As 2023 winds down, here are some ideas to help you prepare for filing your upcoming tax return:
Informational returns. Identify all vendors who require a 1099-MISC and a 1099-NEC. Obtain tax identification numbers (TINs) for each of these vendors if you have not already done so.
Shifting income and expenses. Consider accelerating income, or deferring earnings, based on profit projections.
Be prepared to receive a Form 1099-K. You may receive a Form 1099-K from each payment processor from whom you receive $600 or more in payments. In addition to credit card companies and banks, payment processors can include Amazon, Etsy, PayPal, Venmo and Apple Pay. You’ll need to include the 1099-K on your tax return.
Categorize income and expenses. The best way to prepare for receiving a 1099-K is to organize your records by major categories of income, expenses and fixed asset purchases. If your accounting records are accurate, then any tax form, including a 1099-K, should be easy to tie out to your books.
Separation of expenses. Review business accounts to ensure personal expenses are not present. Reimburse the business for any expenses discovered during this review.
Create expense reports. Having expense reports with supporting invoices and business credit card statements with corresponding invoices will help substantiate your deductions in the event of an audit.
Fixed asset planning. Section 179 or bonus depreciation expensing versus traditional depreciation is a great planning tool. If using Section 179, the qualified assets must be placed in service prior to year-end.
Leveraging business meals. Business meals with clients or customers are 50% deductible. Retain the necessary receipts and documentation that note when the meal took place, who attended and the business purpose on each receipt.
Charitable opportunities. Consider any last-minute deductible charitable giving including long-term capital gain stocks.
Cell phone record review. Review your telephone records for qualified business use. While expensing a single landline out of a home office can be difficult to deduct, cell phone use can be documented and deducted for business purposes.
Inventory review. Review your inventory for proper counts and remove obsolete or worthless products. Keep track of the obsolete and worthless amounts for a potential deduction.
Review your receivables. Focus on collection activities and review your uncollectible accounts for possible write-offs.
Review your estimated tax payments. Recap your year-to-date estimated tax payments and compare them to your forecast of full year earnings. Then make your 2023 4th quarter estimated tax payment by January 16, 2024.
Companies want to make it easy to buy their big ticket items, especially at times of economic uncertainty. A popular technique is to offer 0% financing when you buy furniture, electronics and other household items. You can also take matters into your own hands with a credit card that offers 0% APR on purchases, balances transferred to the card, or both.
While paying for goods and services with 0% interest may sound appealing, there are risks you’ll face that you should be aware of before you take this step.
What’s hiding behind 0% financing
Here are some of the potential problems hiding behind these 0% financing offers:
Special financing offers make it easier to overspend. Psychology Today reported that credit card use can easily result in overspending, and the same is true for loans. The key is to understand the monthly payments you are committing to, and ensuring you can handle them. At the same time, try to assess your purchase decision. Would you buy this item if the 0% offer was not available?
Some 0% APR offers come with deferred interest. Hidden in the fine print of some 0% interest offers may lurk deferred interest charges. This means that while you’re enjoying monthly payments with no interest, the interest charge accrues over time. If you miss a payment, have a late payment or haven’t paid off the loan by the end of the 0% offer period, the accrued interest gets added to your unpaid balance. The key is to precisely understand what happens if you miss a payment or don’t follow the 0% offer exactly as written…before you take the 0% offer.
The 0% offer may be impacting the price. Remember, money has value and someone is paying the interest cost of the 0% financing. Usually the merchant is hiding the cost inside the price you are paying for the item.
What you can do
Before considering a 0% interest financing offer on your next purchase, do this:
Save up for large ticket purchases. Instead of financing items and ensuring you have even more bills to pay each month, start saving for pricier purchases on a regular basis. Even better, leverage the value of your savings within higher interest savings account options that are now in excess of 4 percent.
Turn on your negotiating switch. Whenever you see a 0% offer, there should be a discount available to you for paying upfront. Someone is paying the interest and it is probably going to be you if the financing cost is built into the price you are paying.
Pay on time! Finally, if you do think the 0% option is a deal for you… set up auto payments. Most of these deals are unforgiving and punitive if you miss a payment, so automate them to avoid this possibility.
