According to a recent Deloitte survey, 91 percent of people agree to terms and conditions without reading the legal agreement. While reading through the legally complex language may be slow and painful, it’s more important than you think. Here are four reasons why reading entire legal agreements make sense:
You miss a major technicality. Many agreements have an exit penalty that requires you to pay for a period of time after you terminate an agreement. Others automatically renew your agreement for a year with exit penalties unless you tell them in writing you do not wish to renew prior to a key date. In a recent example of missing a legal technicality, eight teachers claimed the Department of Education (DOE) mishandled a debt forgiveness program that promised to reduce student loans after 10 years of public service. In most of the cases, the teacher’s application was denied because, according to the DOE, they were in the wrong type of loan or payment program.
You give something away. With extensive agreement documents (PayPal’s user agreement is over 50 pages long!), it’s easy for a company to add language that grants itself rights to something that’s yours. Here are some examples:
Your identity. Companies like Facebook grant itself rights to use your likeness and personal information for targeted advertising unless you catch the clause and take action.
Your work. If you create a presentation using some online tools, the agreement might allow the site to use the presentation without your permission.
Your location. Most navigation software tracks your location even when not using their application. The same is true with most newer vehicles. The only way to catch these tracking rights is to read the clause in the agreement.
You’re not comfortable with the risks. Data breaches are occurring more often and are hard to prevent. To reduce their exposure to litigation, businesses are continuing to add language to agreements to protect themselves. Your job, as the consumer, is to know these risks when signing up for a new service. The more personal information you provide, the more important it is to understand your legal recourse if the supplier of your service is hacked.
You miss something good. Reading an agreement to the end may pay off. A woman in Georgia won $10,000 just by reading her travel insurance agreement. The company, Squaremouth, had a Pays to Read program that awarded a cash prize to the first person to read the clause with a cash prize. For most people, it’s more likely you’ll find additional benefits that come with the agreement or laugh at some humor injected by the company. Here is an example from social media company, Tumblr: “You have to be at least 13 years old to use Tumblr. We’re serious: it’s a hard rule, based on U.S. federal and state legislation. “But I’m, like, 12.9 years old!” you plead. Nope, sorry. If you’re younger than 13, don’t use Tumblr. Ask your parents for a PlayStation 4, or try books.”
Maybe you’re behind on paying your bills because of circumstances outside of your control. Or perhaps there’s been an error in billing. Either way, these scenarios may lead to a run-in with a debt collector. Fortunately, there are strict rules in place that forbid any kind of collector harassment in the U.S. If you know your rights, you can deal with debt collection with minimal hassle. Here’s what to remember:
You have a right to details — without harassment. When a debt collector calls, they must be transparent about who they are. They need to tell you: “This is an attempt to collect a debt, and any information obtained will be used for that purpose.”
In addition, debt collectors cannot use abusive language, or threaten you with fines or jail time. The most a debt collector can truthfully threaten you with is that failure to pay will harm your credit rating, or that they may sue you in a civil court to extract payment.
You don’t have to put up with 24/7 calls. Debt collectors may not contact you outside of “normal” hours, which are between 8 a.m. and 9 p.m. local time. They may try to call you at work, but they must stop if you tell them that you cannot receive calls there.
Keep in mind that debt collectors may not talk to anyone else about your debt (other than your attorney, if you have one). They may try contacting other people, such as relatives, neighbors or employers, but it must be solely for the purpose of trying to find out your phone number, address or where you work.
You can tell them to stop. Whether you dispute the debt or not, at any time you can send a “cease letter” to the collection agency telling them to stop making contact. You don’t need to provide a specific reason. They will have to stop contact after this point, though they may still decide to pursue legal options in civil court.
You can dispute collection. If you believe the debt is in error in whole or in part, you can send a dispute letter to the collection agency within 30 days of first contact. Ask the collector for their mailing address and let them know you are filing a dispute. They will have to cease all collection activities until they send you legal documentation verifying the debt.
If a debt collection agency is not following these rules, report them. Start with your state’s attorney general office, and consider filing a complaint with the U.S. Federal Trade Commission and the Consumer Financial Protection Bureau, as well.
Is a payroll provider right for you and your business? While it is an added expense, there are good reasons to add a partner to help with this service. Here are five things to consider:
Allows full attention on growing the business. If a portion of employees is focused on managing and processing payroll, business growth opportunity may be stifled. This is especially true if a key employee or owner is the one processing payroll. By outsourcing payroll responsibilities, the full workforce can concentrate on growing the business.
