
  • A list of questions (The general rule is that it’s better to bring more than omit some very important information)
  • Any other documents which arrived in the envelope marked “Important Tax Information Enclosed”

Additionally, to help us make the decision about whether you should itemize or take the standard deduction, bring your real estate property tax paid, DMV registration fees, summary of charitable contributions (cash and non-cash separately) and summary of medical expenses (if they were significant: think “at least over $7,500 for taxpayers with AGI of $100,000).

Once you’ve assembled all this information, my advice is this: Schedule your appointment with us for AFTER tax season. Although we’re always happy to meet with any clients who would like to sit with us during tax preparation, it’s not an effective use of your time or ours. Instead, send the information in or drop it off personally, then give us a chance to prepare your return and get a clear understanding of your financial picture. Then we can speak about the return in person or by phone to go through it and, most importantly, schedule a meeting to plan the next year. This is the most important part of tax work — planning the next 12 months. This helps ensure that you’re achieving the financial goals you’ve set for yourself and can minimize tax risks for the coming year.

Are you convinced? The April 15 tax deadline is fast approaching, so contact us today to schedule an appointment or to discuss any concerns you may have. We’re ready to help you make tax time a lot less taxing.

Is Your Business Ready To Jump Into Tax Season?

tax seasonAs we approach April, the time of year that makes business owners shake in their boots and CPAs guzzle coffee by the gallon, take comfort in one small silver lining: It’s a leap year, so you get an extra day of preparation. Okay, well, I did say it was small…

As the turbulence of last year’s changes to the tax law has stabilized, we have a better handle on how best to adjust and hopefully started putting plans in motion last year that will pay off this year. Nonetheless, there are always a few changes, and keeping them straight can be tricky, so we’ve rounded up the following list of important business tax deadlines, so you can be as prepared as possible for tax season:

March 16:

  • S-Corps, partnerships, and multiple-member LLCs must file returns or extensions. Bear in mind that if you miss this deadline, even by just one day, you’ll be charged a monthly penalty of $195, which will be assessed every month you’re late, per owner. The charge is not prorated, so don’t miss that deadline.
  • File for an extension. If you don’t think you can make the deadline for S-Corps, partnerships, and LLCs to file, be safe and file an extension, which gives you until September 15, and you won’t have to pay that steep penalty. (C-Corps and other entities, see below for your deadline and extension information.) But it only works if you file for the extension by March 16. Business tax extensions are filed either electronically by tax preparers OR by mail using Form 7004. We prefer electronic filing, because we receive a record of acceptance from the IRS, which is not the case with paper forms (unless you use certified mail with return receipt, which would be your next best option).
  • Newly formed corporations must elect S status by today. By electing to become an S-Corp instead of a C-Corp, you’ll be converting a corporation from paying its own taxes to passing income to the owners or shareholders, thus avoiding double taxation during tax season. If you wish to change to S status, you must do so by March 16.

April 15: Tax Day

  • C-Corps, trusts, sole proprietorships, and single-member LLCs must file return. Sole proprietorships file their returns on their individual Schedule C forms by the standard filing date for individuals. This is also the date on which you’d need to file for an extension in order to avoid penalties. The extension would give you until October 15.
  • Single-owner LLCs and partnerships run by married couples are disregarded entities, which file Schedule C by April 15. In these cases, the businesses are not seen by the IRS as distinct from their owners, so they file their returns on their individual Schedule C forms by the standard filing date for individuals (April 15). NOTE: This only applies to LLCs organized in community property states, such as Nevada and California. In some states, LLCs owned by married couples may have to file separate tax returns, so be sure to speak with us about the rules in your state.
  • Pay California LLC fee of $800. If your business is located in California, your $800 LLC fee is due today. The fee is due even if your business is formed in a different state but is registered as a Foreign LLC or S Corporation in California.

May 15:

  • Private foundations must file Form 990-PF. This is the deadline for private foundations to figure their taxes based on investment income and to report charitable distributions and activities. Extension to file is available to be able to file by August 15.

September 15:

  • LLCs, Partnerships and S Corporations which have requested 6-months extension. This is the final deadline of the year. If the deadline is missed, the late filing penalty of $195 per owner will start accumulating starting back on April 15!

And if your fiscal year ends on a day other than December 31 … Your filing deadline is the 15th day of the third month AFTER the end of your fiscal year (the 15th of the fourth month for C Corporations). So if your fiscal year ends July 31 and you are an S Corporation, the return or extension is due by October 15.

