Jeffrey D. Ressler, CPA & Associates

Guidelines for Electric Vehicle Tax Credits

Jeffrey Ressler — Fri, 26 May 2023 20:53:50 +0000

Guidelines for Electric Vehicle Tax Credits

There are tax credits available when you purchase a new or used electric vehicle, for both fuel cell vehicles (FCV) and plug-in vehicles. These are obvious tax incentives to go green and buy an EV, but there are some rules for claiming the Federal Tax Credit.

What is a tax credit for an electric vehicle?

The nonrefundable tax credits, also known as an EV credit, are available to consumers who buy eligible electric or plug-in hybrid vehicles that meet eligibility requirements. Nonrefundable means that you won’t receive any money as a refund. The Federal credit will apply to your taxes, thereby reducing the amount of your tax liability. If there is credit left over after being applied to taxes, you can’t receive that in cash, and you cannot apply it to tax years in the future.

The Inflation Reduction Act recently changed the benefit by allowing up to $7,500 when a new EV is purchased, and capped it at 30% of the purchase price of a used vehicle, up to $4,000.

Guidelines for the tax credits

Your income must be below specific limits in order to qualify for the new Clean Vehicle Tax Credit, and the car you want to buy also needs to adhere to a number of IRS requirements, such as pricing ceilings and manufacturing standards.

Except for the critical minerals and battery requirements, which became applicable on April 18, 2023, all of the adjustments to the clean car tax credit took effect in January 2023.

Qualifications

Individuals or businesses purchasing electric vehicles from 2023 through 2032 can qualify if:

The vehicle is for personal use and not intended to be resold
It will be used mainly in the US
Income requirements are met

New vehicle requirements effective April 18, 2023

The date you actually receive the car determines eligibility for the Federal Tax Credit, not when it was ordered or purchased. Eligible vehicles must be taken into possession on or after April 18, 2023, and the vehicle must also meet price limits along with the following requirements:

The battery must have a minimum capacity of 7 kilowatt hours.

The vehicle must have a vehicle weight rating of not more than 13,999 pounds

EV’s must be produced by a qualified manufacturer. FCVs are not held to this rule.

Assembly requirement that vehicle parts must be assembled in continental North America
Critical minerals and battery component requirements must be adhered to

Vehicle is new when purchased
Information is supplied to the IRS and the buyer at the time of purchase. If your name and tax ID (SS or EIN) aren’t supplied to the IRS, you will not be eligible for the credit.
The MRSP has to be under a price threshold, which isn’t necessarily what you pay. The price caps are:
- SUVs, vans, and pickup trucks cannot have a retail price of over $80,000
- Vehicles other than those above must have a retail price of $55,000 or under

Most of that information can be found on the window sticker of the vehicle.

Used qualifying vehicles

The prior version of the EV tax credit that was in place until April 18 excluded used cars, making it a topic of hot debate. Starting with the updated credit version starting April 18, 2023, used cars are eligible, but with a cap of 30% of the sale price, up to $4,000.

Requirements for used electric vehicles:

They must be a fuel cell electric vehicle or a plug-in electric vehicle, with the battery having a minimum kilowatt hour capacity of 7 kw hours.
The credit only applies to the first time a vehicle transfers to another owner
Sale price must be $25,000 or under
Model of the vehicle has to have been manufactured for at least 2 years
Weight must be not more than 13,999 pounds
Owner can only claim a credit one time every three years

How to tell if a particular EV is eligible

Research will be needed by potential buyers who want to know if a particular EV qualifies for a Federal credit. Automakers have created a list of vehicles they certify could potentially qualify, which can be found at fueleconomy.gov. Sometime in 2024 buyers will be able to claim the credit directly through qualified car dealerships, instead of having to wait until they file their taxes.

How to Claim the Credit

For now, electric vehicle owners will need to file form 8936 with their Federal income tax return, along with the vehicle identification number (VIN) of the vehicle. The Clean Vehicle Credit form, titled Qualified Plug-In Electric Drive Motor Vehicle Credit, can be found on the IRS.gov website.

Buyers who purchased their EV in 2022 should use IRS form 8936 when filing their income taxes in 2023. For EV’s that were bought in 2023, the form should be submitted with a tax return in 2024.

Roadmap for Starting a New Business

Jeffrey Ressler — Thu, 27 Apr 2023 17:03:09 +0000

Roadmap for Starting a New Business

One of the most thrilling and rewarding experiences you can have is starting a successful business. Starting a new business requires a lot of planning and preparation. But how do you get started?