If you’ve been feeling the pinch of higher auto insurance rates along with other rising costs, you should know some factors that impact these rates are well within your control. Consider these tips to pay less this year and beyond.
Improve your credit score. Many insurance companies consider your credit score and overall creditworthiness when assigning rates, mostly because their research shows credit scores directly correlate with how much risk you pose as a driver. This means that if you want to pay less for auto insurance coverage, you should strive to increase your credit score or move your policy to an insurer that does not use this factor in determining rates. Some easy ways to increase your credit score include using less than 20% of your credit line on your credit cards and by paying all your bills on time.
Ask about discounts. Some auto insurance companies have discounts that are not actively promoted. These are often missed by long-time policy holders that do not specifically ask for them. Examples of discounts include lower rates for being a good student, driving fewer miles, purchasing a car with a lower claim history, or discounts for having air bags, anti-lock brakes, and theft detection devices. There are even discounts for federal employees, military members and for being accident-free for a certain number of years.
Pay premiums in advance. Some auto insurance companies also offer pay-in-full discounts that let you save when you pay for six months or a full year of premiums upfront. This discount can result in 10% to 20% lower premiums right off the bat.
Bundle multiple policies. You may be able to score a discount for having multiple types of coverage with a single insurance company, just as you may get a multi-vehicle discount for having more than one car insured. Typical bundled policies include life insurance, auto insurance, home insurance and umbrella coverage.
Tweak your deductible. Your auto insurance deductible — or the amount you pay for certain claims before coverage kicks in — also plays a role in the cost you pay for auto coverage, and higher deductibles can lead to savings. With that in mind, check how your premiums change if you increase your deductible from $500 to $1,000, from $1,000 to $2,500, and so on.
Take a safe driving course. Finally, taking a safe driving course can help lock in lower auto insurance premiums no matter your age or driving history. The amount of savings you’ll get with this discount can vary, so ask your insurer.
Auto insurance rates may not be going down any time soon, but the steps you take now can help you pay lower rates from this point forward. By improving your credit, checking for discounts and tweaking your policy details, you can get the coverage you need for a price you can afford.
Solving a difficult problem isn’t reserved for only the world’s greatest thinkers. Great creations are simply well-crafted solutions using organized, creative thinking. Here is a four step process so you, too, can become a great creative problem solver!
Step 1 – Define the problem
This step is the most critical. Albert Einstein once said, “If I were given one hour to save the planet, I would spend 59 minutes defining the problem and one minute resolving it.” Think about it – if you get this step wrong, it immediately puts you on the wrong track and all the work that comes after moves you further from the solution. In short, you want to understand as much about the issue as you can. Write down everything you know about the problem and related answers to define what you need to investigate. Summarize your thoughts into a single problem statement.
Step 2 – Ideate
Don’t overthink this step. The time and energy you put into defining the problem will create quite a few ideas, many of them unorganized, bouncing around in your brain. The goal is to take all these thoughts out of your brain and put them into writing. Don’t do any internal filtering – it all needs to come out. Brainstorming is all about quantity with no regard for quality. (Quality control will come later!) Think about it like starting a puzzle by first dumping all the pieces out of the box. If you left any in the box, you have no chance of completing the puzzle. The more out-of-the-box and abstract the idea, the better!
Step 3 – Develop your ideas
Once you have all your idea fragments written down, you’ll notice a few that rise to the top as possible solutions. Identify these top 3 to 5 solutions, then see if the rest of your brainstorming ideas can fit as a supporting detail with any of these main solutions. Now think through why each of these ideas might yield a solution and form a hypothesis as to how this idea will play out. From there, break apart the hypothesis and identify any potential flaws. Revealing possible weak spots is a great starting point to defining the pathway for a solution.
Step 4 – Implement your solution
This final step may seem daunting, but the key is to break the final project into as many bite-size steps as possible. The smaller and easier it is to manage, the better. Identify each step of the implementation process, write down the dependencies for each of these steps and connect them together to work towards the final solution. As you work through them, it’s important to stay flexible as unforeseen obstacles will arise and you need to be able to pivot.