Improves accuracy and compliance. Most entrepreneurs didn’t go into business to tabulate hourly time cards, calculate tax withholdings, or stay current with the constantly changing government filing requirements. Thankfully there are those who specialize in monitoring labor regulations, compliance updates and the number-crunching that payroll requires. This will invariably improve the payroll accuracy a business needs.
Lowers audit risk and increases peace of mind. Federal taxes, state taxes, local taxes, Social Security, Medicare, unemployment taxes and overtime requirements are long (and growing). Payroll services reduce audit risk on the front end and provide audit assistance on the back end.
Enhances internal controls. Separation of duties is an important internal control for all businesses. This is tough to do in a small company. Businesses with one or two-person payroll departments are susceptible to fraud or embezzlement. Adding an outside payroll service can provide the checks and balances a company needs to stay protected.
Save money. One of the key methods of reducing business costs is adding efficiency. Outsourcing payroll increases efficiencies because payroll professionals need fewer hours to get the job done. These time improvements, coupled with potential savings in penalties and interest, can have a positive effect on net income.
When laying out and understanding all aspects of using a payroll service, it may be time to review your situation.
If you or your business sells product on Amazon using the Fulfillment by Amazon (FBA) service, you are well into the multi-state sales tax mess … even if you are not aware of it. You may be asking yourself:
Do I now need to register my business with every state and collect tax on their behalf?
Do I really have physical nexus? What about economic nexus? What is nexus?
Background
The old sales tax standard required you to collect and remit sales tax only in states that you have a physical presence (also known as physical nexus). The recent South Dakota vs. Wayfair, Inc. decision by the Supreme Court then legitimized the concept of economic nexus. This means your business could be required to collect and remit sales tax based on where you ship a product and not whether you ever set foot in a particular state (economic nexus).
The bigger mess
States were quick to jump on the bandwagon and actively identify Amazon, Ebay and Walmart sellers to demand sales tax for website sales. Some states, like California, got even more aggressive and decided that FBA sellers actually have physical presence because Amazon may put your product in a warehouse in their state. They got seller lists from Amazon and sent out threatening letters to small sellers demanding back sales tax, even though businesses have no way to retroactively collect the tax because the customers are Amazon customers.
Marketplace facilitator to the rescue?
To help address this mess and alleviate the need for small businesses to collect and remit sales tax forms to 50 states, many states acknowledged the problem and have passed what is called Marketplace Facilitator laws.
In short, it’s on the facilitator, NOT you. States with these laws require Amazon, Ebay and similar companies that facilitate sales for resellers to collect and remit sales tax on reseller Amazon activity. There are more than 30 states that have adapted these laws.
You DO NOT need to register your business to collect sales tax in states that have Market Facilitator legislation unless you are otherwise required to do so.
What you need to know
Know the states. Know which states have Marketplace Facilitator laws. If you don’t, you could unwittingly register your business with a state when you do not have to do so.
Some states deploy deceptive tactics. For example, California passed a Marketplace Facilitator law effective October 2019. Despite this law, the California Department of Tax and Fee Administration (CDTFA) is actively soliciting (threatening?) small businesses who sell on Amazon to register and remit sales taxes for a time period prior to this date without disclosing the new law. To make matters worse, their sales tax registration form could make you personally liable for business-related sales tax and disclose your confidential supplier list. It may also be filled with other legal entrapments.
Know the minimums. Even states without Marketplace Facilitator laws typically have minimum thresholds before they require you to collect and remit sales tax. Every state is different, but the typical limit is 200 transactions or $20,000 in sales.
Check out streamline states. Collecting and remitting sales tax is a daunting task for any small business. Using a third party sales tax administrator is very expensive. There is some help, albeit still complicated, for registering with 23 states that are part of a streamline sales tax agreement.Sales tax collection in multiple states is not for the faint of heart. Streamline Sales Tax and Bill Track 50 are a few of the popular sites that can help.
Many people dream of making more money, but cutting expenses can have the same effect. Identify unnecessary expenses with these six money-saving ideas and help free up some cash:
Eliminate late fees. Most late fees are the result of being too busy, traveling or simply forgetting. Fortunately, late fees are almost entirely avoidable if you have a plan. A lot of people only think of credit card late fees, but they can also show up in many places including utility bills, subscriptions and registration fees.Take a look at your bills and identify the kinds of charges you’re getting. Scheduling automatic payments should help you avoid late fees going forward. And if you get one, call and try to get it canceled. It just might work!