There are many different approaches to starting a business, each with requirements to take into account. Follow our advice on how to launch a business to reduce uncertainty and increase your chances of success. We’ll lead you through the steps of the process.

1. Develop your idea

With so many business types to choose from, most people who want to start a new business already have some idea of what type of business it will be, including whether it will be an online or brick and mortar business. If you already have a business idea or know what market or industry you want to go into, start by doing a search online for other businesses in that space to see if you can improve on what they are already doing.

Discover what kind of business you want to start

If you haven’t yet nailed down the kind of business you want to start, here are some questions to think through.

How much money do you have?
How much time can you devote to your company?
Would you rather work at home, in a retail shop, in an office environment?
What are you interested in or passionate about?
Do you want to sell a product or do you have information you could sell?
What are you experienced in or skilled at doing?
How quickly do you want to scale the business?
Do you have any support to help you start the business?
Will you be doing this alone or will you have a partner?
Have you thought about starting a franchise?

2. Do research on the market and your competitors

Market analysis is crucial for any business. The majority of business owners devote more time to deciding what products they want to sell than they do in studying and analyzing their competition. If you ever need to apply for a loan or other funding, you will be asked what makes your business unique from your competitors.

Also, you may discover that the competition is very great or the industry is saturated, so you may need to pivot some either with a different approach or by niching down. Maybe there isn’t even a market for your idea, in which case you may need to come up with another idea.

3. Specify who your target market will be

After you’ve researched the market and potential competition, you need to focus on detailing who your target audience or customer will be. This is critical because everything you do from here on should be done with your customer in mind.

Clarify your potential customer’s gender, age range, what their interests are, where they live, and why they will want to buy from you. If you don’t nail this down in the beginning, your business will flounder without a specific customer target because you don’t know who you are marketing to.

Conduct market research

Detailing your potential customer demographics may take some market research through the use of focus groups, polls, surveys, and public data research. Understanding your customers will enable you to provide services or products that will help differentiate your business from the competition and provide a unique value.

4. Decide on a business name

Some things to consider when choosing a business name:

Make it simple and catchy, not too long
Be sure you can buy a domain that is the same
Check to see if any other business has trademarked or registered the name. If so, you will not able to use it. The United States Patent and Trademark Office (USPTO) has a list of trademarked or registered businesses.

If you already own a legal business entity and want to start a new business that is using a slightly different name, you may want to consider filing for a DBA (Doing Business As) with your state. With a DBA you can open a new bank account, get a business license, and use it as your trade name.

After the business name has been decided, go to the IRS website to apply for an EIN (Employer Identification Number), which will be the business federal tax ID.

5. Create a business plan

Even if you don’t plan to apply for a loan, having a good business plan in place is important for you to have an understanding of what you want your business to look like and where you want it to go.

The Small Business Association (SBA) has a tutorial on how to create a business plan. You can get free business plan templates online to fill out, or if you are going to need funding, you should pay to have one written professionally. A good business plan will include answers to the following questions:

What is the purpose or goal of the business?
What are the details of the products / services that you will offer?
Who are your prospective customers?
Will you be hiring employees?
How will you fund the business in the beginning?
Will you need investors or a business loan?
What type of marketing are you planning to do?
What is your end goal?

6. Plan for taxes

Planning for taxes is crucial when opening a new business. New business owners are responsible for several types of taxes besides just income tax. There will be sales taxes and reports, and depending on whether you have employees, there could be payroll, social security, and unemployment taxes to pay.

Choose Your Business Structure

How you structure your business as a legal entity will have an impact in many ways, including how much tax you’ll pay on profits, and how at risk your own assets will be. It is highly recommended to schedule a time with your tax accountant for advice on the best legal entity for your business. It can always be changed when the business grows.

There are four main types of legal structures:

Sole proprietor – Profits from a sole proprietorship are claimed on your personal income tax return. It can impact your credit score, your personal liability, and you will be responsible for all debts the business incurs.

Partners – Both partners are responsible for the business debts, and again, the profits are claimed on your personal income tax return. Partnerships can be good for having help with the business. However, a large percentage of partnerships do not end well. Be sure you are comfortable and know the person well you plan to go into business with if you choose this route.

Corporation – There are two types of corporations – S Corp and C Corp. Your accountant can go over the differences between the two and which one, if either, is best for you.

