When calculating total wealth, it is important to consider not only financial capital, but human capital as well. Financial capital refers to an individual’s total saved assets, while human capital refers to the individual’s future potential savings from income earned. Looking at financial capital in isolation for retirement planning is incomplete without also considering human capital. Initially, an individual has higher human capital and lower financial capital. Over time, accumulation in savings increases financial capital, while human capital declines as the individual reaches retirement. Certain life events trigger significant changes in financial capital, such as receiving an inheritance, and in human capital, such as going back to school or receiving a promotion at work. Individuals should keep this in mind when planning their financial goals.
The 2012-2013 Prudential Research Study “Financial Experience and Behaviors Among Women” surveyed 1,410 women about their financial knowledge, actions, and confidence in attaining their financial goals. In general, women face particular financial challenges because they tend to live longer than men, earn less, and take more breaks from the workplace.
On the positive side, the study shows that women, although severely hit by the slow economic recovery, remain positive about the future. However, women also feel they lack knowledge about financial products, feel less confident about retirement, and don’t see themselves as well-prepared to make financial decisions. For example, the study found that 26% of women surveyed did not understand IRA plans too well, which is worrisome given that IRAs are important tools of a sound retirement-planning strategy. According to the Department of Labor’s “Women and Retirement Savings” publication, only 45% of the 62 million women (age 21 to 64) working in the United States participate in a retirement plan. Here are a few guidelines that women might want to consider to get back on track.
Financial planning may present different challenges for women as opposed to men for various reasons. Knowing these challenges, when and if they are likely to occur is crucial for women to successfully manage income, expenses, retirement planning, college planning for children, and any other money matters that need attention.
Challenge 1: Women tend to live longer than men. According to 2009 data from the Centers for Disease Control, remaining life expectancy for a 65-year old woman is 20.3 years, as opposed to only 17.6 years for a 65-year-old man. This may mean that not only do women need to accumulate more assets for retirement, but also that they need to manage these assets much more carefully in retirement in order to make them last for a longer period of time. It is, therefore, paramount for women to begin contributing to a retirement account as soon as possible. According to the Department of Labor’s “Women and Retirement Savings” publication, only 45% of the 62 million women (age 21 to 64) working in the United States participate in a retirement plan. This is probably one of the worst financial-planning mistakes you can make. If your workplace offers a 401(k) plan, you should start contributing as soon as you receive your first paycheck, and make sure you’re contributing enough to take advantage of the employer match.
Do mutual fund investors prefer to invest in funds offering low expense ratios? The answer is yes. Expense ratios are an important factor in choosing a mutual fund, because they affect returns. It seems that the market is taking matters into its own hands and putting more assets in low-expense funds. As of October 2013, the average expense ratio for domestic funds was 1.14%. Investors pooled about 86% of net assets in funds with expenses lower than the average, leaving only a small portion to higher expense funds.
You would think that a majority of funds available to investors would have fairly low expenses, but 54% of funds have below-average expenses and 46% have expenses equal to or above the average expense. With more funds available and a variety of added investment choices, investors have clearly chosen the low-cost alternative.
It’s not too late; you can still take steps to significantly reduce your 2013 business income tax bill. Here’s a rundown of the best small business year-end tax-saving moves:
1. Buy a Heavy SUV, Pickup or Van
While buying a big SUV, pickup or van for your business may not be seen as politically correct because of the gas the vehicles use, the fact is they are useful if you need to haul people, equipment and materials around. They also have major tax advantages.
1. Game the Standard Deduction
If your total annual itemized deductions are usually close to the standard deduction amount, consider the strategy of bunching together expenditures for itemized deduction items every other year. Itemize in those years to deduct more than the standard deduction figure. Then, claim the standard deduction in the intervening years.
Over time, this can save hundreds or even thousands in taxes by increasing your cumulative write-offs. That’s because you’ll bag higher itemized deductions in alternating years and relatively generous standard deductions in the other years. So regardless of what happens with tax rates, you’ll come out ahead.
The Affordable Care Act (ACA) contains a tax incentive for certain small employers to offer their employees a health insurance plan, and pay for at least half the cost. Employers eligible to take advantage of this provision are under the 50-worker “employer mandate” threshold, and thus not compelled by the ACA to “pay or play.”
Tax Credit Basics
For tax years 2010 to 2013, there is a minimum tax credit of 35% of premiums paid by qualified small business employers (25% of premiums for small tax-exempt organizations).
There are changes to the tax credit for 2014. The IRS recently proposed regulations updating and fine-tuning the original Section 45R rules governing the credit, beginning next year. In addition, the tax break will be more valuable to eligible employers starting in 2014.
Farmers and ranchers who previously were forced to sell livestock due to drought, similar to the drought currently affecting much of the nation, have an extended period of time in which to replace the livestock and defer tax on any gains from the forced sales, the IRS announced in guidance.
Under IRS Notice 2013-62, farmers and ranchers who, due to drought, sell more livestock than they normally would may defer tax on the extra gains from those sales. To qualify, the livestock generally must be replaced within a four-year period. The IRS is authorized to extend this period if the drought continues.
If you have doubts about the efficacy of the education system in your area, you’re not alone. U.S. Secretary of Education Arne Duncan released the following statement about the PIAAC test results:
“These findings should concern us all. They show our education system hasn’t done enough to help Americans compete – or position our country to lead – in a global economy that demands increasingly higher skills.”
People concerned about the quality of their children or grandchildren’s education might opt for private education starting at the K-12 level. But “going private” can be costly.
There’s no federal tax “voucher” for private school costs (many states offer tax credits to offset private school costs). Some possible federal tax saving opportunities include:
Americans scored well below the international averages in three skill areas in tests given to adults in 24 countries. The Organization for Economic Cooperation and Development (OECD) released the results of its first survey in early October.