Cancel unnecessary subscriptions. Subscriptions are popping up everywhere. They include everything from weekly shaving products to video and music streaming services. With so many options, it’s easy to double up on services or forget to cancel one that you were planning to use for just a short time. Review all your monthly subscriptions and cancel the ones that are no longer providing value.
Minimize interest expense. Paying for day-to-day expenses with a credit card to rack up points to use for airfare or other perks is a great cash management tool, but the interest that builds up if you don’t pay it off every month negates the perks and creates an extra expense. If you find yourself in a situation with multiple credit card balances, consider a consolidation loan with a lower interest rate.
Be selective with protection plans. With virtually every purchase, the store or website offers to sell you insurance in the form of a protection plan. And for good reason — they’re profitable to them and not you! Insurance should be reserved for things you can’t live without like your health and your home. Pass on the protection plan for your toaster.
Review your deductibles. A deductible is a set amount you pay before your insurance kicks in to cover the cost of a claim. The higher the deductible, the lower your monthly premium. If you have enough in savings to cover a higher deductible when disaster strikes, raising the deductible may save you some money on a month-to-month basis.
Try a little DIY. If you own a house, you know it’s just a matter of time before something breaks or stops working. When it happens, don’t instantly reach for the phone to call a repairman. Repair videos are in endless supply online. Often, an easy fix will do the job. Simple fixes can lead to big savings, especially since repair services charge minimums and fuel surcharges.
While some ideas take a little more analysis to understand the true benefits, many are just the result of paying attention. Taking a proactive approach can provide a big boost to your budget.
As always, should you have any questions or concerns regarding your tax situation please feel free to call.
The Internal Revenue Service today just announced the 2020 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2020, the standard mileage rates for the use of a car, vans, pickups or panel trucks will be:
57.5 cents per mile driven for business use, down one half of a cent from the rate for 2019,
17 cents per mile driven for medical or moving purposes, down three cents from the rate for 2019, and
14 cents per mile driven in service of charitable organizations.
The business mileage rate decreased one half of a cent for business travel driven and three cents for medical and certain moving expense from the rates for 2019. The charitable rate is set by statute and remains unchanged.
Note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, except members of the Armed Forces on active duty moving under orders to a permanent change of station. For more details, see Rev. Proc. 2019-46.
The standard mileage rate for business use is based and set on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. Also, the business standard mileage rate cannot be used for more than five vehicles used simultaneously. These plus other limitations are described in section 4.05 of Rev. Proc. 2019-46.
Notice 2020-05, posted on IRS.gov, has the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan. To add to that, for employer-provided vehicles, the Notice provides the maximum fair market value of automobiles first made available to employees for personal use in calendar year 2020 for which employers may use the fleet-average valuation rule in § 1.61-21(d)(5)(v) or the vehicle cents-per-mile valuation rule in § 1.61-21(e).
Take a look at how Social Security benefits have changed. Use this infographic to help you plan for the coming year, and to learn a little more about retirement benefits and taxes.
Your 2020 Social Security Benefits Find out how your benefits have changed
Estimated average Social Security retirement benefits starting January 2020
All retired workers in 2019 $1,479/mo
All retired workers in 2020 $1,503/mo
Did you know? You can increase your Social Security retirement benefits by 5-8% when you delay applying until you’re age 70.
1.6% cost of living adjustment for Social Security retirement benefits and SSI payments begins with the December 2019 benefits (payable in January 2020)
The 2020 maximum Social Security retirement benefits a worker retiring at full retirement age is $3,011/mo.
Did you know…
87% of Baby Boomers are expecting Social Security to be a source of their retirement income.
1-3 people expect it to be their primary source of income.
Social Security pays benefits to more than 67 million people including retirees, children and surviving spouses.
2020 Social Security and Medicare tax rates
If you work for someone else…
your employer pays 7.65%
you pay 7.65%
If you’re self-employed…
you pay 15.3%
Note: The above tax rates are a combination of 6.2% Social Security and 1.45% for Medicare. There is also 0.9% Medicare wages surtax for those with wages above $200,000 single ($250,000 joint filers) that is not reflected in these figures.
Maximum amount you can pay in Social Security taxes
2019: $8,239.80
2020: $8,537.40
165+ million people work and pay Social Security taxes.
Social Security has provided financial protection for Americans since 1935.
Maximum earnings amount Social Security will tax at 6.2%
2019: $132,900
2020: $137,700
How does Social Security work?
