Leasing vs. Buying a Car

Car made of 100 dollar billsKnowing the tricks makes you a better decision-maker

There are many reasons for you to lease a car versus buy a car, but too often it is the auto dealer’s profit motive that determines which method you use rather than what’s best for your budget and lifestyle. To help you make an informed decision, here are some things to consider:

When to lease
  • You want a car with lower down payments and monthly costs.
  • You don’t like making your own vehicle repairs.
  • You prefer a new car every couple of years.
  • You don’t drive many miles each year.
  • You are not hard on your vehicle.
When to buy
  • You plan to have the vehicle for many years.
  • You are willing to drive a used car.
  • You drive more miles than a lease allows.
  • You are worried about keeping the car in excellent condition.
  • You want to work on or modify the car.
Tips to know if you decide to lease

If you think leasing a vehicle is an option for you, here are some tips to ensure you are making the best deal:

  • Negotiate before revealing your intentions. Negotiate the price before telling the dealer you wish to lease. The purchase price you negotiate should be the price the dealer uses in calculating the lease payments as well as an outright purchase. If it is not, this technique forces the dealer to disclose this fact.
  • Ask about the annual percentage rate (APR). Ask the dealer to disclose the effective APR built into the lease. If the dealer gives you a lease factor instead of an interest rate, multiply the lease factor by 2,400 to get a general interest rate. For example, a lease factor of 0.0025 multiplied by 2,400 returns an interest rate of 6 percent.
  • Question the residual value. Ask what the projected residual value of the car is at the end of the lease. This value is often overstated by the dealer to artificially lower your lease payment, but can impact your ability to purchase your vehicle at the end of the lease. Future residual value is an estimate and can often be negotiated with the dealer.
  • Compare with a loan. Use the negotiated purchase price to calculate your loan payments. Use this information to compare your monthly lease payment with your car loan payment.
  • Read the lease agreement! If ever there is a time to read the fine print, leasing a car is one of them. Pay special attention to early termination clauses and cost for excess miles. These two factors can dramatically impact your lease versus buy decision.

Tax Day is Here!

Tax and Question Marks

The individual tax deadline of April 15 is fast approaching. Do you have all your tax arrangements in order? Here are five important questions that people are asking.

  1. What happens if I don’t file on time?There’s no penalty for filing a late tax return after the deadline if you are set to receive a refund. However, penalties and interest are due if taxes are not filed on time or a tax extension is not requested AND you owe tax.

    To avoid this problem, file your taxes as soon as you can because the penalties can pile up pretty quickly. The failure-to-file penalty is 5 percent of the unpaid tax added for each month (or part of a month) that a tax return is late.

  2. Can I file for an extension?
    If you are not on track to complete your tax return by April 15, you can file an extension to give you until Oct. 15 to file your tax return. Be aware that it is only an extension of time to file — not an extension of time to pay taxes you owe. You still need to pay all taxes by April 15 to avoid penalties and interest.

    So even if you plan to file an extension, a preliminary review of your tax documents is necessary to determine whether or not you need to make a payment when the extension is filed.

  3. What are my tax payment options?
    You have many options to pay your income tax. You can mail a check, pay directly from a bank account with IRS direct pay, pay with a debit or credit card (for a fee), or apply online for an IRS payment plan.

    No matter how you pay your tax bill, finalize tax payment arrangements by the end of the day on April 15.

  4. When will I get my refund?
    According to the IRS, 90 percent of refunds for e-filed returns are processed in less than 21 days. Paper filed returns will take longer.

    24 hours after you receive your e-file confirmation (or 4 weeks after you mail a paper tax return), you can use the Where’s My Refund? feature on the IRS website to see the status of your refund.

  5. Oops, I forgot a tax document. Now what?
    The first thing to do is determine the impact the new information has on your filed return. For example, if you claim the standard deduction and then receive a mortgage interest statement that does not bring your expenses above the deduction threshold, there’s nothing more you need to do. Simply file the statement with your other tax documents.

    If, on the other hand, you receive something like a Form 1099 with additional income, you will need to amend the tax return to claim the income. In cases like this, please call in order to review your situation and the timing of the correction.

As always, should you have any questions or concerns regarding your tax situation please feel free to call.