You might be surprised by the results on the Program for the International Assessment of Adult Competencies (PIAAC) exam:
- Americans ranked 16 out of 23 industrialized countries in literacy (written text)
- We scored 21 out of 23 in numeracy (numerical and mathematical concepts)
- In the “problem solving in technology-rich environments” test, the U.S. ranked 17 out of 19 countries
The U.S. stock market has bounced back, and employer stock options are once again a potentially valuable form of extra compensation for employees who receive them. Employer stock options can come in the form of either incentive stock options (ISOs) or nonqualified stock options (NQSOs). While the latter are not entitled to any special treatment under the federal income and employment tax rules, ISOs are treated favorably for the most part.
However, the big tax downside of ISOs is what happens if the shares you acquire by exercising an ISO plummet in value after you exercise. In this scenario, you can wind up with a significant alternative minimum tax (AMT) liability on gains that have vanished.
Less than 1% of those who die in the U.S. will owe federal estate taxes in 2013, according to the Tax Policy Center, a nonprofit organization.
Many people think estate planning is only for the more affluent folks, but everyone with a positive net worth or minor children should think about what will happen when he or she passes away.
More than Taxes
Small, simple estates typically require minimal time and money to square away. Estate plans should include:
Over the years, estate planning has been a little bit like riding a roller coaster. In 1978, the federal estate tax exemption was only $134,000 and the highest estate tax rate was a whopping 70%. Flash forward to 1988 and the estate tax exemption rose to $600,000 and the marginal tax rate fell to 55%. By 2001, the federal estate tax exemption increased to $1 million and in 2010, the federal estate tax was temporarily repealed – but just for one year.
Today, the scene is set for you to take advantage of some tax-friendly estate planning opportunities due to the relatively generous federal gift and estate tax regime.
Exposure to concentrated investments may increase the overall risk of a portfolio. As a rule of thumb, if a fund holds more than 30% of assets in one sector, you may be putting all those eggs in one basket. Take, for example, the dot-com bubble. Investors who loaded up on rapidly growing Internet investments probably lost a considerable amount of money when the bubble burst.
It is also important to consider the extent a fund is vested in its top investments. For example, if 25% of its assets are in the top three holdings, or a fund consists of 40 or fewer holdings, the fund could be a higher risk. Funds with investments concentrated in one country can be a risky proposition as well. A fund manager not only must pick good investments but also runs the risk of a souring economy. Country-specific risks become even more prominent when a fund involves investments in emerging markets. These economies are generally subject to a variety of risks that can drive holdings southbound.
The exchange-traded fund industry has come a long way since the first ETF, SPDR S&P 500, was launched in 1993. U.S. ETFs closed August 2013 with just over $1.49 trillion in total net assets.
An ETF is a passively managed index fund that strives to achieve a return similar to that of a particular market index. There are many factors that contributed to the increase in popularity of ETFs, including trading flexibility, lower expense ratios, tax efficiency with regard to capital gains distributions and, more importantly, potential diversification benefits. By buying a single unit of an ETF, investors can get exposure to all the securities that make up the related index—for example, the S&P 500. Here is a quick look at the three major providers in the industry.
Investors often make the mistake of assuming the expense ratio of a fund represents the total expenses incurred when investing in that fund. This isn’t true for mutual funds and it certainly isn’t true for exchange-traded funds (ETFs). There are four main costs to owning an ETF.
The net expense ratio is the percentage of assets used to pay for operating expenses, management fees, administrative fees, and other costs incurred by the ETF, except brokerage costs. Assuming a gain of $500 on a principal investment of $10,000, an expense ratio of 0.09% will incur a cost of $9.45. Investors have to pay the expense ratio regardless of whether the fund realized a gain or a loss.
Five Lessons from the Four-Year Market Rally
- The turning point is not always obvious. In hindsight, it seems like it should have been dead obvious that stocks were cheap four years ago. But, because of their inability to clearly identify market bottoms, investors may be better off sticking with a strategic asset-allocation plan.
- Don’t let past performance control your portfolio. To the extent that you can, let your strategic asset-allocation framework be a key driver of where you deploy new cash.
- To help maximize participation, make a little room for the risky stuff. Even though higher-quality stocks tend to hold up better during downturns, the opposite tends to be true during recoveries. Investors may want to maintain exposure to both types of companies: high-quality, wide-moat dividend payers and economically sensitive small- and mid-caps.
After two financial crises occurring almost back to back during the “lost decade,” investors have every right to be risk-averse, hesitant, angry, or distrustful. The problem with not investing at all, however, is that you may not have sufficient money to achieve your financial goals. An individual saving $100 per month, without investing, would have put away only $52,400 since 1970. By placing that money in five-year fixed-term investments, the investor would have been able to end up with almost five times that amount. And if invested in a diversified portfolio, our investor’s savings would have grown to $835,313. It’s true that any investment involves varying levels of risk. But, as the image illustrates, even if you have low risk tolerance, you can find a suitable investment for your needs that may still be much better than no investment at all.
There are some basic differences when a VA is held inside a qualified account, meaning an IRA (traditional or Roth) or employer plan.
Contract Titling Difference: A non-qualified contract can be held by two owners or a trust, whereas a VA held in a qualified account must have an individual owner who is also named as the annuitant. (Note that on the Lifetime GMWB, joint spousal coverage can be achieved on an individual retirement account.)
