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5 Financial Resolutions You Can Live With

For the most part, New Year’s resolutions are hard to keep because many times you either list too many things or ones that aren’t manageable for the long haul – especially those that involve money. Here are a few simple tricks to help you make changes that are bite-sized, easy to implement, and more likely to stick.

Do a five-minute daily money check-in. Life is so busy that sometimes it’s easy to just spend money, then move on to the next task at hand. You might think, “I’ll check my bank balance later,” and then you never do. But if you’re serious about getting a handle on your finances, you might want to try this one thing: give yourself a “money minute.” Select a time of day, maybe after dinner, to log into your bank account. Take stock of what you spent money on. Did you really need that bottled water? That designer coffee? This way, you can nip those small (perhaps unnecessary) expenditures in the bud and make smarter choices in the coming days.

Ibotta. Let’s say you want to buy a new pair of running shoes, a good brand that’ll really last. With this app, you’ll save on everyday purchases, and when you’ve earned enough cash back, you can cash it in for a gift card from your selected store and get what you really want.

Consider micro savings goals. This technique is actually about rewarding yourself financially for changing your behavior. For instance, every time you go to yoga or Pilates, stash away $5. Or if you wake up early or finish a difficult task, stash away $10. When you’ve saved enough money to buy whatever it is you’ve decided on beforehand, you’ve not only avoided the trap of putting your goodie on credit (and paying interest), but also most likely started a new, healthy habit.

Set up an automatic savings plan. After you’ve paid taxes, insurance premiums, and perhaps even your retirement account, you might consider tucking away money for yourself that you’ll never miss. Every. Single. Paycheck. That’s right. When you automatically have a set amount deducted every time you get paid, over time, you’ll accumulate a bucket of money to use in whatever way you deem important – it could be saving for a vacation or a new car. It could also be a fund for emergencies. The point is it’s an easy, failsafe way to save and achieve your goals.

Do one frugal thing a day. This is all about a little bit of forethought and then just taking action. And when you adopt this mindset, you’ll be working daily toward your financial goals like paying off debt, saving money to quit a job you hate, or even having enough extra cash to invest in real estate or whatever strikes your fancy. Here are a few things to consider: drink more water than soda. Eat at home. Use public transportation instead of driving when you can. But this just scratches the surface. For more smart ways to start living frugally, check out this super helpful article. You’ll be surprised at all the ways you can cut back and save.

All of these tricks are easy and, in some cases, no-brainers. When you take a few minutes, set your mind on what you want, anything’s possible. Here’s to fulfilling your dreams in the New Year!

Sources

11 Financial Resolutions That Will Stick in 2024

The IRS Versus the Taxpayer

According to the IRS, ignorance of tax rules and regulations is no excuse. Therefore, it’s essential to use an experienced tax preparer to assist in filing your taxes. The tax code is complex and only gets more complicated as time goes on, making it almost impossible to ensure they are filing correctly without the help of a CPA, EA, or Tax Professional.

Moreover, the penalty for making what could be deemed an innocent mistake can cost a taxpayer a significant sum. What is worse yet is that defending yourself against the IRS is a costly endeavor in terms of both time and money. Part of the problem is that taxpayers often do not have the option of making an appeal directly to the tax court and instead need to first pay the IRS and then challenge it in either District Court or the Court of Claims. Stated plainly, the average taxpayer simply can not afford to fight the IRS in tax court.

In the remainder of this article, we will look at two main areas that tend to be problematic for taxpayers: first assorted penalties for misfiling and mistake, and second obscure international form.

Miscellaneous Mishaps and Mistakes

Taxpayers can get caught up in “gotcha” type situations where they inadvertently make a mistake in the type, accuracy or timing of the filings. Here is a checklist of some of the most common issues in which taxpayers typically make unintentional errors that will not be forgiven by the IRS.

Filing late and paying short: Filing a return late and underpaying the tax owed each carry separate penalties. Together, these penalties can add up to 47.5 percent of the original tax owed in a worst-case scenario.
Careless Filing Details: If you make a mistake in filing your return and it results in tax liability in your favor, you can owe a penalty of 20 percent of the under-reported taxes. In the case of faulty appraisals for items such as donated property, the penalty can double up to 40 percent.
Writing Bad Checks: Technically, it does not matter if it is a physical check or another payment method, but if a taxpayer’s payment to the IRS is declined, the IRS will charge an additional 2 percent penalty.
Missing Checklists: Failure to file the two-page “due diligence” checklist before claiming certain credits, such as earned income or college credits, can result in a fine of $545 per credit.