LLC – Limited Liability Company. These are the most common types of entity for a small business.

For more information on choosing the right structure for your business, check out the SBA’s website. You will need to decide which legal entity is best for you, depending on your goals for the future of the business.

7. Get a clear picture of your finances

There are always costs involved with a new business startup. Make a list of what costs will be needed to get the business started, and what will be needed to cover expenses until the business is turning a profit and can sustain itself.

Do you have enough to cover those costs or will you need outside funding? What if the business takes longer than you anticipate to become profitable? What if startup costs are higher than you budgeted for? Many new businesses fail because they underestimated the costs and they simply run out of money. It’s a good idea to budget for more than you think you will need, especially since it could take a long time to become profitable.

If you need outside money, the SBA has sources for funding your business. Having a clear financial plan for a new business is critical, and is best detailed with the help of an accountant.

Open a bank account for business

You will need a separate business bank account in the name of the business and a business credit card, in order to keep your personal and business finances separate. You will need the EIN you applied for to open the account. All income will go into this account, and all business expenses will be paid out of it.

8. Make a marketing plan

A marketing budget needs to be considered when listing the startup costs of the business. Most new business owners don’t think about marketing until the business is up and running and then they don’t have any extra money to add it to their budget. They have no plan for getting the new business in front of their potential customers. This in itself can spell doom for a new company, so be sure you have a plan for how you will market your new business right from the start.

Using Your Vehicle for Business to Save Money

Jeffrey Ressler — Tue, 04 Apr 2023 21:57:56 +0000

Using Your Vehicle for Business to Save Money

Whether you are a business owner, self-employed, or an employee, if you use your vehicle for any business use you will be able to deduct some expenses and reduce the amount of income tax you’ll have to pay. If you put a lot of business miles on a vehicle, you should learn about the benefits of leasing vs buying, how depreciation works, and which method of mileage deductions will be best for you. All of these have tax implications so talk to your accountant about them.

If you have a dedicated business vehicle then you can deduct all expenses, included what you paid for it, as depreciation. If the vehicle is used for both personal and business, then only the deductions allowed are what it cost to use for just business.

Choice of how to deduct expenses

There are 2 ways to deduct expenses. You have to decide when you file which of the two ways will have the larger deduction. One method is to claim all actual expenses. This means you must keep all receipts and meticulous records in order to substantiate the expenses. The second method is by keeping track of the actual mileage used for business and use the standard mileage rate. You cannot do both.

Standard mileage rate

If you’re going to start using a car you already own for business, you’ll have to use the standard mileage rates for the first year. After that you can choose either that or actual expenses. If you use a leased vehicle, as long as it is under lease you can only use the mileage rate. For economy vehicles or ones that aren’t costly to operate, using the standard rate will probably give a larger deduction.

Actual expenses

For your personal vehicle, by keeping track of the mileage at the beginning and the end of the year, figure what percentage it is used for business based on the actual business miles. You can deduct that percent of all the expenses including gas, oil, maintenance and repairs, tires, loan interest, lease payments, insurance, depreciation, and registration and licensing fees. If you have a vehicle that high operating costs, using actual costs will likely prove the most beneficial.

For a vehicle owned by the business that is only used for business purposes, all expenses are deductible.

Keep good records

There are some things the IRS takes seriously when it comes to business deductions, and expenses for vehicles is one of them. Keep a mileage log and note the mileage at the beginning of the year, as well as at the end.

Keep a log of all business miles, dates, purpose, etc, as well as all other vehicle expenses you plan to write off. Even if you plan to take the standard rate deduction, you still need these records.

Do not deduct expenses for commuting to work

Driving to your place of business from home is not allowed as a business expense. Even if you have advertising on the vehicle, or talk to clients or customers on the phone while you drive, these miles are not deductible. However, if you travel from home to a different business location other than your normal business location, that is a cost that can be deducted. Plan your day so that by making a business-related stop on the way to or from home converts that segment of your drive to business miles.

Payroll Calculation Tips

Jeffrey Ressler — Wed, 15 Feb 2023 23:09:19 +0000

Payroll Calculation Tips

Payroll calculation for your company may seem like a demanding, unpleasant task. However, things don’t have to be that way. Payroll calculations can be done quickly and effectively online using simple tools or by outsourcing to a payroll company.

Locate the necessary resources and information, payroll errors could lead to significant issues for your company.

Here are some pointers for handling and calculating payroll correctly.