And our most important tax advice? Don’t wait until your appointment with us to prepare your records during tax season! In order for us to be most effective with our time, and in order to work with you to forecast the next year and make informed recommendations, it’s important for you to give us access to all documents early, so that we can prepare your return in a timely fashion and our appointment can focus on planning, which we firmly believe is the most important service we can provide. And please don’t hesitate to contact us with questions or issues you’d like to discuss, no matter what time of year it is – not just during tax season.

Contact us today to schedule an appointment or to discuss any deadlines or requirements that may pertain to your business. Happy tax season!

A New-Year Checklist for Financial Health

financial healthJanuary is always a great time to wipe the slate clean and start fresh, tackling long-overdue tasks and starting on the right foot. Even more ideal is that this year is 2020 — as in giving your finances some 20-20 vision to be real with yourself and find opportunities to improve your financial health.

So here’s my “2020 Vision” list of financial moves you should consider making this year. Even if you only tackle a few of them, you’re well on your way to a financially healthier, happier new year.

Make sure you have a living trust.
This applies particularly to adults who have children who are minors. Are they protected against disaster if something happens to you? In most cases, without a living trust, your estate will go through probate before plans are established for your offspring. But with a trust, your wishes are followed immediately, including any and all rules you’ve established in the trust (age at which beneficiaries receive assets, for example). With a trust, you can designate a guardian for your children, too. Having a will is an important first step in designating whom will receive your belongings, but without a trust, your estate still will go through probate, with or without a will. Although a CPA cannot prepare this legal document, a CPA can prepare or assist with the balance sheet you’ll need to organize your finances and help create a list of assets for the trust. The best-case scenario is to work with a CPA and attorney as a team in this process, and our firm is happy to recommend area attorneys who can assist you with this.

Address life insurance.
Your policy should pay out about five times your annual income per working parent. Even if your children are older, it’s still important to have life insurance if your kids are pre-college age and living at home, and if you have a mortgage. If you are still young, you’ll find that the rates for term life insurance are very affordable, perhaps only about $500 a year. We advise clients to explore leveled term insurance; with this type of policy, you can get a 10, 20, or 30-year term without a price increase. Although such a policy might be more expensive early on, it levels off, making it much easier to adapt to the payments. At our firm, we have seen cases both with and without life insurance, and I can tell you that it makes a huge difference for the survivors’ lives to have the safety net of such a policy. We are happy to refer you to professionals who can find the right plan for you.

Make sure you’re getting the most from your retirement plan.
It doesn’t matter how young you are, the time to start thinking about retirement is now. The earlier you start, the better the result. If you have a retirement plan at work, plan to contribute up to the maximum allowed. If you don’t have a plan at work, look into setting up a Roth or Traditional IRA. For self-employed individuals, it’s a good idea to contribute to self-employment IRAs. For Roth and Traditional IRAs, if you’re 49 or younger, the maximum amount you are allowed to contribute each year is $6,000; if you’re over 50, you can contribute $7,000. However, if you have a 401k plan and you’re 50 or older, you’re allowed to contribute $19,500 per year, starting in 2020. (Note that the IRS goes by the year you turn 50, not your birthday. So if you turn 50 this year in October, you’re still considered 50 in January.) If you’re self-employed, you can contribute 25% of your net income to a self-employment IRA; doing so decreases your taxes. In other words, if you earn $100,000 annually after deductions, you can put $25,000 away and it comes off your taxable income amount. But note: You will pay taxes later. With a Roth IRA, your contribution comes from taxed income, so you won’t pay taxes on that when you withdraw funds later. There are also income limits, so consult with us. We can refer you to an expert on retirement plans to find the right one for you.

Ensure your beneficiaries are up to date.
Having a trust, life insurance, and retirement accounts means you’ll need to decide whom should receive the benefits of these plans. And if your plans were set up long ago, it’s possible that your beneficiaries have changed — particularly if your family’s demographics have changed, such as with a divorce, a new child, etc. Make sure you take the time to review the beneficiaries listed on all plans and make all necessary updates for your financial health.

Establish a doable savings plan.
Strive to save 10% of your gross earnings. Invest in different kinds of assets for your financial health; don’t put everything in one basket. Put your saved earnings in different savings vehicles — money markets, stocks and bonds (with a variety of risk levels), real estate, retirement plans, and savings accounts. Make sure you have an emergency fund — according to Dave Ramsey, that should be at least $1,000 and up to six months of your earnings. Such a fund enables you to weather unexpected financial storms without disturbing your day-to-day finances.

Create a safe list of passwords.
I’ve unfortunately seen numerous cases in which loved ones couldn’t access important accounts left behind when relatives pass away, all because they couldn’t find the passwords. Take the time to make a list of login information for those important accounts and keep it in a safe deposit box or some other safe place where the people leave behind could access it, in the event of your death. Or tell your CPA to direct the family to this so they can find that information.