Obscure International Forms

Many compliance-related rules related to international investments and banking activities were originally created to put a stop to drug dealers, terrorists, and flagrant tax cheats. Unfortunately, the regulations are still in force but apply to increasingly more taxpayers as the threshold amounts have not increased yet more U.S. citizens are working, living, or retiring abroad. Moreover, the penalties can be severe. In this section, we will look at some of the most obscure and serious foreign tax compliance issues.

Passive Foreign Investments: If you own mutual fund shares incorporated abroad, you must file Form 8621.
Personal Holding Companies: If you create a corporation to hold a foreign property, you will need to file Form 5471 for a Controlled Foreign Corporation.
FBAR: If you have $10,000 or more in any combination of international bank and brokerage accounts at any single point in the year, you need to file the FBAR form electronically. Note the trigger here is that the bank or brokerage is outside the United States. If you hold securities of foreign companies or foreign currencies with a U.S. institution, the reporting is not required.
Fatca Disclosures: Facta disclosures were created to combat money laundering, covering all manner of foreign financial assets, including insurance and retirement assets. It can overlap with the FBAR requirements, but the additional reporting here is triggered by higher thresholds starting at $50,000 in assets for single U.S. residents and up to $400,000 for couples residing abroad and filing joint returns.

Conclusion

Remember that ignorance of the tax law is no excuse, especially in the eyes of the IRS. It does not matter if a mistake you make is truly innocent; there is still a good chance that you will end up with unpleasant fines and penalties and, in the worst case, a big mess. It is best to be timely and diligent in your filings, and if your situation is anything short of vanilla, to engage a competent tax professional. More on whos responsible can usually be found in your annual engagement letter from your tax professional.

Expanding Options for Marriage, Defense, Medical Marijuana, Amateur Athletes and Rail Workers

Respect for Marriage Act (HR 8404) – Introduced by Sen. Jerry Nadler (D-NY) on July 18, this Act replaces previous provisions that defined marriage as strictly between a man and a woman. It codifies marriage to state that a spouse may be a person of the opposite sex as long as the contract between the two individuals is valid under state law, and prohibits any state from denying out-of-state marriages on the basis of sex, race, ethnicity or national origin. The bill passed in the Senate on Nov. 29 and the final bill passed in the House on Dec. 8. President Biden signed the Act into law on Dec. 13.

James M. Inhofe National Defense Authorization Act for Fiscal Year 2023 (HR 7776) – This bill authorizes defense spending at $858 billion, an approximate 10 percent increase over last year and $37 billion more than President Biden requested in his budget. This bill is expected to increase pay for service members and civilians by 4.6 percent and include inflation bonuses for those earning less than $45,000 a year. The bill was initially introduced on May 16 and the final bill was agreed upon by a bipartisan committee comprised of Sens. Jim Inhofe (R-Okla.) and Jack Reed (D-R.I.), and Reps Adam Smith (D-Wash.) and Mike Rogers (R-Ala.) The bill first passed in the House on July 14. It was signed into law by the President on Dec. 23.

Help Find the Missing Act (S 5230) – This Act is designed to facilitate data sharing between the National Missing and Unidentified Persons System and the National Crime Information Center database of the Federal Bureau of Investigation, in order to improve efforts in finding missing persons. The bill was introduced by Sen. Chris Murphy (D-Conn.) on Dec. 8 and passed in the Senate on the same day. It passed in the House on Dec. 14 and is currently awaiting the President’s signature.

Medical Marijuana and Cannabidiol Research Expansion Act (HR 8454) – This legislation was introduced by Rep. Earl Blumenauer (D-Ore.) on July 21. The purpose of the bill is to increase the supply of marijuana that may be used in government studies. It expands the number of registered entities (e.g., academia, practitioners, manufacturers) that may manufacture, distribute, dispense or possess marijuana or cannabidiol (CBD) for the purposes of medical research. The bill also enables physicians to discuss with patients the potential harms and therapeutic potential of marijuana and its derivatives (such as CBD). Going forward, the Department of Health and Human Services will report on marijuana’s impact on various conditions, such as epilepsy; its impact on adolescent brains; and on the ability to operate a motor vehicle. The bill passed in the House on July 26 and in the Senate on Nov. 16. It was signed into law by the President on Dec. 2.

