
Online Advisor
Timothy W. Tuttle &
Associates
Volume 15 Edition 01
Please email comments to
newsletter@tuttlefirm.com
Jan 2019
Major Events This Month:
For January 2019
January 1: New Year's Day
January 15: 4th Quarter
Estimated Payments Due
January 21: Martin Luther King
Jr. Day
Start tax planning for the new year:
- Adjust withholdings
- Organize filing records
- Schedule tax consultation
- Rebalance investment portfolio
The new year is upon us! As you finish cleaning
up the champagne glasses and confetti, now is the time to start thinking about
your tax preparation plan. This issue is packed with useful information
including tips to receive a faster refund. In addition, there are ideas to
manage cash flow for your business, things to consider when living with a smart
speaker, and age-appropriate suggestions for teaching your children how to
handle financial matters.
Call if you would like to discuss how any of
this information relates to you. If you know someone that can benefit from this
newsletter, feel free to send it to them.
Tips for a Faster Refund
As the tax filing season approaches, there are
steps you can take now to speed up the filing process. The faster your return is
filed, the faster you get your refund. Even if you end up owing money to the
IRS, knowing the amount due sooner gives you more time to come up with the funds
needed to pay your tax bill. Here are things you can do now to get organized:
-
Look for your tax forms. Forms
W-2, 1099, and 1098 will start hitting your mailbox. Look for them and get
them organized. Create a checklist of the forms to make sure you aren't
missing any.
-
Don't wait for Form 1095s. Once
again, proof of health insurance coverage forms are delayed. The deadline for
companies to distribute most Form 1095s to employees is pushed back to March
4. The IRS is OK with filing your return prior to receiving the proof of
insurance form as long as you can provide other forms of proof. Remember, 2018
is the last year of penalties if you do not have adequate insurance coverage.
-
Finalize name changes. If you
were recently married or had a name change, file your taxes using the correct
name. File your name change with the Social Security Administration as soon as
possible, but be aware of the timing with a potential name conflict with the
IRS.
-
Collect your statements and sort them.
Using last year's tax return, gather and sort your necessary tax records. Sort
your tax records to match the items on your tax return. Here is a list of the
more common tax records:
-
Informational tax forms (W-2, 1099, 1098,
1095-A, plus others) that disclose wages, interest income, dividends and
capital gain/loss activity
-
Other forms that disclose possible income
(jury duty, unemployment, IRA distributions and similar items)
-
Business K-1 forms
-
Social Security statements
-
Mortgage interest statements
-
Tuition paid statements
-
Property tax statements
-
Mileage log(s) for business, moving, medical
and charitable driving
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Medical, dental and vision expenses
-
Business expenses
-
Records of any asset purchases and sales
-
Health insurance records (including Medicare
and Medicaid)
-
Charitable receipts and documentation
-
Bank and investment statements
-
Credit card statements
-
Records of any out of state purchases that may
require use tax
-
Records of any estimated tax payments
-
Home sales (or refinance) records
-
Educational expenses (including student loan
interest expense)
-
Casualty and theft loss documentation
(federally declared disasters only)
-
Moving expenses (military only)
If you are not sure
whether something is important for tax purposes, retain the documentation. It is
better to save unnecessary documentation than to later wish you had the document
to support your deduction.
-
Clean up your auto log. You
should have the necessary logs to support your qualified business miles,
moving miles, medical miles and charitable miles driven by you. Gather the
logs and make a quick review to ensure they are up to date and totaled.
-
Coordinate your deductions. If
you and someone else may share a dependent, confirm you are both on the same
page as to who will claim the dependent. This is true for single taxpayers,
divorced taxpayers, taxpayers with elderly parents/grandparents, and parents
with older children.
While you are organizing your records, ride the
momentum to start your filing system for the new year. Doing so will make this
process a breeze this time next year!
Every Business Needs Cash!
5 keys to better cash management
Focusing solely on sales and profits can create
a surprise for any business when there is not enough cash to pay the bills. Here
are five key principals to improve your cash management.
-
Create a cash flow statement and analyze
it monthly. The primary objective of a cash flow statement is to help
you budget for future periods and identify potential financial problems before
they get out of hand. This doesn't have to be a complicated procedure. Simply
prepare a schedule that shows the cash balance at the beginning of the month
and add cash you receive (from things like cash sales, collections on
receivables, and asset dispositions). Then subtract cash you spend to
calculate the ending cash balance. If your cash balance is decreasing month to
month, you have negative cash flow and you may need to make adjustments to
your operations. If it's climbing, your cash flow is positive.
Bonus tip:
Once you have a cash flow statement that works for you, try to automate the
report in your accounting system. Or even better, create a more traditional cash
flow statement that begins with your net income, then make adjustments for
non-cash items and changes in your balance sheet accounts.