Use an online payroll calculator

Employers can easily take care of the fundamentals, like determining withholdings and deductions in their state, thanks to online payroll calculators. Others go so far as to help with more complicated matters like garnishments and 401(k) payments.

Payroll calculators offer business owners piece of mind and help with avoiding typical payroll errors that can catch Uncle Sam’s eye at tax time.

Keep up with the latest requirements

Making sure to use the most current information helps to avoid creating potential problems, for your employees and the company. You can spend the time to find the information you need on the federal and state level from the IRS and your own state, or go the fast, safe route by using online software or having a payroll company handle it for you.

Understand what deductions need to be taken

Make sure you’re deducting the appropriate amounts from each employee’s paycheck. Things other than the normal deductions like IRA contributions to court-mandated child support could be coming out of some checks.

You may experience issues with under or overpayment if you are unclear about what taxes and other deductions need to be taken out. You don’t want to make things difficult for a worker who is unaware that their check is inaccurate or that a crucial item is going unpaid.

To avoid issues, some businesses outsource payroll to another firm and making sure they receive the correct pertinent information. Managing your company’s payroll means taking deductions seriously.

How to Calculate Employee Net Pay

To determine net pay, start with the employee’s gross pay (total pay for the pay period), then subtract state and local taxes and any deductions. Net pay refers to the amount an employee actually receives in their paycheck. For employees who are on salary, gross pay is determined by dividing their annual salary by the number of pay periods in the year.

Federal income tax withholding

The amount of federal income taxes withheld is based on the information the employee provides when they fill out a W-4. Employees can change their information by submitting a new W-4 form at any time, but no more than once in a pay period.

W-4 forms are complicated and can be difficult for some people to fill out. Since it’s against the law for employers to help or give advice, the employer should direct them to an IRS withholding calculator, or the IRS Publication 15-T, which has instructions for filling out the form.

Determine your state’s withholding

Every state has different tax rates and rules, and there are different tax rates per county and even city. Knowing your local tax withholding rates is crucial. A chart of the state income tax withholding forms used by each state is available from the Bureau of Labor Statistics.

Automate your process

Automating your payroll process reduces the possibility of making mistakes, is faster, and a more efficient use of your time. Using online calculators or software are popular ways of doing payroll, along with hiring a payroll company to do it for you. Doing your payroll does not have to be difficult or stressful.

Whether you have an established business or are just starting a new one, doing payroll has to be done but it doesn’t have to be stressful. Automating or outsourcing it frees you up to focus on other areas of your business.

Keep Money Stress to a Minimum During the Holidays

Jeffrey Ressler — Sat, 19 Nov 2022 15:49:51 +0000

Keep Money Stress to a Minimum During the Holidays

The holiday season is always busy with tasks for getting prepared for Thanksgiving and Christmas, and if you’re not careful, stress levels can go through the roof. Many people say that this year is more stressful than usual because of tighter finances. After the last two years of lockdowns and travel restrictions, people are anxious to spend time with extended family members they may not have seen for a while. This is a good time to set some boundaries financially to help stay within your budget, and not have remorse and money stress to start the new year. Here are some ways to start.

Create a Budget for Christmas and Stick to It

Start by deciding how much you can comfortably spend for shopping and gifts that won’t blow out your budget. Christmas is the one time of the year when we can easily get carried away with emotional spending, especially when everyone around us is spending extravagantly. Sticking to a budget will help you stay on track and not feel stressed about how much you are spending.

Don’t Let Others Make You Feel Obligated

There will always be some family and friends who have more money than you do, or who love to buy expensive gifts. We tend to feel like we have to match what they spend on us, or we think we have to buy someone a gift who is giving us one, even if they aren’t on our list. This is where having a pre-determined budget will help you if you have the fortitude to stick to it, and it may require having a conversation about limits on spending and gifts. Here are some ideas for how to do that.

You may decide to limit gifts with extended family. If there is still enough time before Christmas, you can talk to them or send a text or email to let them know that you are limiting the gifts you give this year. Let them know what you treasure most is the time you spend with them and you are looking forward to celebrating the holidays with them.
If you’ve waited too late for that conversation or some people want to buy gifts no matter what, then impose a limit to how much is spent. This will help you stay within your limits and eliminate any regret about how much you spend.
If you have a group of people you need to buy for, get the group to do it as a Secret Santa so each person only has to buy one gift. The group can set a spending frame – minimum and maximum – so no one feels slighted. A Secret Santa gift exchange can be a lot of fun and it helps everyone’s budget since each person only buys for the person whose name they draw.