Equal Pay for Team USA Act of 2022 (S 2333) – This bill was introduced by Sen. Maria Cantwell (D-Wash.) on July 13, 2021, and was passed in the Senate on Dec. 8. The legislation would require equal compensation and benefits for all athletes representing the United States in international amateur athletic competitions, regardless of gender. The bill would require each sport’s national governing body to submit annual compliance reports pertaining to this requirement. The bill’s fate currently lies in the House.

To provide for a resolution with respect to the unresolved disputes between certain railroads represented by the National Carriers’ Conference Committee of the National Railway Labor Conference and certain of their employees (HJ Res 100) – Passage of this bill was successful in averting a nationwide strike of rail workers, but it did not satisfactorily address all of their demands. The Act provides improved healthcare benefits and a 24 percent pay raise, as well as the ability to take limited unpaid sick leave without being subject to penalties. However, the bill failed to provide the five days of paid medical leave sought. The bill was introduced by Rep. Donald Payne Jr (D-N.J.) on Nov. 29, passed in the House on Nov. 30 and the Senate on Dec. 1. It was signed into law on Dec. 2.

Safe Connections Act of 2022 (HR 7132) – Introduced on March 17 by Rep. Ann Kuster (D-N.H.), this bill instructs cell phone service providers to waive separation of contract service fees when requested by survivors of domestic violence, human trafficking and related harms. The Act requires that the requestor present verifying documentation that a cosigner of thecontract committed or allegedly committed an act of domestic violence, trafficking or a related criminal act against the survivor. The requestor must assume financial responsibility for services after a line separation. The bill passed in the House on July 27, in the Senate on Nov. 17 and was signed into law on Dec. 7.

No-Heir Estate Planning

Even if you have no heirs, you should have an estate plan. Otherwise, the state will determine the fate of your worldly possessions. In fact, if you pass away “intestate” (without a will), the state can even keep all of your assets for itself – if no heirs are found.

The most basic tenet of no-heir estate planning is to write a will. Every state has different rules about what constitutes a legally enforceable will, so be sure to check out your state’s guidelines. If you move, you’ll need to update your will according to the state you live in when you pass away.

In your will, direct who receives which of your assets. There is no edict that says you must leave possessions to a relative. You can choose a friend, a group of people, or even one or more charitable organizations. You also should choose an executor of your will: someone you trust to carry out your wishes. This person can be an attorney or bank custodian of your assets. You should speak with whomever you choose to make sure they are willing to take on the role of executor. It is generally no small task and might entail distributing and even selling your possessions in order to make cash distributions to the beneficiaries.

If you have any pets, be sure to figure out during the planning process who is willing to take care of your animals after you pass or direct their care to a specific shelter.

Also, consider the beneficiaries you will designate for bank and investment accounts, as well as any insurance policies you own. Note that beneficiary designations you assign on these accounts will supersede your will instructions, even if they preceded when you wrote your will. For example, your employer might pay for a life insurance policy in your name that pays out proceeds equaling two to three times your salary. You might not even remember that you completed this paperwork years ago, naming your girl/boyfriend at the time as your beneficiary. If you don’t keep those designations up to date, you may end up leaving a substantial sum to a woman/man who broke your heart instead of the person who embraces it now.

It is also a good idea to name a “Transfer on Death” (TOD) designation on other types of accounts, such as your bank checking and savings accounts. This designation also supersedes will instructions and allows your money to be distributed once the beneficiary presents your death certificate and proper ID. It’s actually advisable to name the executor of your will as TOD, as he may need to access your funds quickly to pay for funeral and burial expenses. Other assets can take longer to distribute, so a TOD designation is a quicker way for your beneficiary to access cash.

Be aware that even if you have prepared a will, your estate will still be subject to probate, in which a judge makes the final determination of your assets. If you wish to avoid this step, you can fold all or a portion of your assets under one or more trusts, which will distribute them according to the trust directions and avoid probate altogether. A trust is particularly beneficial if you have a large estate or wish to leave a substantial donation to one or more charities.

Another estate planning consideration is what to do if, instead of dying, you become incapacitated and cannot make decisions for yourself. As part of the estate planning process, you should name a power of attorney to make financial decisions for you. This can be anyone – a friend or close neighbor or the person you name as executor of your will.

You should also establish a living will, advanced care directive, and/or healthcare proxy. A living will is a directive that states your wishes regarding medical care should you become incapacitated (e.g., permanently unconscious). An advanced care directive can be more specific, such as establishing a “do not resuscitate” (DNR) order if your breathing or heartbeat stops and if you would like to donate tissues or organs after you pass.