Product Differences: Often, a VA contract or benefit held in a qualified account has a different issue age. For example, one lifetime income rider must be purchased by age 77 when held in a qualified account, versus age 80 in a non-qualified account. In a few cases, fees and expenses are different. One variable annuity contract
Concerns about shortfalls in traditional retirement income sources like Social Security and pension plans have caused people to expect to rely more heavily on personal savings to fund their retirement. The graph illustrates that while only 45% of current retirees utilize their personal savings for retirement income, 62% of current workers expect to receive retirement income from an employer-sponsored retirement savings plan, while only 41% of those already retired actually receive income from such a source.
It may be a good idea to plan for a diminished reliance on Social Security or a pension plan. Whatever extra funds you save by taking this more conservative view will make retirement all the more enjoyable.
You have probably heard of some of the horror stories. For example, there was the case of an employee who used certain unflattering words to describe her supervisor, including “scumbag,” in a post visible to co-workers. When she was terminated and took her case to the National Labor Relations Board, the company settled and narrowed the scope of its social media policy (NLRB v. American Medical Response).
The NLRB maintained any social media policy that interferes with an employee’s right to free speech among co-workers about wages and working conditions, known as “concerted activities” under the National Labor Relations Act, is unacceptable. The fact it occurred via social media instead of in actual conversation made no difference. Also, this protection exists whether or not employees are represented by labor unions.
As follow up to our last blog post on September 12, here are ten important facts about charitable tax deductions:
- Charitable contributions are deductible only if you itemize on your tax return.
- To be deductible, charitable contributions must be made to “qualified” organizations. Giving money to an individual is never deductible. To determine if an organization qualifies as a charitable organization, go to the IRS Exempt Organizations Select Check.
- To deduct a charitable donation of money, regardless of the amount, you must have a bank record or a written document from the charity showing its name, the date and amount of the contribution. Bank records include cancelled checks, bank or credit union statements, and credit card statements. These statements should show the name of the charity, the date, and the amount paid. Credit card statements should also show the transaction posting date.
Charitable giving is growing at a healthy pace, a sign that Americans are a little more confident about the economy and their own finances.
Individuals, corporations and foundations donated $316.2 billion to charitable causes in 2012, a 3.5% increase over 2011, according to the annual Giving USA study, which is conducted by the Giving USA Foundation and Indiana University Lilly Family School of Philanthropy.
The Social Security Administration (SSA), as well as the U.S. Defense and Labor Departments, recently updated their same-sex marriage policies to reflect that the Supreme Court overturned part of the Defense of Marriage Act (DOMA) on June 26.
That ruling invalidated DOMA’s definition of marriage for federal benefits purposes as only between a man and a woman (United States vs. Windsor). As a result, same sex spouses whose marriages are recognized at the federal level must change their tax filing status from unmarried to married. That may affect their marginal tax rates, as well as their eligibility under several tax rules and the treatment of certain forms of employee compensation.
If your business receives a Notification of Possible Income Underreporting from the IRS, you are not alone. The IRS has sent out about 20,000 of these letters, which imply that the taxpayers underreported cash receipts.
Not an Audit
IRS officials say these letters do not constitute an audit. The tax agency is merely asking taxpayers to review the accuracy of their tax returns and, in many cases, provide additional documentation.
While your chances of being audited may be relatively low, planning as if you will hear from the IRS could help you survive a challenge. A recent U.S. Tax Court case illustrates why keeping meticulous records and operating in a business-like fashion can mean the difference between claiming tax deductions and having them disallowed.
Compounding of earnings and starting to save early have a tremendous positive effect on how much you accumulate for retirement. But to make the most of compounding, you also need to be smart about taxes.
If you don’t plan ahead, the federal and state governments could collect a huge portion of your retirement savings. Uncle Sam can take as much as 39.6% (up to 35% in 2012). When you add in state taxes (if applicable), as well as phase-out rules that can reduce or eliminate tax breaks as income rises, you could be looking at an effective marginal tax rate of 49.6% or higher.
October 1, 2013 is an important date in the implementation of the Affordable Care Act (ACA). That is the date when open enrollment for health insurance coverage through the new “marketplace” begins.
As part of the marketplace, which is scheduled to begin January 1, 2014, individuals and employees of small businesses will have access to coverage through a new competitive private health insurance market. According to the U.S. Department of Labor (DOL), “the Marketplace offers one-stop shopping to find and compare private health insurance options.”
Congress recently gave the IRS failing grades for not adequately preventing, identifying and processing identity theft cases involving tax returns. One member of Congress called tax identity theft “an epidemic that is profoundly unacceptable.” Another joked that if bank robber Willie Sutton were alive today, he’d target the IRS.
In the past couple of years, the IRS has announced that it is cracking down on the problem. Yet the number of tax identity theft cases rose to 1.9 million through June 2013, up from 1 million in 2011, according to the Treasury Inspector General for Tax Administration.
Business owners and executives help to shield themselves from personal liability by operating as a corporation or limited liability company. This provides protection from exposure in certain legal disputes. However, as one recent court ruling illustrates, an owner or executives can be held individually responsible for unpaid overtime pay under the federal Fair Labor Standards Act (FLSA).
How employees are classified – as exempt or non-exempt – is not a decision to be taken lightly. Depending on the details of the job, it could mean the difference between workers getting paid for overtime hours or not. If the answer is not clear-cut and if the employees in question suspect they are underpaid, businesses could find themselves embroiled in a lawsuit.
The European debt crisis took a toll on many world bonds in 2011. The performance of world- and emerging-market bonds may have you wondering how big a role foreign bonds should play in a portfolio, particularly for pre-retirees and retirees. As with most asset-allocation decisions, setting a strategic, long-term allocation to foreign bonds can help you avoid being whipped around by market sentiment. Your decision also depends on where you are in your investing life cycle and on your goals. Younger investors who are in growth mode might look to foreign-currency exposure as a source of diversification. For investors nearing retirement, the bond sleeve of their portfolios may provide stability more than diversification or return-generating potential. A retired investor with a more conservative foreign-bond investment might stake more in such an offering than another retired individual with an investment that's heavy on emerging-market debt. If you have a high weighting in foreign stocks overall, bear in mind that layering on a foreign bond will further subject your portfolio to currency fluctuations.