When you work, you pay taxes into Social Security.
The Social Security Administration used your tax money to pay benefits to people right now.
Any unused money goes to the Social Security trust funds.
Later on when you retire, you receive benefits.
Social Security payments explained
SS Social Security retirement benefits are for people who have “paid into” the Social Security system through taxable income.
SSD or SSDI Social Security Disability (SSD or SSDI) benefits are for people who have disabilities but have “paid into” the Social Security system through taxable income.
SSI Supplemental Security Income (SSI) benefits are for adults and children who have disabilities, plus limited income and resources.
Maximum SSI payments
2019
2020
Individual
$771/mo
$783/mo
Couple
$1,157/mo
$1,175/mo
Here’s how to qualify for your retirement benefits
When you work and pay Social Security taxes, you earn “credits” toward Social Security benefits. The number of credits you need to get retirement benefits depends on when you were born.
If you were born in 1929 or later, you need 40 credits (10 years of work) to receive Social Security retirement benefits.
The earnings needed for a credit in 2020 is $1,410.
4 credits maximum per year.
Did you know you can check your benefits status before you retire?
You can check online by creating a my Social Security account on the SSA website. If you don’t have an account, you’ll be mailed a paper Social Security statement 3 months before your 61st birthday.
It shows your year-by-year earnings, and estimates of retirement, survivors and disability benefits you and your family may be able to receive now and in the future.
If it doesn’t show earnings from a state or local government employer, contact them. The work may not have been covered either by a Section 218 agreement or by federal law.
Sources: SSA.gov, 17th Annual Retirement Survey, Transamerica Center for Retirement Studies®
In 2018, the government attempted to “simplify” the tax-filing process by drastically shortening Form 1040. The result was six new schedules that created a lot of confusion. Now the IRS is attempting to ease some of that pain by revising the form and removing some schedules. Will it help? Here is what you need to know:
More information on the main form. To make it easier for the IRS to match pertinent information across related tax returns, new fields have been added on the main Form 1040. For example, there’s now a spot for your spouse’s name if you choose the married filing separate status. In addition, there’s a separate line for IRA distributions to more clearly differentiate retirement income.
3 schedules are gone. What was your favorite memory of Schedules 4, 5 and 6? Was it the unreported Social Security tax on Schedule 4? Or the credit for federal fuels on Schedule 5? While those schedules will no longer exist, those lines (and many others) have found a new home on one of the first three schedules. Less paperwork, but still the same amount of information.
You can keep your pennies! For the first time, the IRS is eliminating the decimal spaces for all fields. While reporting round numbers has been common practice, it’s now required.
Additional changes on the way. The current versions of Form 1040 and Schedules 1, 2 and 3 are in draft form and awaiting comments on the changes. Because of the importance of the 1040, the IRS is expecting to make at least a few updates in the coming weeks (or months) before they consider it final. Stay tuned for more developments.
How to prepare for the changes
The best way to prepare is to be aware that 1040 changes are coming. The information required to file your taxes will remain the same, but some additional hunting will be necessary to find the shifting lines and fields on the modified form.
Remember, changes bring uncertainty and potential for delays, so getting your tax documents organized as early as possible will be key for a timely tax-filing process.
With all the rating services on sites like Amazon and Yelp, it’s not a question of whether your business will receive a negative review, only when. Every business or service must know how to handle these negative reviews. Here are some hints:
The best defense is a great offense
You don’t have to address negative reviews if you never have them in the first place. Proactively identify possible negative experiences and encourage customers to respond directly to you to resolve their issues. Here are some suggestions:
Manage expectations up front. If you communicate that it takes two weeks to complete something, make sure it’s done in less time.
Actively communicate your contact information at the time of ordering to make it easy to contact you directly to answer questions and fix problems.
Contact customers within 24 hours after a sale or service to see if they have questions or concerns.
FIRST fix the problem
When you get a negative review, try to identify the customer and contact them directly. Then work with them to solve their problem. If a solution is not possible, be willing to cancel their service or refund their money. A disgruntled customer that hasn’t been hurt financially quickly becomes a toothless monster. Once this is done, try to have the customer remove their review if they are satisfied. OR even better, try to get them to rave about how you solved their problem!
Know your dissatisfied reviewer
Conduct research on the customer. Are they habitual complainers or bullies? The current public feedback forums have created many of these types. On the other hand, people easily get frustrated with poor service and are simply at their wit’s end. It’s important to know the difference.