A healthcare proxy, which may be referred to as a medical or durable power of attorney, is the assignment of a person who will make all of your healthcare decisions when you no longer can. Note that with medical instructions as well, states have varying guidelines. It’s important to be familiar with your state’s requirements and update your medical care directives if you relocate to another state.

Understanding the Weighted Average Cost (WAC) Method for Inventory Valuation

When it comes to businesses and their inventory and accounting methods for managing it, there are a few different ways to approach the task. The three different options to value inventory/implement cost flow assumptions, include: Last In, First Out (LIFO); First In, First Out (FIFO); and Weighted Average Cost Accounting (WAC). This article will focus only on the WAC method.

Weighted Average Cost (WAC) Method

tranche contributes to the overall valuation of its cost of goods sold (COGS) and inventory. Recognized by both GAAP and IFRS, it’s determined by taking the cost of goods available for sale and dividing it by the quantity of inventory ready to be sold. It’s important to note that while WAC is a generally accepted accounting principle, it’s not as precise as FIFO or LIFO; however, it is effective at assigning average cost of production to a given product.

It’s done primarily for types of inventories where parts are so intertwined that it makes it problematic to attribute clear-cut expenditures to a particular part. This often happens when stockpiles of parts are indistinguishable from each other. It also accounts for businesses offering their inventory for sale all at once. Here’s a visual representation of the formula:

Weighted Average Cost (WAC) Method Formula

WAC per unit = Cost of goods available for sale / Units available for sale

Costs of goods available for sale is determined by adding new purchases of inventory to the value of what the business already had in its existing stock. Units available for sale is how many saleable items the company possesses. Its value is assessed per item and encompasses starting inventory and additional purchases.

When it comes to calculating WAC, there are two different types of inventory analysis systems: periodic and perpetual.

Periodic Inventory System

In this system, the business tallies its inventory at the end of the accounting period – be it a quarter, half or fiscal year – and analyzes how much the inventory costs. This then determines the value of the remaining inventory. The COGS is then calculated by adding how much starting, final, and additional inventory within the accounting period cost.

Perpetual Inventory System

This system puts a bigger emphasis on more real-time management of its stock levels. The trade-off for such real-time tracking of inventory requires more company financial resources. Looking at an example of how a company began its fiscal year with the following inventory can illustrate how it works.

At the beginning of the year, a company had 1,000 units, costing $50 per unit. It also made three additional inventory purchases going forward.

Jan 20: 75 units costing $100 = $7,500

Feb 17: 150 units costing $150 = $22,500

March 18: 300 units costing $200 = $60,000

During the fiscal year, the business sold:

235 units sold during the last week of February

325 units sold during the last week of March

Looking at the Periodic Inventory System, for the first three months of its fiscal year, the company can determine its COGS and the number of items ready to be sold over the first three months of its fiscal year.

WAC per item – ($50,000 + $7,500 + $22,500 + $60,000) / 1,525 = $91.80

Based on this method, the WAC per unit would be multiplied by the number of units sold during the accounting period, therefore:

560 units x $91.80 = $51,408 (inventory sold)

To calculate the final inventory value, we take the entire purchase cost and subtract the remaining inventory to arrive at the valuation:

$140,000 – $51,408 = $88,592

Perpetual Inventory System

Unlike the periodic inventory system, this looks at determining the mean prior to the transaction of items:

This would calculate the average before the 235 units were sold during the last week of February:

WAC for each item: ($50,000 + $7,500 + $22,500) / 1,225 = $65.31

Looking at the 235 units sold during the last week of February, it’s calculated as follows:

235 x $65.31 = $15,347.85 (inventory sold)

$80,000 – $15,347.85 = $64,652.15 (remaining inventory value)

Before calculating for the 325 units sold the last week of March, the unit valuation per WAC is: ($64,652.15 + $60,000) / (1225 – 235 + 300) = 1290 = $96.63

Looking at the 325 units sold during the last week of March is calculated as follows:

325 x $96.63 = $31,404.75 (inventory sold)

$124,652.15 – $31,404.75 = $93,247.40 (remaining inventory)

Based on these options, businesses have the choice, along with LIFO and FIFO, to decide how they want to vary it based on their own business needs.

The 2022 Tax Guide

Now is the time of year to do everything you can to minimize taxes and maximize your financial health with proper year-end planning. In this article, we’ll look at several actions to consider taking before the end of 2022.