The recent market volatility has investors questioning, “Are stocks still a good investment?” It’s a good question, and one way to address this issue is to look at the recent 2007 – 2009 market crash. Investors who bailed out of the stock market following the significant decline and moved their money to the safety of cash would be quite disappointed to learn that the stock market, in fact, recovered significantly.
Although the exchange-traded funds, commonly known as ETFs, have existed for almost two decades, they’ve only recently caught on with investors. The ETF market has evolved, and investors now have hundreds of ETFs from which to choose. Here are three commonly asked questions to consider when adding ETFs to a portfolio.
Q: What is the difference between the ETF market price and net asset value (NAV), and why do ETFs trade at a premium or discount?
In the past, retirement planning used to involve two planning stages: the accumulation of assets, and the distribution of assets. Nowadays, there may be three periods to consider: accumulation, transition, and distribution. “Transition” can be defined as the period between full employment and full retirement when a person is working on a reduced or part-time basis.
In multiple cases this summer, the Equal Employment Opportunity Commission (EEOC) has taken action against employers for allegedly discriminating against disabled individuals.
This follows an increase in the number of disability discrimination charges filed during the previous six years. The EEOC has not given a reason for the increase, but most HR professionals and employment law expert attribute it to factors including the aging population and an expanded disability definition that went into effect in January 2009.
The IRS recently announced that certain withholding and due diligence deadlines under the Foreign Account Tax Compliance Act (FATCA) are postponed for another six months, until June 30, 2014 (IRS Notice 2013-43).
The new law targets non-compliance by U.S. taxpayers through foreign accounts and establishes a global approach to fighting offshore tax evasion. The Treasury Department stated the delay is “due to overwhelming interest from countries around the world” and will provide foreign financial institutions (FFIs) with more time to comply with FATCA.
A new 3.8% Medicare surtax is now imposed on net investment income collected by higher income individuals, estates and trusts. The tax, which the IRS calls the NIIT, is effective for tax years beginning on or after January 1, 2013.
The NIIT can also have an impact on the income, gains and losses from partnerships and S corporations. This article discusses these issues, based on recent guidance from the IRS.
The 2010 healthcare legislation created a new 3.8% Medicare tax on net investment income collected by individuals, estates and trusts. The new tax, which the IRS calls the NIIT, is effective for tax years beginning on or after January 1, 2013. So it’s not officially time to start planning to avoid or minimize the tax for this year. To do that, you need to understand how it works. Helpfully, the IRS issued proposed regulations that provide much-needed details.
Here is the impact of the new tax on:
- Talk with your children about credit. In the Sallie Mae student survey on college credit card use, one-third of the undergraduates had never, or only rarely, discussed the subject with their parents. Nearly 85% indicated they needed more education on financial management topics.
- Help your child select an appropriate credit card.Try to convince your child to get a debit card instead of a credit card, so he or she can’t get into too much debt. If your child obtains a credit card, you should help select it. With your child, go through several credit card offers, comparing interest rates, annual fees, grace periods, and penalties.
Sending a child off to college is associated with a host of parental worries. Fortunately, one of them will be alleviated by the Credit Card Accountability, Responsibility and Disclosure (CARD) Act, which is designed to protect college students from some of the predatory lending practices common on campuses today. The law went into effect in February of 2010.
This is good news for parents of young adults, who have often found themselves in the difficult position of bailing their children out after charging thousands of dollars, or watching them struggle with overwhelming balances.
Investors often endure poor timing and planning as many chase past performance. They buy into funds that are performing well and initiate a selling spree following a decline. This becomes evident when evaluating a fund’s total return compared with the investor return. Overall, the investor return translates to the average investor’s experience as measured by the timing decisions of all investors in the fund.
The image below illustrates the investor return relative to the total return for a given fund. Over the short term, both the total and investor returns were positive and relatively similar. Over a 10-year period, however, total return greatly exceeded investor return. Investors who attempted to time the market ran the risk of missing periods of exceptional returns.
A New York appellate court has reversed a lower court's ruling that the metropolitan commuter transportation mobility tax (MCTMT) was unconstitutionally passed by the Legislature without a home rule message. The lower court found that the tax was a special law that did not serve a substantial state interest. However, the appellate court concluded that the law, which provides a funding source for the preservation, operation, and improvement of essential transit and transportation services in the Metropolitan Commuter Transportation District, does serve a substantial state concern. Therefor, the law was not unconstitutionally passed without a home rule message.
Mangano v. Silver, Appellate Division of the Supreme Court of New York, Second Department, Nos. 2012-09463 and 2012-09991, June 26, 2013
Even though it’s all about dollars and cents, the financial industry runs on percentages; dollar signs are few and far between. The use of percentages is an understandable, and helpful, convention when communicating financial information. After all, a headline saying “Company A’s Net Jumps by 16%” is more helpful than one that reads “Company A’s Net Jumps $1.02 Billion.” Providing percentages rather than dollars also allows investors to compare apples to apples: you can readily discern that an investment that has gained 8% during the past 10 years has been a better bet than one that has gained half as much.
Yet dealing in percentages, especially relatively small ones like inflation rates, expense ratios, and long-term annualized returns, can also distract from important information that factors into your financial plan. Those small and innocuous-looking percentage figures, when translated into dollar terms and compounded over many years, can make a huge difference between success and failure.