Don’t Be Drawn in by Emotional Shopping

The spirit of the holidays can put you into a festive mood and your emotions can drive your spending if you’re not careful. Be aware of the trap your emotions can set and before you leave the house, check yourself to see how you’re feeling. The best way to stick to a budget and is to not let your emotions override your good sense. How do you do that?

Shop only when you’re feeling good and are well rested. Don’t go if you’re feeling any anxiety or stress. Don’t shop on an empty stomach, that can make you feel cranky pretty fast.
Don’t think something is better just because it costs more. Don’t try to keep up with what other people are spending and don’t get caught in the mind trap of thinking a present is inferior because it doesn’t have a high price tag.
Plan times to spend with family and friends that are focused on having fun together and celebrating the season.

Boundaries Can Help Eliminate Stress and Overspending

The holiday season is full of excitement and joy but it can also bring anxiety and stress, making it hard to enjoy. Heightened emotions make it difficult to set financial boundaries for yourself but doing so will help you keep within budget and limit the stress of overspending. When you do, you will enjoy the season even more knowing that you will be in good financial health when it is over.

What to Do When You Have Unfiled Tax Returns

Jeffrey Ressler — Thu, 13 Oct 2022 16:42:19 +0000

What to Do When You Have Unfiled Tax Returns

In 2020, over 60% of US citizens did not pay any federal income tax, according to CNBC. Tax consultants and accountants highly recommend that you file a tax return for every year you have unfiled returns and pay any unpaid taxes. For those who are not able to pay their tax bill on time or have a late return, there is the option to catch up on any past-due federal tax returns and then apply for IRS back tax relief.

Reasons to file your unfiled tax returns

* You will be able to apply for back tax relief if you owe back tax payments. The IRS has several options available, depending on how much you owe and how much help you need.

*Claim a tax refund, but you have to file within 3 years of the date the return was due. Otherwise, you will probably lose the refund, along with any tax breaks you may have been eligible for.

*Prevent identity theft. Identify scams are increasing with tax returns being filed fraudulently. All someone needs is your social security number. They can file claiming an income tax refund, and then have it sent to their address or bank. Filing your federal return early in the filing season helps keep this from happening.

*Don’t lose Social Security benefits. For individuals who don’t receive a W-2 form, when taxes aren’t filed, the Social Security Administration doesn’t receive a report of your income. That reduces the benefits you will be eligible for when you retire.

*Have proof of income for a loan or rental. When signing a loan or rental agreement, a mortgage, student loan, and others, you are required to prove income. Usually, you will be asked to provide a copy of your income tax returns. Not having them can prevent you from acquiring the loan you are applying for.

How to know if you have unfiled returns

If you haven’t filed a tax return for any year in the past, and you’re unsure about it, usually the IRS will send you a CP59 notice saying they don’t have a record of a return from you. If they have received W-2 or 1099 or other tax forms for you, they will use the information they have on hand to prepare a return for you. This will not help you much because you won’t get any deductions or tax credits.

Once this happens, the IRS will start the process of collection for what they think you owe. They have many ways to collect including garnishing wages if you have a job, seizing a bank account, and file liens against any property you may have. Late penalties and interest will also be assessed all the way back to the earliest year taxes were unfiled.

What should you do?

There’s only one answer – file your past-due return. If the IRS filled out a return for you, they will send a notice with that information. From the date that was sent, you will then have 30 days to do the following:

File tax return(s)
Authorize collection
Send the IRS a letter with an explanation of why you did not file your taxes

The best way to avoid getting a notice from the IRS is to file your delinquent returns as quickly as possible. Sometimes the easiest way is to hire an accountant to have them do it for you. They will ensure that you meet all the filing requirements and all information is included. Don’t wait too long. Penalties and interest may already be accruing.

Understanding Payroll Expenses

Jeffrey Ressler — Tue, 20 Sep 2022 20:42:34 +0000

Understanding Payroll Expenses

Businesses need to understand payroll costs because they make up a sizable amount of any organization’s operational expenses. Payroll expenses are an area that many businesses don’t completely understand. Simply put, they are expenses that a business is responsible for and must pay for when they process their payroll. This includes the employer’s portion of employee benefits, as well as unemployment insurance taxes, the employee’s gross income, and FICA taxes.