Thoughtfully Harvest Losses and Gains Before Year-End

Tax loss harvesting by selling securities at a loss to offset capital gains is a classic year-end planning strategy. Just make sure not to violate the wash sale rules. This means you can’t buy back the same security or a substantially identical one within 30 days of the sale.

Reinvest Capital Gains into Opportunity Zones

Another way to offset capital gains is to reinvest those gains into a qualified opportunity fund (QOF). To be eligible, you must make the investment within 180 days of the sale of the asset-bearing gains. QOF investments allow you to defer the recognition of the capital gains tax on the original investment. The details and exact rules can be tricky, so it’s best to check with your tax advisor before making this type of transaction.

Consider Installment Sales Where Applicable

When a taxpayer sells a private asset such as real estate, a business, or private equity in exchange for a series of payments over multiple years through a promissory note, this can constitute an installment sale. Installment sales are generally taxed, with each payment representing a portion of the proceeds; return of basis, interest, and gain are recognized over the life of the note.

There are situations in which installment sales can be structured so that gains are not recognized until principal payments are recouped. If you are considering selling an asset via an installment sale this year-end or next, consult with your tax advisor to determine if it’s possible to structure the sale to defer gains.

Funding Retirement

If you can contribute to a retirement account, now is the time to see if you need to make additional contributions or top-up to the full amount allowable. As you review your situation, keep in mind the annual maximum contribution limits for 2022.

IRAs – $6,000. If you are 50 or older, it’s $7,000.
401(k)s/403(b)s — $20,500. If you are 50 or older, it’s $27,000

Also, converting assets from a traditional IRA to a Roth IRA may be a smart move if: you believe your tax rate will be higher in the future; you can afford to pay the taxes now with spare cash; and you don’t plan to leave the IRA assets to charity.

Take Your Required Minimum Distributions

The annual deadline to take required minimum distributions (RMD) from your own or inherited retirement accounts is Dec. 31, 2022. It’s important to take RMDs because there is a 50 percent penalty on amounts not distributed. The amount needed to be taken were determined on Dec. 31, 2021, even though the value of the investment has likely fluctuated significantly since that time. RMDs are based on a calculation of age and amount of assets. There are online calculators to help you figure out the amount you need to take.

Giving to Charity

Some taxpayers believe that the deduction for charitable donations is no longer applicable to them since it can be hard to make donations large enough to exceed the standard deduction. One strategy to overcome this challenge is to cluster your donations. Instead of making equal gifts every year, consider making more substantial gifts all in one year instead.

When it comes to making donations around year-end, it’s important to understand the rules on timing and when a gift is effectively deemed given for tax purposes. Here are the basic rules on timing of charitable donations.

To give to charity by check => the date the check is mailed
Gifts of stock certificates => when the transfer occurs, according to the issuer’s records
Gifts of stocks by electronic transfer => when the stock is received, according to the issuer’s records
Gifts by credit card => date the charge is made

Conclusion

As we enter the final part of the year, now is the time to take stock of your financial and tax situation to see if there are any moves you can make to minimize your 2022 tax liabilities and maximize your wealth.

Improving Federal Hiring Processes, Foreign Election Influence and Natural Disaster Protections

Disaster Resiliency Planning Act (S 3510) – Introduced by Sen. Gary Peters (D-MI) on Jan. 13,this Act details guidelines for federal agencies to incorporate natural disaster resilience with regard to real property asset management and investment decisions. The bill passed in the Senate on June 22, in the House on Nov. 14 and is awaiting signature by President Biden.

Disclosing Foreign Influence in Lobbying Act (S 4254) – This Act is designed to combat attempts of foreign adversaries, such as Russia and China, from trying to influence U.S. political elections. Specifically, the bill closes a loophole used to conceal lobbying efforts frequently used by the Chinese Communist Party (CCP).The bill was introduced by Sen. Chuck Grassley (R-IA) on May 18 and passed in the Senate on Sept. 29. It is currently under consideration in the House.

Chance to Compete Act of 2022 (HR 6967) – This legislation was introduced by Rep. Jody Hice (R-GA) on Jan. 25, 2021. The bipartisan bill attempts to improve the federal civil service hiring process by waiving education degree requirements. The focus would shift to an evaluation of skills, aptitude and experience. Furthermore, the bill would enable agencies to share applicant assessments and permit interviewing by subject matter experts. The bill passed in the House on Sept. 29 and is now being reviewed in the Senate.