The Affordable Care Act imposes a little-known new fee on certain employers and health insurance companies. The first payments are due on or before July 31, 2013.
The Patient-Centered Outcomes Research Institute (PCORI) fee may take some employers by surprise. While many organizations are focused on the healthcare law’s “employer mandate” which was just delayed until 2015, they may have overlooked the PCORI fee.
The bombshell July 2 announcement came in the form of a blog post on the U.S. Treasury Department’s website, accompanied by a statement issued from the White House. The employer “shared responsibility” provision is being delayed one year, until 2015. The move was described, essentially, as a consequence of the IRS’ failure to provide employers and health plans with guidance for their reporting obligations under Section 6055 and 6065 of the Affordable Care Act (ACA).
The tax-deferred compounding you get via an IRA or a company retirement plan enables you to grow your savings without having to fork over taxes on your investment earnings year in and year out. However, at some point, required minimum distributions, or RMDs, will take effect. All retirees must begin taking RMDs from their tax-deferred retirement plans by April 1st of the year following the year in which they turn age 70 ½. They must continue to take distributions by December 31st of each year thereafter. Roth IRAs aren’t subject to RMDs. However, you exert more control than you might think over the timing of your RMDs, as well as over which accounts you tap. Here are some tips for getting the most out of your RMDs, as well as some traps to avoid.
Risk is the chance that you won’t be able to meet your financial goals or that you’ll have to recalibrate your goals because your investment comes up short. Investors face many forms of risk depending on the kinds of investments they choose.
Market, industry and company risk: General market fluctuations can affect securities trading in that market. Stocks tend to fluctuate more than other asset classes, and may pose more risk over short periods of time. Investors looking to time the market run the risk of jumping into the market during the worst times, and out of the market during the best times. Security values can also decline from negative developments within an industry or company.
Credit and interest-rate risk: Credit risk is the possibility of a bond issuer not being able to make timely payments of principal and interest. The value of a bond may also decrease due to financial difficulties or the declining creditworthiness of the issuer. Interest-rate risk relates to how bonds tend to rise in value when interest rates fall, and to fall in value when interest rates rise. Typically, bonds with longer maturity exhibit greater price volatility.
- Millions of privately held companies throughout the U.S. do not need or are not required to have financial statements prepared in accordance with U.S. GAAP (generally accepted accounting principles).
- Such companies usually are smaller enterprises, do not plan on a change in ownership soon, do not intend to go public and are not in highly specialized industries.
- Many owner-managed, for-profit businesses do not have CPAs on staff. They rely on their CPA firms as trusted business advisors.
- While some small businesses have found the cash or tax basis of accounting acceptable, these bases may be insufficient or inappropriate for other companies or users looking for more robust and relevant financial information.
The AICPA’s new Financial Reporting Framework for Small- and Medium-Sized Entities is designed for America’s small business community. The FRF for SMEs accounting framework delivers financial statements that provide useful, relevant information to owners of private companies and other stakeholders in a simplified, consistent, cost-effective way.
Summer means teenage employment will rise at many workplaces. More working teenagers means an increase in potential risks for employers, including the risk of harassment and other illegal treatment.
If your organization employs teenagers, don’t cut corners when complying with federal and state employee-protection laws just because the employees are young.
The U.S. Department of Labor (DOL), the Equal Employment Opportunity Commission (EEOC) and the Occupational Safety & Health Administration (OSHA) all have websites to actively inform teenagers of their rights:
The first thing you need to know is – do you qualify as a fiduciary? The answer should be clear from your plan document, which spells out plan governance. There is a “named fiduciary,” which may simply be a title, such as a CEO. A plan trustee is a fiduciary, and you probably have a retirement plan committee, the members of which may serve in a fiduciary capacity.
This role is also determined by function. You may be what is known as a “functional” fiduciary if you made key decisions about the basic operation of the plan, like vendor selection. But this doesn’t mean every choice you make on behalf of the plan is considered fiduciary. Some decisions fall under what is called the “business decision exemption,” for example, plan design, or the choice to terminate a plan.
Women face a different set of financial-planning challenges than men because they tend to live longer, earn less, and take more breaks from the work force. Women may also experience more difficulties if they are widowed or divorced. The good news is that women tend to save more. According to Vanguard’s “How America Saves 2012” report, women saved at rates about 5% to 10% higher than those of men across every income group. However, even though their savings rates were higher, women’s balances in savings accounts tended to be lower than those of men because women, on average, had lower incomes. This illustrates the extreme importance that saving (and starting to do so early) has for women. It’s not always easy, but managing debt, controlling expenses, and contributing to a retirement plan can make a world of a difference down the road.
Laddering a bond portfolio means that you buy bonds with varying maturity dates, for example: one bond maturing in a year, another in three years, and two others maturing five and 10 years from now, respectively. When the bonds mature, the investor can either spend the proceeds, which would necessitate matching the maturity dates of the bonds in the ladder to spending needs (for example, when college tuition comes due each year) or reinvest in another bond that matures at a later date.
Laddering is, above all, a diversification strategy, enabling you to spread your assets across multiple credits with different characteristics, thereby mitigating the risk of sinking a lot of your assets into a single bond that defaults. And if you're reinvesting your proceeds when a bond matures, laddering helps you further diversify across multiple interest-rate environments.
Health Savings Accounts (HSAs) are growing in popularity, and more companies are offering them to their employees. Many people, however, are confused about what these plans are and when it is appropriate to take advantage of them.
What is an HSA? Health Savings Accounts were created by a provision in the Medicare Prescription Drug Improvement and Modernization Act of 2003 and signed into law in December of that year. The purpose of creating the accounts was to provide a way for Americans to prepare for the future medical costs and lower their health insurance premiums by switching to higher-deductible medical plans. Employers can establish plans for employees, and HSAs are also offered by banks, credit unions, insurance companies, and other approved companies.