-
Create a history of your cash flow.
Build a cash flow history by using historical financial records over the
course of the past couple of years. This will help you understand which months
need more attention.
-
Forecast your cash flow needs.
Use your historic cash flow and project the next 12 to 24 months. This process
will help identify how much excess cash is required in the good months to
cover payroll costs and other expenses during the low-cash months. To smooth
out cash flow, you might consider establishing a line of credit that can be
paid back as cash becomes available.
-
Implement ideas to improve cash flow.
Now that you know your cash needs, consider ideas to help improve your cash
position. Some ideas include:
-
Reduce the lag time between shipping and
invoicing.
-
Re-examine credit and collection policies.
-
Consider offering discounts for early payment.
-
Charge interest on delinquent balances.
-
Convert excess and unsold inventory back into
cash.
-
Manage your growth. Take care
when expanding into new markets, developing new product lines, hiring
employees, or ramping up your marketing budget. All require cash. Don't travel
too far down that road before generating accurate cash forecasts. And always
ask for help when needed.
Understanding your cash flow needs is one of
the key success factors in all businesses. If your business is in need of
tighter cash management practices, now is the perfect time to get your cash flow
plan in order.
Hey Alexa. Are you Making Me Dumb?
3 concerns to consider while living with a smart
speaker
Smart speakers like the Amazon Echo and Google
Home are popping up everywhere. According to a Nielsen study from last
September, nearly one of every four U.S. households has a smart speaker - 40
percent of those homes have more than one. For some, the speaker is an easy way
to play music, for others it's a unique way to easily access the Internet for
information and control other Wi-Fi enabled products. However, there are some
questions regarding whether or not it's a good idea to own one. Here are three
concerns to consider if you own or are thinking of purchasing a smart speaker:
-
Is it spying on me? Privacy is
a major concern regarding smart speakers. Once powered up and connected to
your Wi-Fi, it is listening in your home 100 percent of the time. Listening is
its core function - it needs to hear you say the "wake" word to then process
your question or command. Amazon claims that it only starts recording once it
wakes up, but there is no way to know for sure. Ultimately you need to decide
if the benefits of owning a smart speaker outweigh the risk of potentially
giving up some privacy.
-
Will it make me unintelligent?
Ever since the internet became available on handheld devices, the need to
think through problems has decreased. It is often debated that having the
answers to almost everything at our fingertips can suppress cognitive
development. According to the National Center for Biotechnology Information (NCBI)
that line of thinking might not be correct. The study of the relationship
between brain development and technology is still in its infancy and test
results are often counter-intuitive. The conclusion? No one knows! Given this,
as a buyer you should be aware of the possibility of dynamic changes in the
way we think, especially children. One idea is to limit the time the device is
on, just like monitoring use of cell phones, computers and tablets.
-
Will I lose my manners? A smart
speaker doesn't require you to say "please" and "thank you" to get what you
want. A simple command is all that is required. The Atlantic published an
article pondering how giving verbal commands to a smart speaker with the
"casual rudeness" that is required could possibly change the way you talk to
people over time. A good defense against losing your politeness is to be
self-aware of your speech to others. According to a study by the European
Journal of Social Psychology, it takes 66 days to create a habit. Set a
reminder on your smart speaker (wink) for two months from now to politely
remind yourself to pay attention to your vocabulary.
While there is no shortage of opinions
regarding the use of smart speakers in the home, it's up to you to decide if it
fits with your lifestyle. If you are torn, Amazon and Google have smaller
versions (Echo Dot and Google Home Mini) that are relatively inexpensive. You
can try it out for a while and see how you like it. If it goes well, you can
spring for the larger model and move the smaller version to another room in the
house. If it goes poorly, you can sell it or give it to someone else.
How to Raise a Financially Savvy Child
If you have children (or grandchildren) you
have an opportunity to give them a jump-start on their journey to becoming
financially responsible adults. While teaching your child about money and
finances is easier when you start early, it's never too late to impart your
wisdom. Here are some age-relevant suggestions to help develop a financially
savvy young adult:
-
Preschool – Start by using
bills and coins to teach them what the value of each is worth. Even if you
don't get into the exact values, explain that a quarter is worth more than a
dime and a dollar is worth more than a quarter. From there, explain that
buying things at the store comes down to a choice based on how much money you
have (you can't buy every toy you see!). Also, get them a piggy bank to start
saving coins and small bills.
-
Grade school – Consider
starting an allowance and developing a simple spending plan. Teach them how to
read price tags and do comparison-shopping. Open a savings account to replace
the piggy bank and teach them about interest and the importance of regular
saving. Have them participate in family financial discussions about major
purchases, vacations and other simple money decisions.