A bill to allow for alternatives to animal testing for purposes of drug and biological product applications (S 5002) – This bipartisan bill was introduced by Sen. Rand Paul (R-KY) on Sept. 29, 2021, and was passed in the Senate on the same day. The legislation requires that certain alternatives be utilized in animal testing in order to receive an exemption from an investigation of the safety and effectiveness of a drug. Alternatives may include cell-based assays and computer models. The Act also waives the requirement of using animal studies to get a license for a biological product that is interchangeable with another biological product. The bill’s fate currently lies in the House.

Fairness for 9/11 Families Act (HR 8987) – Introduced by Rep. Jerry Nadler (D-NY) on Sept. 26, this bipartisan bill authorizes funding for catch-up payments from the United States Victims of State Sponsored Terrorism Fund. The Act passed in the House on Sept. 30 and is currently being considered in the Senate.

Stop Tip-Overs of Unstable, Risky Dressers on Youth Act (STURDY) Act (S3232) – This legislation directs the Consumer Product Safety Commission to revise the safety standards for freestanding dressers, bureaus and chests of drawers. The new manufacturing standards would require testing related to tip-overs for all products sold in the U.S. market. The bill was introduced by Sen. Robert Casey (D-PA) on Nov.18, 2021. It was passed in the Senate on Sept. 29 and is presently under consideration in the House.

Prevent All Soring Tactics (PAST) Act of 2021 (HR 5441) – Introduced on Sept. 30, 2021, by Rep. Steven Cohen (D-TN), this bill addresses soring horses. Soring is the practice of making adjustments to horses’ limbs in order to produce a higher gait for showing at horse shows, exhibitions, sales and auctions. These alterations can cause pain, distress, inflammation or lameness. Specifically, the bill seeks to expand soring regulation and enforcement by establishing a new system for soring inspections and increasing penalties for violations. The bill passed in the House on Nov. 14 and currently lies with the Senate.

Speak Out Act (S 4524) – Introduced on July 13 by Sen. Kristen Gillibrand (D-NY), this Act would waive enforcement of nondisclosure agreements (NDS) involving sexual assault or harassment disputes. The legislation would allow any survivor to share his or her story regardless of a previously signed NDA. The bill passed in the Senate on Sept. 29 and is in the House for consideration.

Your Year-End Financial Checklist

This might seem like Finance 101, but it’s a tried and true method that works. Take a look back to see where your money went. When you’ve evaluated your patterns of spending, you can reset priorities for the New Year, assuming you want to make changes. If you do, sit down and create a budget. Your tax professional will probably have a downloadable tax planning guild so ask them first, but here’s an example of a family-friendly free, downloadable template to get you started on your 2023 plan.

Rethink Your Savings

If you already have a healthy amount in savings, congrats. Make sure it’s an account that’s interest-bearing and you have the best rate. However, if you had to dip into your emergency savings, then chart a course to replenish it. If you don’t have an emergency fund, it makes good sense to start one. A smart rule to consider is having six months of income saved up, should your heater go out, you experience a sudden job loss, or suffer unforeseen medical expenses that your insurance doesn’t cover. A no-nonsense way to begin is to automate a certain amount each month that will be deducted from your paycheck. You’ll begin to accumulate money in no time. Best of all, you’ll never miss it.

Evaluate Your Debt

Have you made progress in paying it down? Or have you gone the other way? If you’ve eliminated your debt, once again, congrats. If you’ve increased your debt, don’t despair because there are some easy ways to cut expenses. Slow down on eating out. Review your subscriptions and see which ones you really need. Here’s a list of more areas to consider. Another way to get rid of the shackles of debt is to apply for a consolidation loan. You might also use the debt snowball method—starting with the smallest debt and working your way up to the largest. Or the inverse, the debt avalanche, where you pay off high-interest rate balances first.

Contribute to Your 401(k) by Dec. 31

You still have time to do this, but make sure it happens before the clock strikes midnight on Dec. 31. If you’re fortunate enough to receive a year-end bonus, you might want to put as much of it as you can toward your 401(k) plan. For the New Year, increase the amount you’re contributing. Just one or more percentage points higher can make a big difference. Finally, if your company offers a match that you have yet to take advantage of (read: max out), do so before it’s too late.

Consider a Roth Conversion

If you’ve experienced a loss of income this year, you may be in a lower tax bracket. This means you can take advantage of your situation by converting some of your pre-tax assets like a Traditional IRA into a Roth IRA. If you’ve earned too much to convert to a Roth IRA, a back-door Roth IRA contribution might be the way to go. Here’s how you do it: Deposit money into a non-deductible Traditional IRA, then convert that IRA into a Roth IRA. But before you do anything at all, consult your tax advisor, as there are potential costs and tax liabilities that might come up.