When determining an appropriate asset allocation mix, it is important to consider not only one’s risk tolerance, but also one’s risk capacity.
An investor’s risk tolerance refers to his or her aversion to risk, while an investor’s risk capacity relates to his or her ability to assume risk. Sometimes, an investor’s risk capacity and risk tolerance do not match up. If an investor’s capacity to take risk is low but the risk tolerance is high, then the portfolio should be reallocated more conservatively to prevent taking unnecessary risk. On the other hand, if an investor’s risk capacity is high but the risk tolerance is low, reallocating the portfolio more aggressively may be necessary to meet future return goals. In either case, speaking with a financial advisor may help to determine if your risk tolerance and risk capacity are in sync.
The Patient Protection and Affordable Care Act (ACA) will continue having a major impact on the hospital industry. Significantly, it is designed to increase access to healthcare services, improve the quality of services and reduce overall costs. Here are several upcoming changes that should be considered:
There are nuances in providing valuations for virtually every type of business entity ranging from retail outlets to manufacturing operations to personal service firms. But valuations for hospitals and other organizations in the health care field are especially daunting.
Currently, hospitals face some unique challenges, including difficult economic conditions, increased competition and burdensome reporting requirements. In addition, the main provisions in the 2010 healthcare law – the Patient Protection and Affordable Care Act (PPACA) – kick in next year, further complicating matters.
1. Clear the clutter. As the old saying goes, “looks can be deceiving.” That’s certainly true when it comes to a cluttered home. Potential buyers need an accurate picture of the size of the house. If you’ve cluttered up your home and garage, it will be difficult for prospective buyers to get a real sense of the space.
Get rid of the extra junk in closets, attics and basements before you put the house on the market. Pare down the stuff on shelves and tables too, and limit the gadgets on kitchen counter tops.
2. Remove yourself from the equation.While you might be attached to your children’s school photos, trophies and other mementos, the people looking at your house won’t be. Prospective homebuyers may have a harder time seeing themselves living in the house if your personal touches are everywhere.
Tip: don’t hover when the potential buyers are checking out the house. Buyers will appreciate a simple walk-through with their realtor without your input.
The prime residential real estate selling season is in full swing – and 2013 looks like it could be a good time to sell, depending on your situation. Mortgage interest rates are down and the National Association of Realtors reports that home sales are up, compared with a year ago.
So, while prospective sellers are making their properties look like model homes in the hopes of raking in a nice profit, this is a good time to review how taxes will factor into the transaction. With the home sale gain exclusion tax break, the profit from selling your principal residence might be free from federal income taxes (and possibly state income taxes, too). The rules are straightforward for most sellers.
With Health Savings Accounts (HSAs), individuals and businesses buy less expensive health insurance policies with high deductibles. Contributions to the accounts are made on a pre-tax basis. The money can accumulate year after year tax free, and be withdrawn tax free to pay for a variety of medical expenses such as doctor visits, prescriptions, chiropractic care, and premiums for long-term-care insurance.
Participating employers can also contribute to accounts, on behalf of their employees.
Beginning with the latest wave of auditor reports, managers of nonprofit organizations can expect to see some significant differences from prior year. Reason: The Clarified Auditing Standards became effective for audits of periods ending on or after December 15, 2012.
These new standards feature several significant changes, including new terminology and changes in the form and content of the report, which will be reflected in 2012 reports for calendar-year organizations.
The Bernie Madoff scandal, which was first uncovered in 2008, sent shock waves through the financial services community. The infamous Madoff was accused of swindling investors in a massive Ponzi scheme the likes of which had not been seen before. Prosecutors estimated the size of the fraud to be $64.8 billion. Eventually, he pled guilty to 11 federal crimes, was sentenced to 150 years in prison and ordered to pay restitution of $170 billion.
But Madoff is not the only high-profile con artist accused of bilking investors and business associates out of large sums of money. In one recent investigation, as reported by the FBI and culled from court documents, another criminal was recently brought to justice.
Employees who receive cash tips of $20 or more in a calendar month are required to report the total to their employers. These employees must provide written reports by the tenth of the following month. Employees who receive tips of less than $20 in a calendar month aren't required to report their tips to employers, but are still required to report the amounts as income on their tax returns.
So you've finally sat down with your financial advisor and answered important questions, such as do you need life insurance, how big of a policy do you need, and what type makes the most sense for you. One thing you don't want to happen after purchasing your life insurance policy is to find out the company that sold you the policy has run into financial trouble. If your insurer went out of business, not only would you be uninsured, but you would also have to reapply for a new policy at a potentially more expensive rate due to your age and health.
It’s easy to follow a long-term investment strategy in good times; the hard part is sticking with it during bad times. What should you do if you are a long-term investor sitting in the midst of a bear market? If you are holding a well-diversified portfolio, the answer is rather straightforward: stay the course.
Volatile markets can cause investors to abandon their long-term goals for risky short-term investment strategies. Volatility can range from a single-day market crash to extended periods of jagged performance. The market has undergone cycles with high and low annual returns from 38% (1995) to -37% (2008) over the past 50 years. It can be tough to stay the course in the face of such fluctuations.
If your grandchildren are fortunate enough to have you chip in with their college costs, there are a few things you need to be aware of before you start writing checks.