The biggest payroll cost is employee gross wage

The largest payroll expense—as you surely already know—is employee compensation. It is important to keep in mind that employee gross compensation contributes to a company’s payroll costs. Some businesses mistakenly calculate their overall payroll costs using employee net wages. When a business does this, they are greatly underestimating their overall payroll costs. Instead, the employees’ gross pay is what the company is required to pay. Deductions and taxes that are taken out of an employee’s paycheck are not paid by the employer, but rather are come out of other accounts.

Employers are liable for FICA taxes

Another significant category of payroll expenses is FICA taxes. The company and the employee are both required to contribute equally to FICA taxes. The Medicare tax is the lone exception to this rule. Employees who earn more than $200,000 annually must contribute an additional 0.9% of their salary to Medicare. However, this is not included in the business’s payroll costs. Payroll expenses only include contributions made by the employer.

Employers are responsible for paying a percentage of Social Security and Medicare taxes for their employees – 6.2% towards Social Security and 1.45% for Medicare. Employees are taxed at the same rate. The only ones exempt from paying FICA tax are a few students and a small subset of non-resident aliens.

Companies must also pay taxes for unemployment insurance

Federal unemployment insurance taxes, which are 6% of the first $7,000 in wages paid to employees, must be paid by employers. Employers are liable for paying the unemployment insurance taxes in several states. These state unemployment taxes have different rates, but they often have the same amount as the federal unemployment insurance tax. A 5.4% credit for the federal unemployment tax may be available to your business if it is based in a state that levies a state unemployment insurance tax. As a result, the federal unemployment tax is reduced to 0.6%.

What the company pays for employee benefits

For many businesses, their total cost for employee benefits is the highest payroll expense they have, after paying employee wages. The expense of an employee’s health care is heavily subsidized by many businesses, and larger organizations typically match or contribute to 401k plans. Other perks are that are sometimes provided are memberships to gyms for employees. All of these expenses outside of wages are payroll expenses. When companies are considering what their total payroll expenses are, they should remember to not count any withholdings or deductions that don’t come out of their own accounts but are being covered by the employees.

Payroll costs for self-employed individuals

For companies who hire independent contractors, computing their payroll expenses is substantially easier than for employees. The reason for this is because businesses are not required to pay into or even offer benefits to independent contractors. Additionally, independent contractors are responsible for covering the whole cost of FICA taxes themselves. The wages or compensation being paid to an independent contractor is the only payroll expense the business will have. They are not even liable for unemployment insurance since the contractor isn’t “employed”.

Maintaining records of payroll costs

It is important to keep meticulous records of all payroll expenses. Companies are required by law to keep their records for a period of two years in the event they are audited and the IRS needs to see the files. It is, however, recommended to keep them for three years.

Should an employee challenge or dispute what they have been paid or their benefits, records are critical for an employer to prove those amounts. Records are also needed for bookkeeping and to produce a Profit and Loss statement at the end of the year showing a total for payroll expenses.

Calculating payroll costs

For tax planning purposes, many businesses work up an estimate for their payroll expenses at the beginning of the year or for each quarter, since the expense is one of the largest expenses they have. That way they can be prepared for the bill when payroll comes due.

This can be a challenge during the first year of business, as manually calculating what the payroll expenses will be isn’t easy. Once payroll has been processed for a cycle or two this becomes easier, as long as the number of employees stays the same. The easiest way to compute costs is by using a payroll software that can give an estimate. It’s also safer because the software will be using the current tax laws.

Managing Finances After a Job Layoff

Jeffrey Ressler — Tue, 12 Jul 2022 23:20:42 +0000

Managing Finances After a Job Layoff

What would you do if you suddenly and unexpectedly found yourself out of a job or had your hours cut way back? How would it impact your finances? Here’s what financial experts advise you to do if you if you are ever laid off from your job. In today’s uncertain economic times, many businesses are beginning to lay employees off from their jobs as a way to cut overhead. Even though unemployment is still pretty low, inflation is getting higher. Continuing supply chain issues and interest rates going up all indicate that we are headed for a recession.

Here are some steps to look honestly at your expenses, savings, health insurance, and unemployment benefits.

Look at your finances

You should carefully examine your finances after being laid off. Start by thinking about the resources and savings you have available. Ideally, you have planned for this possibility and have an emergency fund that you can count on while you look for new employment.

Next, you should evaluate your expenses: which of these are optional? What will the cost be for your basic needs such as food, housing, car and transportation, and medical?