Check your FSA Balance

An FSA (Flexible Spending Account) is a great benefit if your employer offers it. However, check your balance to see how much you have left because the rule is: Use it or lose it. That said, many companies offer a grace period until mid-March to spend what you have left, though not all do. Make sure to inquire about the rules of your account before the New Year.

Get a Free Credit Report

When was the last time you checked your credit? If you haven’t done so, now’s a good time because looking back can help you plan ahead. Here’s a great place to get a free report. If you notice any errors or discover any identity theft, you can immediately take steps to correct them and start with a clean slate for 2023.

While taking care of financial matters at the end of the year can be a love/hate kind of thing to do, if you spend a little time now, the coming days might be substantially merrier and bright.

Sources

https://www.bankrate.com/personal-finance/end-of-year-financial-checklist/

https://www.fundingcloudnine.com/budget-cut/

https://www.bankrate.com/retirement/what-is-a-backdoor-roth-ira/

Defining and Calculating Amortization

When there’s a question of the benefit that tangible or intangible assets provide businesses, there are many factors that must be weighed to make internal accounting procedures effective. Businesses must determine how the cost of business assets can be expensed each year over the asset’s lifespan. Looking at how amortization and depreciation work, implementing both processes depend on the type of asset being expensed. There are noticeable differences for each method, including how to salvage value is considered, whether accelerated expensing is allowed, and how each type is expressed on financial statements.

Amortization

Amortization is an accounting practice of spreading the cost of an intangible asset over its useful life. Examples of intangible assets, according to the Internal Revenue Service’s “Section 197 Intangibles,” include goodwill, intellectual property such as trademarks, patents, and government or agency-granted permits or licenses. These are all assets that must be amortized over 15 years.

Based on IRS regulations, when it comes to determining how an asset is expensed over its useful life, amortization is most similar to the straight-line basis method of depreciation.

It’s important to note that the timeframe of amortization is subject to interpretation. Examples, according to the IRS, include a 36-month amortization timeline for computer software because it’s not categorized as an asset under the same IRS Section. Other examples not mandated to be amortized under a 15-year time frame include interests to land, business partnerships, financial contracts (such as interest rate swaps) or creation of media.

Depreciation

One of the main differences when it comes to depreciation is that it focuses on tangible or fixed assets and requires a certain percentage of its useful life to be allocated each year. Examples of assets that can be expensed include trucks for service calls, computers, printers, equipment for production, etc. Another important difference is that the asset’s salvage value is deducted from the asset’s starting cost. The remaining balance (original cost – salvage cost) determines annual expensing amounts, which is divided by the asset’s years of useful life.

Along with the above method of depreciation, also called “Straight-Line Method,” there are other ways depreciation can determine how much is expensed annually and over the asset’s useful life. For example, Declining Balance or Double Declining Balance methods are alternate ways businesses can depreciate their assets – some frontload the amounts to take advantage of accounting/tax rules to reduce their tax liabilities. Another way is to depreciate via Units of Production. This method pro-rates the level of an asset’s expected use within a particular accounting period, on a per-unit basis, to determine how much the company can expense during a particular accounting timeframe.

When it comes to accounting for goodwill, according to a November 2020 electronic survey of CFA charter holders by the CFA Institute, respondents found that investors who see amortization used by companies still require investors’ due diligence. Sixty-one percent of respondents said there need to be alternate ways to figure out if management is effective or not, and 63 percent said that amortization “distorts financial metrics.”

When it comes to understanding and navigating the differences between amortization and depreciation, business owners and investors need to be well-versed in performing due diligence to ensure compliance.

Sources

https://www.irs.gov/pub/irs-pdf/p535.pdf

https://www.cfainstitute.org/en/research/survey-reports/goodwill-investor-perspectives

Your Tax Return “Whose Responsibility Is It?” Reboot

This article is not for those of you who prepare your own tax returns. Let us face it, when you prepare your own return, you are responsible for what is or is not included on the forms. What if you have a CPA or other tax practitioner prepare your annual state and federal income tax returns? Who is responsible for the numbers on your Form 1040, then?