4 Key Metrics to Fortify Your Business

  1. Illustration with percent sign

Even the best, well-prepared business plans can unravel quickly without a process in place to evaluate performance. Creating a scorecard with quality metrics can give you the daily insight you need to successfully run a business without drowning in the details.

Create a scorecard that works

An effective scorecard gives you a holistic view of the state of your business in one report. The report consists of key financial and non-financial metrics to provide a daily look at the health of your business. To be useful, your measures should be concise, available on-demand, and include properly targeted data to help you quickly spot trends and react appropriately.

Effective business metrics to consider right now
  1. Quick Ratio (financial)
    Add up your total cash, short-term investments and accounts receivable. Then divide that total by your current liabilities. This is your quick ratio. It’s a simple way to see if you have enough funds on hand to pay your immediate bills. A value of 1.0 or more means your liquid assets are sufficient to cover your short-term debts. A value less than 1.0 may mean you’re relying too heavily on debt to fund your operations or pay expenses.
  2. Retention Percentage (customers)
    First, create a list of customers who made purchases this year and a list of customers who made purchases last year. Then, remove all new customers gained in the current year. Divide the total number of customers from last year by the remaining number of customers for this year. This is your customer retention percentage. Measure this over time to see if your business is retaining or losing core customers. If you have a condensed sales cycle, you can shrink the period down further. For example, by looking at this calculation each month, you can see how it builds over the year.
  3. Asset Turnover Ratio (internal process)
    Divide your total sales by average total assets from your company balance sheet. (beginning assets plus ending assets, divided by two) for the same time period. The end result tells you the amount of sales generated for each dollar committed to your assets. The number may not reveal much by itself, but when reviewed over time, you’ll have a better understanding of whether the assets used to run your business are becoming more or less effective.
  4. Net Income Per Employee (growth)
    Divide your net income by your total number of employees for a given time period. In theory, as your workforce develops, it should generate more income per employee. Remember to account for part-time employees prior to making your calculation (e.g., a part-time employee working 20 hours per week is 1/2 an employee for purposes of this calculation). If the income per employee is getting lower over time, figure out why. Perhaps you have high employee turnover, or there is an area of your company that can benefit from training.

While each ratio may help you analyze different aspects of your business, they don’t tell you the whole story. Finding the right mix of metrics for your scorecard can take some time, but the end result is a valuable tool that can take your business to the next level.

Hints to Eliminate Monthly Bill Creep

Envelopes with bills

Paying bills is inevitable, but paying too much is not. Are you aware of all the services you are paying for every month? Here are some tips to help you get a handle on your recurring monthly expenses:

  • Investigate your recurring services. Start by taking stock of every service you are currently using. Review your bank and credit card statements and highlight all the charges that look like a subscription. Some examples to look for are streaming services (video, music and games), magazines, news subscriptions, digital storage services, gym memberships and financial services. Determine if you have redundant subscriptions, such as two music-streaming services. Finally, ask yourself if each service is still providing value to you. If it’s not, cancel it.
  •  Review bills for unnecessary fees. Once you trim your list down to the services you want to keep, locate the most recent bill for each. Read through all the charges and make notes of those that are questionable. You might be paying for services you aren’t using, such as a video streaming service on your cell phone bill. Or maybe you are paying replacement insurance coverage for something you don’t need. For every charge that doesn’t make sense, call and ask the provider to cancel it.
  • Bundle expenses when you can. Many suppliers provide multiple services and will offer discounts if you sign up for a few of them. Bundling your cable TV, Internet and home phone is a common example of this. Other places to look for bundling opportunities are cell phone providers and insurance companies.
  • Negotiate for lower rates. Call each provider and ask for a lower rate or discount. Most companies want to keep your business, so often times they will work with you. Service providers routinely change the way they package their products, so saving money might be as simple as changing to a different level of service. It’s rare for companies to reach out and offer savings, so you need to make the call!

It’s easy for your bills to spiral out of control if you don’t keep close tabs on them. Go through a review exercise every few months to ensure you aren’t paying more than necessary.