After examining your savings and spending, think about what discretionary spending you can eliminate and whether you’ll have adequate funds to pay for all the essentials on your list. If you don’t, consider alternative sources of money you can use. For example, you might ask a family member for financial assistance, start a side business or take on a temporary job.

Apply for unemployment benefits

You may be eligible for unemployment benefits, available through your state and the federal government. Because each state has its own unique program, you will need to register and submit a claim to get benefits from your state. You will probably have a choice of applying in person, online, or over the phone. Eligibility requirements for benefits differ per state, as are the benefit amounts and how long you will be able to receive them. Don’t wait to get started, benefits will only begin when you apply.

Options for health insurance

Because you usually lose your medical insurance coverage when you lose your job, you’ll need to consider the three options that are generally available. If married, you could have your spouse add you to their plan. If single and under the age of 26, your parents can add you. You could continue in the same plan under your employer through COBRA, or go to healthcare.gov and sign up for a plan through the Affordable Care Act Health Insurance Marketplace.

Enrollment periods vary depending on the option you choose. If you decide to go with your parent’s or spouse’s plan, they will need to enroll you within 30 days. Registration for a plan in the ACA Marketplace will need to be completed within 60 days.

To continue coverage under your old job through COBRA can be pretty expensive because you will be required to pay the entire premium, whereas before your employer paid a portion of it. Most people don’t choose COBRA because the other options are more affordable.

Look into other government programs you could qualify for like Medicaid, Medicare, or food stamps.

Should you access your retirement accounts?

Accessing your retirement savings should be one of the last options you consider. All other options should be considered first because most retirement accounts will incur a penalty fee for early withdrawals. You will also be paying taxes on the money at a higher rate than if you wait until retirement age. There are some expenses that qualify for early withdrawal with no penalty from Roth IRA accounts.

Short term or low interest loans

If you find yourself in need of quick cash, look for the lowest interest rates you can find. If you have a credit card with 0% interest it may make sense to use it for needed items.

5 Things to Know About Taxes After Retirement

Jeffrey Ressler — Fri, 03 Jun 2022 22:02:13 +0000

5 Things to Know About Taxes After Retirement

In retirement, taxes can substantially impact your finances. If you’re thinking about retiring soon, you’ll want to think about how taxes are going to impact your financial situation. If you plan well, it is possible to significantly lower the amount of taxes you’ll pay. Understanding the impact of taxes in retirement is the first step.

1. What types of income are taxed, and how are they calculated?

Money you receive after you retire is still considered to be income, even though it will probably be from more than one source, which could include social security, savings, and investments. Retirement puts you in a different tax bracket and different sources are taxed differently. Social security, for example, may not be taxed at all if you are at full retirement age. If you aren’t, then it will depend on whether your income puts you over the limit for being taxed.

Savings and investment accounts

Your savings or Investment accounts are taxed differently, depending on what type of account it is. You need to know where your money will be coming from and what the tax cost for each source will be. Here are different types of retirement accounts:

Tax-Deferred

Tax deferred – 401(k), 403(b), and IRA accounts are examples of tax-deferred accounts. They are tax-deferred until you take funds out of your account. Typically, you won’t withdraw funds until after you retire, when your tax bracket is lower, so you won’t pay as much tax as you would have. Everything you take out after that is counted as taxable income.

Tax-Free (Roth)

Roth IRA accounts are created so that if you meet certain requirements, you can take money out without paying taxes on it. Usually, the account has to have been open for more than 5 years and you must be over 59.5 years of age. If not, the earnings from the account (not including contributions) could be taxed, along with a 10% penalty.

Taxable

Both tax-deferred and tax-free accounts shelter investments by not taxing them while the funds are in the accounts. This includes dividends and interest. Taxable accounts are different. Whether the money stays in the account or is withdrawn, all interest, dividends, or realized gains are taxed.

Social Security and Pensions

Pension benefits are usually taxed, though Social Security benefits are never fully taxed. It is determined by your adjusted gross income, and whether you have reached full retirement age. Your accountant will be able to determine how much of your Social Security income will be taxed.

Depending on how high your combined income is, you may have to include none, half, or up to 85 percent of your Social Security in your taxable income.

2. Create a strategy for income distribution

When you understand how the money will be taxed, you should devise a strategy to minimize taxes for funds distribution. Decide the best way to withdraw from your different accounts to obtain the lowest feasible tax rate, instead of taking it all from just a tax-deferred or a Roth account.