-
Middle school – Start
connecting work with earning money. Start simple with babysitting, mowing
lawns or walking dogs. Open a checking account and transition the simple
spending plan into a budget to save funds to make larger purchases. If you
have not already done so, it is a good time to introduce the importance of
donating money to church or charity.
-
High school – Explain the job
application and interview process. Work with them to get a part-time job to
start building work experience. Add additional expense responsibility by
transferring direct responsibility for things like gas, lunches and expenses
for going out with friends. Introduce investing by explaining stocks, mutual
funds, CDs and IRAs. Talk about financial mistakes and how to deal with them
when they happen - try to use some of your real-life examples. If college is
the goal after high school, include them in the financial planning decisions.
-
College – Teach them about
borrowing money and all its future implications. Explain how credit cards can
be a good companion to a budget, but warn of the dangers of mismanagement or
not paying the bill in full each month. Discuss the importance of their credit
score and how it affects future plans like buying a house. Talk about
retirement savings and the importance of building their retirement account.
Knowing about money - how to earn it, use it,
invest it and share it - is a valuable life skill. Simply talking with your
children about its importance is often not enough. Find simple, age specific
ways to build their financial IQ. A financially savvy child will hopefully lead
to a financially wise adult.
Taking a Home Office Deduction
A great tax reduction idea, if done right!
Cloud-based applications, extensive
communication channels, and other new technologies make it easier to run your
business out of your home. If you qualify, many home business expenses are
deductible. Think you might qualify? You must first pass these tests.
-
Trade or business use test. To
qualify for business use of your home you must use part of your home for a
qualified trade or business. This profit seeking activity must not be a hobby
in the eyes of the IRS.
-
Exclusive use test. You must
use part of your home exclusively for your business activity. Blending
personal use within the same space as your business activity can disallow the
business use of home deductions, however, there does not need to be a
permanent barrier between this space and the rest of the house.
-
Regular use test. In addition
to having a qualified business activity in an exclusive area of your home, you
must also use it "regularly" for your business activity. The IRS applies
judgment in this area to determine the facts and circumstances around what it
deems to be regular use.
-
Principal place of business test.
To deduct your home office expenses, the home location must also be your
principal place of business. That does not mean there cannot be other business
locations, just that your home office must be your primary location. You might
also have multiple business activities. In this case, you could meet the test
for one of your businesses to qualify to take the deductions. With multiple
locations, the considering factors are:
-
The relative importance of the activities
performed at each location
-
The amount of time spent at each location
-
The primary place used exclusively and
regularly for administrative or management activities
-
Whether there are other fixed locations for
business use
Types of deductible expenses
This chart from the IRS gives some direction on
the types of expenses that are deductible. As always, proper substantiation is
required to take the deduction, so keep all receipts and statements in an
organized fashion.
Expense |
Description |
Deductibility |
Direct |
Expenses only for the business part of your home.
Examples:
Painting or repairs only in the area used for
business. |
Deductible in full. *
Exception:
May be only partially deductible in a daycare
facility. |
Indirect |
Expenses for keeping up and running your entire home.
Examples:
Insurance, utilities, and general repairs. |
Deductible based on the percentage of your home used
for business. * |
Unrelated |
Expenses only for the parts of your home not used for
business. Examples:
Lawn care or painting a room not used for
business. |
Not deductible. |
Source: IRS Publication 587 |
* Subject to the deduction limit |
Sound confusing? Perhaps. If the additional
work of tracking specific expenses is too much to handle, a simplified home
office deduction calculation is also available to small businesses to lower
their tax bill. Please call should you need help in navigating this part of the
tax code.
IRS Announces 2019 Mileage Rates
Mileage rates for travel are now set for 2019.
The standard business mileage rate increases by 3.5 cents to 58 cents per mile.
The medical and moving mileage rates also increase by 2 cents to 20 cents per
mile. Charitable mileage rates remain unchanged at 14 cents per mile.
2019 Standard Mileage Rates
Standard Mileage Rates |
Mileage |
Rate/Mile |
Business Travel |
58 cents |
Medical/Moving |
20 cents |
Charitable Work |
14 cents |
Here are 2018 rates for your reference, as
well.
2018 Standard Mileage Rates
Standard Mileage Rates |
Mileage |
Rate/Mile |
Business Travel |
54.5 cents |
Medical/Moving |
18 cents |
Charitable Work |
14 cents |
Remember to properly document your mileage to
receive full credit for your miles driven.
As always, should you have any questions or
concerns regarding your situation please feel free to call.
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Timothy W. Tuttle & Associates
www.tuttlefirm.com