5 Things Every High School Senior Should Know

As the school year rolls into February, suddenly the realization sets in that high school seniors only have a few months left before graduation. Here are five things each graduate should understand before their big graduation day:Graduation caps in the air

  1.  Debt needs to be managed carefully. It is way too easy to burden oneself under a pile of debt. This is especially true with college loans and credit card debt. While college debt may be unavoidable, try to minimize the size of the loans as much as possible. Regarding credit cards, help your student find the one that best fits their circumstance. This card can be used to create a great credit score for future loans by paying off the whole balance every month. If they can’t, the card should only be used for emergencies. And they should never buy something they can’t afford.
  2. Students need to invest in themselves. As it stands right now, high school students consist of 18 years of experiences, nurturing and decision-making. Now they are faced with a big decision. “Should I pay for college or a trade school?” Just remind them, the more employable they are, the greater their life-long income potential. So while tempted to take another path, the best return on most young student’s investment is often one that is made to create a better employment future for themselves.
  3. Comfort is overrated. It is in our nature to be comfortable — to take the path of least resistance. The times where you step outside of your comfort zone are often the times you learn the most about yourself. These experiences often grow confidence to tackle more difficult challenges when they come along. So encourage your teen to work hard and gain the wisdom that comes with these early experiences.
  4. Life is expensive. Utilities, insurance, taxes, association dues and medical expenses are just some examples of typical “hidden” expenses. Before every big decision, teach your young graduate to research the costs and talk to people that have been in their shoes. In addition to recurring expenses, these new grads need to plan for unforeseen emergencies like dropping a phone in the sink or having unexpected car repairs. So teaching a student how to make a budget and save three to six months of expenses in an emergency account are two great habits to encourage.
  5. Enjoy the journey. Graduating from high school is an exciting time, but can also bring tremendous uncertainty. As your student moves on to their next phase, new emotions will arrive and others will fade away. Encourage your young adult to steal moments each day to reflect on where they’ve been and focus on the positive aspects of their current situation. Each phase of life brings its unique set of challenges to be experienced. Encourage them to enjoy their journey.

Tips to Protect Yourself From Tax Scams

Tax Scam warning signs

Too many people downplay the threat of identity theft because it hasn’t been witnessed or experienced firsthand. This false sense of security can leave you exposed, especially during tax season. Here are some tips to keep your identity safe from scammers:

 

  1. Be naturally suspicious. Understand that there are people out there trying to get your information, and others willing to pay for it. With that knowledge, be suspicious of anyone asking for personal information — especially your Social Security number (SSN). Even when a known vendor asks for your SSN, ask what they will be using it for and refuse most requests unless you deem it necessary.
  2. File your tax return as soon as possible. A popular tax scam is to file a fake tax return and deposit the refund into the thief’s account, all before you get the chance to file your own return. You close the door on scammers once your tax return is filed with the IRS.
  3. Shred (don’t just crumple) your documents. Get in the habit of shredding all paperwork before it’s thrown out to keep personal information from falling into the wrong hands. If you don’t own a shredder, contact your bank or other local community services as they often offer free shredding services on specific days.
  4. Keep your Social Security card safe. Only carry your Social Security card with you when it’s needed for a specific purpose. Your wallet or purse is not a good permanent spot for your card. Any criminal would have a treasure trove of personal data if it were to get lost or stolen along with your driver’s license and credit cards.
  5. Periodically check your credit reports. The three major collection agencies (Experian, Equifax and TransUnion) are legally required to provide you with a free credit report each year. Take advantage of this service and review the reports. Correct any errors and use this report to monitor your accounts for any potential identity theft.

Be smart when handling your personal information. Don’t get caught off guard by identity theft, especially by being careless. If you think you are a victim of a tax scam, alert the IRS right away and go to identitytheft.gov for more information.