Continue to work through your problem solving process, retesting and refining as you go. Odds are you’ll initially take some steps backwards, but don’t give up! The ability to stay resilient is as important as the process itself to reach your final goal.
The average credit card balance in America ballooned to $5,910 in 2022. This figure is up 13.2% from the year before according to Experian, and it spells out a worrisome (and costly) trend for consumers. After all, credit card interest rates were on rise throughout all last year and well into 2023, mostly due to changes to the federal funds rate by the Federal Reserve. The fact is, consumers with credit card debt pay an average interest rate of 20.92% as of February 2023, compared to just 16.65% in the second quarter of 2022.
Fortunately, you have the power to use credit cards to your advantage — and to avoid paying exorbitant interest rates altogether. Consider these tips to master credit cards instead of letting them rule over you this year.
Plan purchases to carry no credit card balance. While interest rates are incredibly high right now, you can use credit cards without paying for the privilege. Instead of racking up balances and hoping you can afford the bill, use credit cards for planned purchases only — and for spending that’s backed up by money in the bank. Provided you pay your credit card balance in full each month, today’s sky-high interest rates can’t hurt you.
Consolidate high-interest debts. You can get a break from today’s high rates by consolidating credit card debt you already have with a 0% balance transfer credit card. Many cards in this niche give you 0% APR on balance transfers, purchases or both for up to 21 months. This gives you time to pay down your balance with zero interest, which can help eliminate debt faster and save money along the way.
Earn rewards for your spending. If you’re still using your old credit card from college or haven’t bothered to upgrade in the last few years, you could be missing out. Today’s credit cards let you earn as much as 2% cash back on spending with no annual fee, or you can opt to earn generous rewards for travel instead. Just make sure you carry no balance, as interest rates on these cards can be even higher than regular credit cards.
Put your perks to work. Finally, check whether your credit card has other, often unpromoted, benefits. Depending on your card, you may have access to perks like purchase protection against damage or theft, extended warranties on items you buy that come with a manufacturer’s warranty or even travel insurance protections. If you already have access to these benefits or others, knowing ahead of time is the best way to put them to good use.
Credit cards offer convenience and a range of features you can benefit from, but they can either be a blessing or a curse for your finances. Ultimately, your best bet is taking control of your credit card use before it controls you.
Many business owners hire their children, their spouse, or other family members to work in their business. Sometimes this works out well. Other times it causes problems. Here are some of the key pros and cons of putting family members on your payroll.
Hiring your children
Hiring your kids for a part-time job usually has more tax advantages and fewer drawbacks than hiring others. The financial advantage is that if you’re paying your child to do useful work, the business gets a tax deduction for the wages paid. Your child will probably pay little or no income tax, and the after-tax wages stays in the family.
To ensure the wages are fully deductible the child must be doing a real job that helps the business, and the wages must be reasonable for the work performed. Keep detailed records of hours worked and pay salary regularly, preferably on the same schedule as other employees. In other words, treat your child just like any regular employee.
In addition, depending on how your business is organized and the age of your child, you may be able to avoid paying Social Security, Medicare, and unemployment on their wages. To qualify, you must be a sole proprietor or a husband-wife eligible partnership and your child must be under the age of 18.
Hiring your spouse or other relatives
An advantage to hiring your spouse or other relatives is that you have an employee whom you know well, and who may be more motivated or more flexible than a non-family member. And in many family-owned businesses, it’s a powerful way to train the next generation who will take over leadership of the company.
That same familiarity can bring disadvantages, however.
Few families are without some internal or intergenerational conflict, and that can be disastrous if it spills over into the workplace. You must also consider the effect on other employees. Any sign of favoritism or unequal treatment can cause resentment and ruin the motivation of other employees.
Be cautious moving forward
There are plenty of businesses where hiring family members has worked out just fine, but other businesses where it didn’t work out.
So think long and hard before you bring family members into the business. Talk to them and to your key employees beforehand so everyone understands and is comfortable with their roles in the company.
As always, should you have any questions or concerns regarding your tax situation please feel free to call.