Problems are opportunities
Inside every negative review is an opportunity to be better at what you do. Even with the review bullies, there is an element of truth to most reviews. Try to get past the emotional impact of the negative review and think of it as a gift to make your service better than everyone else’s.
Writing the response: FREE advertising
You’ve fixed the problem. You’ve researched the customer. You’ve looked for opportunities to be better at what you do. Now you are ready to publicly respond to the negative review. But — and this is important — you are not responding to the complainer. You are responding to future readers of the complaint! The formula of a great response is:
Acknowledge the customer’s feelings.
Restate the problem.
Tell EVERYONE how you solved the problem.
Encourage the complainer to contact you directly in the future so you can handle their issue more effectively than through a public forum.
Tone is critical. The reviewer will likely be angry and frustrated. Use this to your advantage. Your tone must sound reasonable with a rational approach. When contrasting the two styles, readers will automatically see your business in a positive light, even when you make a mistake.
DO NOT:
Act defensive
Act like a victim by over-apologizing
Talk down to the disgruntled
Make the customer appear or seem stupid
Tell everyone how irrational this guy is … let readers figure this out on their own
Get into a back and forth discussion
Time is of the essence
Try to complete your contact and response within 24 hours. This speed will impress all future readers. A lot must be done to reach this goal, but if you assign someone to monitor review services for you, and they are empowered to solve problems, you can accomplish this goal.
Today’s review systems give entirely too much power to a few complainers. Your goal should be to use these systems to your advantage to build your brand and find new buyers.
In times of market volatility or when a financial need arises, it is only natural to consider selling some investments. Understanding the tax consequences is key to making an informed and planned decision. Here is what you need to know BEFORE you sell:
Investment Tax Rates
Investment
Tax Classification
Holding Period
Tax Rate
Comments
Retirement Accounts: 401(k), 403(b), traditional IRA, SEP IRA, SIMPLE IRA
Ordinary income (when funds are withdrawn from the account)
Determined by the account type (usually withdrawals after age 59 1/2)
0% up to 37%*
There is not a tax event when an investment is sold within your account. The tax rate depends on your annual income at time of fund withdrawal
Retirement Accounts: Roth IRA and Roth 401(k)
No tax on withdrawals
5 years and 59 1/2 years old or older
N/A
Earnings are not taxed as long as rules are followed
Short Term Capital Gains (STCG)
Ordinary income
1 year or less
0% up to 37%*
For investment sales such as stocks and bonds
Long-term Capital Gains (LTCG)
LTCG rates
More than 1 year
0% up to 20%
For investment sales such as stocks and bonds
Depreciation Recapture
Special
Any
25%
When you sell property that has been depreciated in prior years, part of your sale price may be taxed as a recapture of this prior period depreciation
Collectables
Special
Any
28%
A special tax rate applies to gains on the sale of items you collect (like coins and baseball cards)
Investment losses
Ordinary income
Any
Offset benefit: 0% up to 37%
Losses can offset ordinary income up to $3,000 each year
* a 3.8% net investment income tax may also apply to these earnings.
As the above tax rate chart suggests, understanding the tax consequence of selling an investment can be complicated. Your tax obligation could be subject to no tax or up to 37 percent plus an additional 3.8 percent for the net investment income tax. Here are some ideas to consider:
Within retirement accounts
Generally not taxable. Selling investments within your retirement accounts is not usually a taxable event. The potential tax event occurs when you take the funds out of your account either by a withdrawal or occasionally as a rollover into another account.
Follow the account rules. Each of your retirement accounts has its own set of rules. If you follow them, you can avoid early withdrawal penalties. Following the holding period rules within Roth accounts can also make your withdrawals tax-free.
Gains and losses outside of retirement accounts
Losses. Your losses are first used to offset any investment gains. Any excess losses can offset your ordinary income up to $3,000 per year. So the benefit of losses can be worth next to nothing or up to 37 percent if it offsets ordinary income.
Non-investment losses. Unfortunately, individuals may not offset losses on the sale of non-investment property. So if you sell a car and make money, you need to report the gain. If you sell the car and lose money, there is no deductible loss unless it is part of a business transaction.
Long-term better than short-term. Holding an investment for longer than one year is key if you want to minimize your tax obligation. Short-term gains are taxed the same as wages.
Remember your investment decisions can often have quite different tax consequences. The best suggestion is to seek advice BEFORE you sell.
As always, should you have any questions or concerns regarding your tax situation please feel free to call.