How to Raise a Financially Savvy Child

Babies holding moneyIf you have children (or grandchildren) you have an opportunity to give them a jump-start on their journey to becoming financially responsible adults. While teaching your child about money and finances is easier when you start early, it’s never too late to impart your wisdom. Here are some age-relevant suggestions to help develop a financially savvy young adult:
  • Preschool – Start by using bills and coins to teach them what the value of each is worth. Even if you don’t get into the exact values, explain that a quarter is worth more than a dime and a dollar is worth more than a quarter. From there, explain that buying things at the store comes down to a choice based on how much money you have (you can’t buy every toy you see!). Also, get them a piggy bank to start saving coins and small bills.
  • Grade school – Consider starting an allowance and developing a simple spending plan. Teach them how to read price tags and do comparison-shopping. Open a savings account to replace the piggy bank and teach them about interest and the importance of regular saving. Have them participate in family financial discussions about major purchases, vacations and other simple money decisions.
  • Middle school – Start connecting work with earning money. Start simple with babysitting, mowing lawns or walking dogs. Open a checking account and transition the simple spending plan into a budget to save funds to make larger purchases. If you have not already done so, it is a good time to introduce the importance of donating money to church or charity.
  • High school – Explain the job application and interview process. Work with them to get a part-time job to start building work experience. Add additional expense responsibility by transferring direct responsibility for things like gas, lunches and expenses for going out with friends. Introduce investing by explaining stocks, mutual funds, CDs and IRAs. Talk about financial mistakes and how to deal with them when they happen — try to use some of your real-life examples. If college is the goal after high school, include them in the financial planning decisions.
  • College – Teach them about borrowing money and all its future implications. Explain how credit cards can be a good companion to a budget, but warn of the dangers of mismanagement or not paying the bill in full each month. Discuss the importance of their credit score and how it affects future plans like buying a house. Talk about retirement savings and the importance of building their retirement account.

Knowing about money — how to earn it, use it, invest it and share it — is a valuable life skill. Simply talking with your children about its importance is often not enough. Find simple, age specific ways to build their financial IQ. A financially savvy child will hopefully lead to a financially wise adult.

It’s Your Money. Get it Back NOW!

New and old 5 dollar billsAccording to Credit Karma, over $40 BILLION of unclaimed property is currently being held by state governments. That’s a staggering amount of money — enough to buy half of the National Football League franchises. Not included in that figure is property sitting with federal agencies and other organizations. So what exactly is unclaimed property and how do you find out if you have any? Here is what you need to know:

What is considered unclaimed property?

There are two main types of unclaimed property:

(1) IOUs. Money that is owed to you that you haven’t claimed.

(2) Forgotten funds. Money sitting untouched in an account for an extended amount of time.

Specific types of unclaimed property include back wages, life insurance, pensions, tax refunds, bank accounts, money orders, gift certificates and security deposits. For example, many states require banks to turn over funds from checking accounts that have been dormant for over three years.

Tips for managing unclaimed property
  1. Search state and federal databases. Unfortunately, there is no master database to search for unclaimed property. There is a website called Missing Money endorsed by the National Association of Unclaimed Property Administrators (NAUPA) that can search most states at once, but each state maintains their own database. Be sure to check all states where you have been a resident. More information is provided online by the US government to help track down additional types of unclaimed property.
  2. Don’t pay a company to search for you. Companies are willing to search for unclaimed property for you, but will charge a fee. All unclaimed property data is public information, so anything a search company can find, you can find as well. In most cases, it’s best to conduct the search yourself.
  3. Watch out for scams. Be wary of any notices alerting you to unclaimed property that can be yours for a fee. Often times these scams will ask you to send them money with the promise of more money in return. The Federal Trade Commission (FTC) has some tips to help you spot an imposter.
  4. Take steps to avoid having your property become unclaimed. The best way to keep your property is to prevent it from becoming unclaimed in the first place. Some ways to do this is to actively manage bank accounts, notify companies when you move, close old accounts, and read all of your mail so you don’t miss a claim notice.
  5. File your tax returns. Consider filing a tax return even if your income is below the requirements to file. Unclaimed refunds with the IRS usually happen when a tax return isn’t filed with one of two situations: your employer withheld income tax from your wages or you qualify for a refundable portion of the Earned Income Tax Credit. The only way to know for sure is by filing a tax return for the year in question. If you have past tax returns to file, don’t wait — overdue tax returns need to be filed within three years.

Any unclaimed property due to you is rightfully yours and should already be in your pocket. Perform regular searches to ensure that your funds aren’t sitting in a government account.

Understanding Tax Terms: Pass-through Entities What are they? Why should you care?