The most straightforward way for a nonparent to help a student pay for college is with a cash gift. Gift tax rules in 2013 allow any individual to give another individual up to $14,000 per year ($28,000 from a couple) without the gift counting against the lifetime estate tax exemption. A problem with this approach is that your contribution will be taken into consideration when the student applies for need-based financial aid. Cash given directly to a student the year before he or she applies may be considered student income, reducing need-based aid by as much as 50% of the amount given. Furthermore, money held in the student’s name is treated as a student asset, reducing aid by another 20%. Cash given to the parents also counts against financial aid, albeit at a much lower rate of up to 5.64%. To potentially avoid any financial aid impact with a cash gift, keep in mind that the Free Application for Federal Student Aid takes into account income from the prior year in determining need-based aid. Hence, consider giving the money when you know the student will not be applying for aid next year.
Given the backdrop of economic uncertainty and the rise in both life expenctancy and medical costs, prospects look difficult for those facing retirement shortfalls. Fortunately, a financial advisor can show you how pulling these key levers can help your retirement nest egg last.
If you thought that running a successful business on your own was hard enough already, think again. As a self-employed individual, defined by the IRS as someone who operates a trade, business or profession, (either by yourself or as a partner), you are required to pay self-employment tax as well as income tax. Self-employment tax consists of Social Security and Medicare taxes, similar to those withheld from the pay of most wage earners. Failure to comply with IRS regulations may result in your business operations being jeopardized. The following are a few key facts to keep in mind:
1. The Social Security tax rate for 2013 is 15.3% on self-employment income up to $113,700. Should your net earnings exceed $113,700, you continue to pay only the Medicare portion of the Social Security tax, which is 2.9%. Starting this year, the Medicare tax rate for net earnings in excess of $200,000 ($250,000 for joint filers) is increased to 3.8%.
Credit cards are magic little pieces of plastic that allow you to use money without having it, right? Wrong. The reality is that credit cards are magic little pieces of plastic designed to make money for the credit-card companies. Not being aware of your full responsibilities as a credit card holder can bury you deep in debt and significantly limit your access to credit in the future. Therefore, it is crucial for you, the consumer, to be aware of all the little details of credit-card transactions.
A credit card is a valuable convenience, since it means you don’t have to carry cash around anymore. But it definitely does not mean that you can make unlimited purchases and not pay for them, as some people may think. With a credit card, all the purchases you make during a certain period of time are allowed to accumulate, and you receive a bill (statement) for the total amount spent at the end of that time period (usually a month). Once you get the bill, you have a grace period—normally 20 to 25 days—until the due date.
As residents of areas affected by Hurricane Sandy found out, a natural disaster can bring out not only emotional hardship, but financial hardship as well. From keeping important documents safe and accessible to having enough cash on hand to get by until things return to normal, being prepared for a disaster is an important part of protecting your home and your family. It could be a natural disaster like a hurricane, tornado, flood, fire, mudslide, or earthquake. Or it could be something on a more limited scale like a power outage. Whatever the crisis, taking the steps below will help you better handle whatever might come your way.
Thirty-four states offer some sort of tax deduction or tax credit for contributions made to a 529 plan. But in 29 of those 34 states, the tax break is available only for contributions made to an in-state plan. Only in Arizona, Kansas, Maine, Missouri, and Pennsylvania give residents a tax break for contributing to any state’s plan. If you own an out-of-state 529 plan, you may be missing out on this tax break advantage, and it may be worthwhile to do some research and consider rolling your out-of-state plan to an in-state one.
By now, most people have heard about the provision in the Affordable Care Act (ACA) that may impose a penalty on employers who do not provide health insurance to their employees. But the ACA has numerous other health plan provisions and deadlines that employers must be concerned about. Below are just three, along with the deadlines attached to them.
Maybe it’s a good thing that the April 15 federal tax deadline coincides with the urge to spring clean. It feels good to throw out some of the financial records stuffing your filing cabinets. But before you head for the dumpster, make sure you’re not disposing of records you may need. You don’t want to be caught empty-handed if an IRS auditor contacts you.
In general, you must keep records that support items shown on your individual tax return until the statute of limitations runs out. Generally, this is three years from the due date of the return or the date you filed, whichever is later. That means that now you can generally throw out records for the 2009 tax year, for which you filed a return in 2010.
The IRS and construction firms are often at loggerheads over whether certain workers should be treated as employees or independent contractors. Typically, the IRS will contend that the workers are employees, while the construction firm will argue that the workers should be classified as independent contractors.
It’s not just semantics; there could be a bundle in tax dollars at stake.
The outcome depends on the particular facts and circumstances. In a new case, the Tax Court decided in favor of the IRS, even though the construction firm hired the workers on a project-by-project basis.
Under the sweeping Affordable Care Act (ACA), which passed in 2010 and was upheld by the Supreme Court last year, the healthcare system in the United States will be overhauled and millions of uninsured Americans will become covered.
The ACA has numerous provisions – some that have already taken effect and some major changes scheduled to kick in next year. Among the provisions are:
- Restricting insurance companies from denying coverage, excluding individuals with pre-existing conditions, or charging more based on a person’s health status.
- Creating state health insurance exchanges that will cover uninsured individuals and those currently covered under state high-risk pools.
- Requiring large employers to offer health coverage to full-time employees or be charged a penalty.
- Imposing a tax penalty on individuals who do not buy sufficient health insurance coverage.
Economic espionage has captured the attention of the United States government as a potential threat to the countries prosperity and national security. One court case involving an engineer stealing trade secrets from his employer’s system and sharing them with a competitor after leaving the company underlines the importance of protecting intellectual property.
Although companies take steps to protect their trade secrets and intellectual property, it is often not enough to prevent critical information from being stolen.
Trade secrets must be protected. If a company fails to limit trade secret access to only those with a “need to know,” a defense attorney can attempt to place doubt in the minds of a jury regarding the defendant’s guilt. In other words, if you don’t take steps to keep a trade secret a secret, you may lose the rights to it.