Be sure you know what electronic payments you’re making.
We believe electronic, automatic payments are a good, time-saving idea, but don’t let them run on autopilot without checking on them. The beginning of the year is a good time to evaluate everything you’re paying automatically, to make sure those payments should continue. You can automate your payments for telephone, Internet, mortgage, car payments, and more, and you can sometimes work with representatives to find ways to lower those payments. For example, perhaps you’re paying for a sports channel on satellite TV that you never watch — that could save you a nice chunk of change. You might even look at changing providers or negotiating your rates. You might even find that you’re paying a monthly subscription to a service you aren’t using, like a gym membership. Even little changes like that help your financial health.

And finally, now’s the time, before tax season really heats up, to set up your CPA appointment to get your financial health in order.

We wish you all the best for 2020, and we look forward to working with you!

Setting Up or Closing Up Shop?

It may seem like deciding to open or close your business is the hardest part of the process. In truth, though, you have some important accounting responsibilities to address, and if they’re not done right, the business could either start off on the wrong foot financially or continue to cause you prolonged stress long after you’ve closed it and ceased its operations.

Hanging Your Shingle?

Let’s start with opening your business. Picking out a name, designing a logo and a website, finding a location, and hiring staff are important, but you’ll also have to perform several steps to ensure that your finances are running smoothly. These include:

  1. Select a name for your business and, if necessary file a DBA form (Doing Business As) to begin using your fictitious firm name if it is different from the legal entity name.
  2. Will you operate as a sole proprietorship, an LLC, an S-Corp, or a C-Corp? Selecting your business’ entity and filing paperwork according is an important first step.
  3. Register your business with the Secretary of State.
  4. File tax information to obtain your business’ EIN Number (your federal tax ID number).
  5. File for state or county business licenses.
  6. Register your business with the Department of Taxation and State Unemployment Agency (if you plan to have employees).

Depending on the size and scope of your business, it can feel overwhelming to complete all these steps, and for much of the information you’ll be asked to provide, it can be helpful to have a financial expert who’s familiar with your business and goals to provide consistent, accurate information on all forms.

This is a journey we love to take with our clients. We can help you make decisions about your bank accounts, help you plan and scale your business’ growth, and set up accounting systems that you can maintain for the long haul.

This moment, the inception of your business, is crucial as it determines the course you’ll follow. Even small errors can compound and wind up costing you in the form of IRS and state agencies penalties, not to mention in terms of your reputation with employees and customers. We can help you establish efficiencies right from the start and help you eliminate errors that many new businesses owners make.

Shuttering a Business

The decision to close a business for any reason can be emotionally stressful as well as exhausting. It’s not as if you can simply hang a “Closed” sign and walk away — you still have miles to go before you sleep. And if you don’t follow the proper steps, the business you mean to close can end up becoming an albatross around your neck.

Though states can vary in their requirements, here’s a general breakdown of what needs to happen:

  1. The first thing to address is the money. You’ll need to close all bank accounts related to the business, especially if more than one person has access to those accounts. These include payroll accounts and tax accounts.
  2. After all shareholders or members have agreed to the dissolution, you’ll need to file a Certificate of Dissolution with the Secretary of State in any state where the company did business. It may be called Articles of Dissolution. Some states require that taxes be paid first. Without this paperwork, your business could go into default, which becomes public information and may affect your future business dealings. Note that some states, California as an example with its $800 minimum franchise tax, would expect you to pay for each year until you file that Certificate of Dissolution.
  3. If you haven’t already done this prior to filing your Certificate of Dissolution, you’ll need to file your business’ final tax return as well as your payroll returns, with both the IRS and, if necessary, the state, and they must be marked as final. Nevada doesn’t require income tax filings, but California does, and our firm frequently works with businesses from both states. Note that if these filings aren’t done promptly, it can have financial repercussions. Our firm has worked with clients in California who, for whatever reason, haven’t filed final payroll tax returns, and the state estimated the business wages for year after year, assessing taxes and sending bills that take months to resolve. And if business owners have changed addresses and not notified the California Franchise Tax Board, the agency can retrieve the assessed taxes from any business accounts it finds aren’t closed. Pay particular attention to payroll taxes and make sure no outstanding balances are owed; small business owners may be personally liable for those taxes, and liability protection won’t help in such matters.

As you can see, the steps involved in closing a business can be quite involved, and the stakes are high for getting them right the first time. Minimize the stress inherent in shuttering a business by hiring a certified public accountant (CPA) firm to do this right the first time and ensure as smooth a transition as possible.

Have you dotted all your I’s and crossed your T’s when it comes to establishing or dissolving your business? Contact ustoday and let us answer your questions.