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Small business owners have a number of options on how to organize their business for tax purposes. Many small, single owner, businesses are not incorporated, and are deemed “sole proprietors”, in the eyes of the IRS. Other business entities, like C corporations, are taxed as a separate entity with distributions to owners taxed a second time as dividends. Still others are deemed “pass-through” entities like S corporations, Partnerships and Limited Liability Companies (LLC).

Pass-through entities

Pass-through entities do not pay taxes at the company level. Instead, the business tax return reports the net income to the IRS, but then distributes the taxable income to their respective owners via a K-1 tax form. Each individual owner then reports their share of the K-1 net income on their individual tax return and pays the tax on this and any other personal income.

Generally, business owners like pass-through entities because:

  • The business income is taxed once instead of twice as in the case of C corporations.
  • The business format provides owners a level of legal protection that is not available by doing business as a sole proprietor.

What you should know

  • Individual tax rates. Changes in individual tax rates have an impact on the amount of tax paid by all small businesses that are organized as pass-through entities.
  • New 20 percent deduction. Starting in 2018, a new 20 percent qualified business income deduction is available for pass-through entities and sole proprietorships. There are limitations and other complexities involved, but the bottom line is many small business owners will see a tax break.
  • Can you pay the tax? Small pass-through businesses must pay income tax on all their business profits. However, the business entity is NOT required to distribute cash from the company to help pay the tax. So pass-through owners could see a tax bill without money to pay the tax.
  • Minority shareholder caution. Minority shareholders in pass-through entities are doubly cursed. They not only may not receive distributions to pay taxes due, but they are often precluded from selling their shares, and they do not have enough ownership to require distribution of funds through shareholder voting.
  • Very popular business entity type. According to the IRS the S corporation formation is a popular business entity type with 4.6 million S corporations in 2014 – roughly twice the amount of C coporations. LLCs are quickly becoming the new entity of choice with growth from 120,000 in 1995 entities to over 1 million entities today.

 

Hedging Against a Trade War

US and Chinese shipping containers

As a small business owner, the words “trade war” and “tariff” can be unsettling. When cost uncertainty is on the horizon, you will want to be prepared as much as possible. Here are some ideas to help you navigate your business through a possible trade war.

 

Tariffs defined

A tariff is a tax on imports imposed by a governing authority. The tax can be on specific goods and services, countries of origin, or both. The current tariff conversation appears to be centered around reducing the U.S. trade deficit with China and other trading partners. When a tariff is placed, often times the affected country will impose retaliatory tariffs to protect its own businesses and reset the balance of trade to their favor.

Ideas to prepare your business

Item Identify at-risk areas. Remember, suppliers impacted by tariffs are sourcing some or all of your purchases from countries outside the U.S. So pay attention to which suppliers AND items are most vulnerable to tariffs. Currently this includes steel, aluminum, and imports from China. But don’t overreact; the average tariff on all U.S. imports is still less than 2 percent with over half of the imported items having no tariffs. On the other hand, things like clothing and shoes could be subject to ever-increasing tariffs.
Item Seek out additional suppliers. Once you have identified possible items that could be vulnerable to tariffs, determine the source of the item with your key suppliers. If the items in question are an important component to your business, research additional suppliers who obtain their merchandise from a non-tariff source. Create new relationships now to increase your chances of minimizing your added expenditures later.
Item Know your breakeven point. The breakeven point for your business is where your total revenue equals your total costs. Knowing this point is helpful in forecasting breakeven sales and your ability to absorb price increases from key suppliers. This will help you identify if, when and how much you will need to raise prices.
Item Identify areas with potential to cut costs. Do an assessment of all your costs now and classify them as essential or non-essential. If a tariff is going to impact your margins, you may be able to salvage your overall profitability by cutting some of your non-essential operating costs.
Item Tweak your supply chain timing. There might be potential to manage your inventory to create a buffer to absorb a tariff, if you think the trade war will be short-lived. Consider creating a working capital account to allow yourself purchase flexibility to make your costs more predictable during your key selling season. You might even be able to negotiate a staggered delivery schedule with your supplier to manage storage concerns.

For now, try to stay current with tariff news. You may be able to hedge some of the risk that comes with a trade war.

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