Who’s Responsible – You or your Tax Preparer

Many people have the misconception that once you turn over your tax information to a preparer, all you must do is sign the result and mail it in (or electronically file it). Nothing can be farther from the truth. That is not to say the tax preparer has no responsibility for the numbers included in the return. In fact, in Internal Revenue Service Circular 230, the government specifically states that a practitioner must exercise due diligence in preparing a tax filing, including determining the veracity of oral or written client representations. This does not mean a tax preparer must verify everything you tell him, but he or she must be satisfied that the amounts included on a tax return make sense.

The real problem in a case like this is not that additional tax was due, though that was bad enough. The real problem is that the understatement of taxes opens a taxpayer up to both penalties and interest. At a minimum, interest would be due because the IRS cannot, by law, forgive or abate interest. Add to that the potential for penalties on the late payment of income taxes, negligence, or filing of fraudulent returns – and it doesn’t take long for your tax bill to double.

Many times, taxpayers sign their returns and put them in the mail (snail or electronic) without reviewing the numbers. Either they trust the preparer implicitly (even if the numbers look wrong) or they are happy to have the tax return chore out of the way for another year. Whatever the reason, many taxpayers fail to double-check the preparer’s numbers.

Reviewing Your Return

Wait a minute – did you notice the error in that last paragraph? The error is in characterizing amounts on a tax return as the “preparer’s numbers.” Sure, the calculations may come from your CPA’s computer, but those numbers had better be the amounts you provided to your tax accountant. Any good preparer will welcome a second or third set of eyes checking the numbers to make sure the amounts are correct. That is because he or she knows that the taxpayer is ultimately responsible for the amounts included in the return. The preparer makes sure they are in the right place on the return.

Without naming names, there have been many recent cases where taxpayers were held liable for understated taxes plus penalties and interest. Simply put, ignorance of the law, or the numbers, is not considered an excuse for filing false and misleading returns.

An Army of New Agents?

Now that you know your role and responsibility in filing your tax return, the thought of the IRA hiring 87,000 new agents is keeping you up at night. This figure, which is being bandied about in the news, comes from the projected hiring of new agents from the almost $80 billion in new IRS funding over the next decade as part of the Inflation Reduction Act passed this past summer.

report from May 2021, which estimated the number of new hires.

However, many of the 87,000 figures include new hires to replace retiring agents over the next decade. Replacement hires are likely to be the bulk of the new hires, with more than 50% of the agency’s current employees becoming eligible for retirement over the next decade. Furthermore, the funds will not just be for IRS agents but also for IT technicians, taxpayer services support staff, and experienced auditors.

All-in-all, the IRS will be beefing up the number of employees with the new funding; but it will net somewhere between 20,000 – 30,000 new employees of all types. This would bring staffing levels back to where they were a little over a decade ago.

How Many Agents Will Really Be Armed

Related to the rumor of 87,000 new agents is that they will be armed and coming to bust down the doors of millions of Americans as part of stepped-up tax enforcement. Again, reality and news headlines are not lining up.

Collecting taxes can be a dangerous business. It is not just scouring checkbooks and bank records when it comes to tackling drug dealers, terrorists, and money launderers. In addition to forensic accounting, IRS Criminal Investigation Special Agents also work undercover inside criminal organizations.

In fact, they have been doing this for over one hundred years since the Criminal Investigation division (previously called the Intelligence Unit) was created in 1919 with just six agents. Think of taking down Mobsters like Al Capone based on tax fraud in the 1930s.

So, to put it in perspective, the IRS Criminal Investigation (CI) unit only has about 3,000 employees, of which about 2,100 are special agents. Only special agent carries guns.

Even with the new funding previously mentioned, the CI unit is looking to hire around 300-350 new Special Agents in 2022, with about half of that replacing retirees and those who leave the department. In the end, the IRS is only going to gain about 150 or so new gun-wielding agents.

What’s Your Best Defense

Now that you know you will not have an army of armed IRS agents busting down your door, what is your best defense against getting an unexpected bill from the IRS? First, make sure you are dealing with a reputable preparer. Ask for a copy of the practitioner’s license to do business as a tax preparer. Ask your friends for references of reputable CPAs or other tax practitioners.

Finally, review your tax return and ask questions about anything that you do not understand. Reputable preparers take pride in their work and are honest enough to admit when a mistake has been made. Do not be afraid to ask questions for fear of offending your preparer.

Conclusion

Returning to our original question, just who is responsible for your tax return? The simple answer is you are. Good tax preparers realize this and make every attempt to provide you with an accurate return because protecting you is their job. We congratulate you on your wisdom if you have just such a professional. If you are looking for someone who fits that bill, please consider giving us a call.

Public Accountants

Author: Service2Client

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