3. How your state income tax plays a role

Right now there are 43 states that collect income tax. If you reside in a state that does, this is something else you will need to consider. Even though most of them still do not tax Social Security payments, 12 states still do. It’s important to know whether your individual state taxes pension income or withdrawals from tax-deferred retirement accounts.

4. Use an accountant or CPA

A good accountant can help you understand if the strategy you are using is the most effective way to lower your tax liability. When they go through your files and documents for the prior year, they will be able to let you know if there is a better approach for your withdrawals or if your plan is a good one. They can help you avoid to mistakes in the future.

5. Avoid the mistake most retirees make

Probably the biggest mistake made by people who are retiring or are already retired is to not have any tax plan in place. Without a plan, you are more likely to pay more in taxes than you should. Be smart, do a little homework and put some thought into crafting a strategy for having your retirement be as tax efficient as possible.

It’s Not Too Late to Get Your Finances in Better Shape for 2022

Jeffrey Ressler — Fri, 15 Apr 2022 17:54:22 +0000

It’s Not Too Late to Get Your Finances in Better Shape for 2022

We are already 4 months into the new year, which is hard to believe. As accountants we often see people wait until the end of the year to start organizing their finances. If you have procrastinated in getting your finances in order, it’s never too late to start. In fact, as we face worse economic times than we have seen in many years, it is even more critical that this be done now. There is no more time to put off starting on some of the tasks below, which will help prepare you financially.

Look Back at Last Year

The amount of detail you choose to go into will determine how long this will take. Some good questions to explore and answer are:

How would you characterize your spending last year? Did you spend more or less than you planned to?
Based on your response to that question, where do you need to make adjustments for this year?
How many and what kinds of unexpected /unplanned expenses did you have?
Would you handle those types of expenses the same way or differently this year?

Work on Getting Out of Debt

Even if you think you can’t completely get rid of all your debt this year, you can certainly eliminate a good bit of it with good planning. This is primarily for credit card debt, which carries the highest interest rates. There are different methods for getting cards paid off or down, but the easiest is to start by making a list of all cards and their balances. Starting with the ones that have the highest interest rate, make a plan for paying those down first and work on them, one at a time.

If you have a card with a very low or zero rate, consider transferring the balance of a high interest rate card over to it. The idea is to get rid of the most interest at the beginning that you can, which will free up more capital to pay down the principal balances. Don’t be discouraged by how long it may take. As long as you’re making progress, your finances will be in better shape as you work toward being free financially.

Increase Your Contribution to a Retirement Account

If your employer matches a percentage of what you put into your retirement fund, be sure you are putting at least this much in, to take advantage of the full amount they will match. Limits on how much you can contribute have increased since 2021, so if it’s possible, put in the full amount that is allowed. Increasing your contribution by just 1% is usually doable, as that is a small number every month. Depending on your age, this can have an enormous effect on the money that will be available when you get to retirement age due to compounding interest. A good goal to aim for is putting away 15% of your income every year.

Have an Emergency Plan

Most people don’t like to think about getting their affairs in order, but if you knew how difficult it would be for your family to have to figure out where your papers are and all the info they will need, the best thing you can do for them is save them the time and trouble and make it as easy as you can. Put all pertinent papers together in one place.

Be sure all beneficiaries are updated, put a power of attorney in place, and designate whoever you want to make decisions if you are not able to do it on your own. Be sure your will is updated and specifies your wishes as to who will inherit your belongings and assets. This is especially important if you have dependent children. Arrangements should be specified as to who their guardian will be and where they will live.

Take the Time to Do a Life Audit

A life audit is similar to a financial audit, which is also a good thing to do. A life audit is simply taking an assessment of your life, where you are now, and what you want to do. Think about what your goals are so you can make a financial plan for accomplishing them. You will need this in order to be able to make a budget that works for you. Here is a good site to help with doing a life audit – Life Audit.

Make a Budget

For a lot of people, budget is an ugly word. We don’t like making a plan and sticking to it, we’d much rather just spend on whatever we want. However, there isn’t any way to get out of debt and achieve your goals without budgeting your income. There are many ways to do this. Start with the fixed items like rent/mortgage, insurance, etc. and go from there. Here is an easy plan to follow when creating a budget – How to Make a Budget.

Use the site above as a guideline as you work through this. You can download a budget app for your phone that can help you stay accountable and on track. Your financial health is just as important as your physical health, and it can affect your physical health if your financial situation gets out of control.