Close to 100,000 discrimination charges were filed by employees to the Equal Employment Opportunity Commission (EEOC) during the fiscal 2012, signaling that employers must keep up their guard to avoid being drawn into costly and potentially damaging litigation. As in recent years, the largest categories of employment discrimination accusations were retaliation (38%), race (34%), and sexual discrimination, including sexual harassment and pregnancy (31%). In releasing detailed data about complaints, the EEOC provides practical insights into potential trouble spots.
Although the specific number of complaints made to the EEOC last year (99,412) was down by half a percent from fiscal 2011, it was a banner year for the EEOC in terms of “monetary recovery” from employers through its administrative process. The EEOC collected $365 million, the largest amount ever.
Encountering stock market losses early in one's retirement years can deliver a blow to an equity-heavy portfolio. If you’ve determined that your equity weighting is extremely aggressive relative to your risk appetite, reducing risk by altering your portfolio’s asset allocation may be essential. The need to reduce the risk of your portfolio doesn’t mean you have to move money directly from stocks to bonds. As you cut back on your equity exposure, it may be wise to move money into cash and/or short-duration bonds (duration is a measure of interest-rate sensitivity), then slowly and systematically move it into the bond market over a period of several months or years. This way, you may be able to obtain a range of purchase prices for your new bond holdings.
The importance of keeping thorough and accurate records cannot be emphasized enough. If you have incomplete or no records and get audited by the IRS, it can cost you valuable deductions.
A new Tax Court case illustrates what happens when adequate records are not kept throughout the year.
Facts of the case: For the tax year at issue, Mohammed A. Rehman was employed for approximately five months at a health insurance benefits company. A Long Island, NY resident, Rehman worked as a marketing outreach representative. He left his job and became a self-employed securities trader and later created a limited liability company for the business.
The IRS disallowed many of the deductions on Rehman’s tax return for expenses he claimed to incur as part of his employment and his self-employment. The tax agency also rejected other deductions.
Estate planning laws have undergone swift changes over the past several years and may change again in the years ahead. If you're creating or updating an estate plan, it's essential that you seek the advice of an attorney who's well versed in this area. Before you hire an estate-planning attorney to draft or update your estate plan, it's important to understand your role in the estate-planning process.
Find a qualified attorney: Because your estate plan will likely need to be updated as the years go by and your personal circumstances change, it makes sense to find an attorney who practices in the community where you live. This can help you meet with him/her on an ongoing basis.
The NASDAQ recently proposed a rule that companies listed on the stock exchange will soon be required to establish and maintain an internal audit department. In response, the Securities and Exchange Commission (SEC) is in the process of circulating the proposal and gathering public comments. The comment period ends shortly on March 29, 2013.
If the proposal results in a rule change, companies currently listed on the exchange must establish an internal audit function no later than December 31, 2013. For companies that plan to list on NASDAQ after June 30, 2013, they must implement the internal audit function before they can list on the exchange.
A new I-9 Form, which is the document employers use to verify the identity and eligibility of employees hired in the United States, has been issued by the Department of Homeland Security. You can obtain forms now and should begin using them soon. However, you may continue to use the old forms a bit longer. Just be sure to have a supply of the new version on hand, because you must begin using them no later than May 7, 2013.
Here are more details from the federal government on this important issue:
The U.S. Citizenship and Immigration Services (USCIS) has published a revised Employment Eligibility Verification Form I-9 for use.
All employers are required to complete a Form I-9 for each employee hired in the United States.
The IRS announced it is providing an extension of time to employers that want to claim the Work Opportunity Tax Credit (WOTC). Specifically, employers have more time – up to April 29, 2013 – to file the required IRS form to claim the valuable tax credit (IRS Notice 2013-14).
The WOTC can be claimed by employers hiring individuals who are members of targeted groups. The amount of the credit is a percentage of wages paid in the first year. The maximum credit a for-profit employer can claim is $9,600 for each worker ($6,240 for tax-exempt organizations).
Reinvestment can be a crucial component of the wealth accumulation process, as the reinvested amount compounds and grows over time. Yet if you are reinvesting dividends and capital gains (“distributions”) in funds you hold in your taxable account, it can be important to ensure that you're not paying more tax than necessary. You pay tax on those distributions in the year in which you receive them. But if you don’t keep good records, you could end up paying tax on those distributions again when you sell.
For example, say you bought 1,000 shares of a fund for your taxable account at the end of 2011; you paid $18 per share for a total of $18,000. In 2012, with the share price still at $18, the fund made a dividend distribution of $0.50 per share, or $500 for your 1,000 shares. You'd owe tax on the $500 on your 2012 taxes, whether you reinvested the money or took the cash in hand. (The taxes would be deferred if you held the fund in a tax-sheltered account). If you reinvested the money in the fund, you’d now own 1,027.78 shares: your original 1,000 plus the nearly 28 additional shares that you were able to buy (at $18) with the $500 dividend distribution. If you sell now, with the fund's net asset value at $20, you’d think you’d owe taxes on your $2,555.56 profit ($20,555.56 minus $18,000), right? Wrong. You would only owe taxes on $2,055.56 ($20,555.56 minus $18,000 minus $500). Otherwise, the $500 dividends would be taxed twice.
As the 2013 tax filing season opened, the IRS announced a national crackdown on identity theft schemes aimed at stealing taxpayers’ refunds.
The tax agency announced there were 734 enforcement actions in January of this year, including indictments, search warrants, complaints, and arrests. This follows 2,400 enforcement actions against identity thieves in fiscal 2012.
The crime has trapped scores of innocent taxpayers. Here is a description of how tax identity theft works, along with eight steps you can take to help protect yourself from the devastating results.