Timothy W. Tuttle &
Volume 15 Edition 07
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Major Events This Month:
For July 2019
July 4: Independence
Tax day might seem far away,
but waiting until year-end to make your tax moves may prove costly to you.
Maximizing your tax savings starts with an effective mid-year strategy! Detailed
here are some ideas to kick-start your summer tax planning. This issue
also includes some unique and free summer travel destinations, an infographic
with key IRS audit information, and five steps to help your business set the
right salaries for your employees.
Call if you would like to
discuss how this information relates to you. If you know someone who can benefit
from this newsletter, feel free to send it to them.
Effective Tax Planning Starts
With summertime activities in
full swing, tax planning is probably not on the top of your to-do list. But
putting it off creates a problem at the end of the year when thereís little time
for changes to take effect. If you take the time to plan now, youíll have six
months for your actions to make a difference on your 2019 tax return. Here are
some ideas to get you started.
- Know your upcoming tax
breaks. Pull out your 2018 tax return and take a look at your income,
deductions and credits. Ask yourself whether all these breaks will be
available again this year. For example: Any changes to your tax situation will
make planning now much more important.
- Are you expecting more
income that will bump you to a higher tax rate?
- Will increased income
cause a benefit to phase out?
- Will any of your
children outgrow a tax credit?
- Make tax-wise
investment decisions. Have some loser stocks you were hoping would
rebound? If the prospects for revival arenít great, and youíve owned them for
less than one year (short-term), selling them now before they change to
long-term stocks can offset up to $3,000 in ordinary income this year.
Conversely, appreciated stocks held longer than one year may be candidates for
potential charitable contributions or possible choices to optimize your taxes
with proper planning.
- Adjust your retirement
plan contributions. Are you still making contributions based on last
yearís limits? Maximum savings amounts increase for retirement plans in 2019.
You can contribute up to $13,000 to a SIMPLE IRA, up to $19,000 to a 401(k)
and up to $6,000 to a traditional or Roth IRA. Remember to add catch-up
contributions if youíll be 50 by the end of December!
- Plan for upcoming
college expenses. With the school year around the corner, understanding
the various tax breaks for college expenses before you start doling out your
cash for post-secondary education will ensure the maximum tax savings. There
are two tax credits available, the American Opportunity Tax Credit (AOTC) and
the Lifetime Learning Credit. Plus there are tax benefits for student loan
interest and Coverdell Savings accounts. Add 529 college savings plans, and
you quickly realize an educational tax strategy is best established early in
- Add some business to
your summer vacation. If you own a business, you might be able to deduct
some of your travel expenses as a business expense. To qualify, the primary
reason for your trip must be business-related. Keep detailed records of where
and when you work, plus get receipts for all ordinary and necessary expenses!
Great tax planning is a
year-round process, but itís especially effective at midyear. Making time now
not only helps reduce your taxes, it puts you in control of your entire
Can't Miss Stops for Your
Summer Road Trip
School is out, the weather is
warm, and itís time to head out on a summer road trip! Tired of the same old
locations? Every state has a number of unique destinations for the every day
explorer. Here are some free ideas for the creative vacation seeker in all of
- The Worldís Largest
Yard Sale. Stretching 690 miles through six states, the Worldís Largest
Yard sale includes over 2,000 vendors. Every year at the beginning of August,
you can drive for four days (from Addison, Michigan to Gadsden, Alabama) in
search of second-hand treasures. Along the route are more than 35 major vendor
stops. These stops include groups of at least 25 sellers clustered together.
But you can also find sales in individual yards, garages, parking lots or even
right on the side of the road.
- The Wave Organ.
Located in San Francisco, California, the Wave Organ is a sprawling sculpture
that incorporates multiple pipes that enter the ocean at different levels to
create musical tones when theyíre struck by the waves. The sculpture itself is
made of granite and marble from an old cemetery. When planning a visit, shoot
to be there during high tide when the organ is at its best.
- Miss Crustacean Hermit
Crab Beauty Pageant. Do you have a hermit crab that really likes to flaunt
its shell? Then Ocean City, New Jersey is the place for you! Every August,
contestants vie for the Coveted Cucumber Rind Cup by showcasing their
elaborately decorated hermit crabs. Registering your charming hermit crab is
free - just make sure you get there early.
- Carhenge. If you
donít have time to travel across the ocean to see Stonehenge, youíre in luck!
Head to Alliance, Nebraska to visit Carhenge instead. Built in 1987 as a
replica of the iconic stone circle in England, Carhenge uses vintage cars as
building blocks instead of the 25-ton stones used in the original. Itís
located in the middle of farmland and includes a walking path with some other,
letís just say, interesting sculptures.
- The Austin bats.
Hidden under the Congress Avenue Bridge in Austin, Texas from late March until
early fall lives the largest urban colony of Mexican free-tailed bats in the
world. At its peak, (sometime in August) the colony has as many as 1.5 million
bats! Every night around sunset, onlookers pack the bridge, sidewalks and
river below to experience the colony taking flight in search of insects. If
you decide to watch from the water, you might want to bring an umbrella -
unprepared spectators are known to be hit with guano (AKA bat poop)!
Hitting the road is a great
way to spend some time with loved ones this summer. Adding quirky stops that
will be remembered for a lifetime make it even better!
What You Need To Know About
The IRS recently released its
2018 Data Book, including information on its audit activities for the last
fiscal year. This details what you need to know regarding your audit risk, how
to prepare for and what to expect in an IRS audit.
Know the facts
- An IRS audit is a review
to ensure your tax filings are reported correctly according to tax laws.
- Both individual and
business tax returns can be audited.
- The IRS wonít initiate an
audit by telephone.
IRS Audit Statistics
Tax returns filed in prior
Percentage of returns audited
Less than 1%
What are your chances of
It depends. But for most
taxpayers, LOW. Approximately 1 in 198 tax returns were audited in 2018. The IRS
audited 0.6% of all individual income tax returns filed in 2018, and 0.91% of
corporation tax returns (excluding S corporations)
There are two types of
- Field audit: An in-person
interview and review of records. It often happens at taxpayerís home, business
or accountantís office.
- Correspondence audit: A
written request for more info about a specific tax return item or issue
handled via mail.
Did you know? Approximately
2/3 of audits are handled through the mail.
Reasons you may be audited
Although the IRS uses random
selection as one method to choose tax returns to audit, it may also flag returns
- Youíre in a higher income
- You have math errors on
your tax return.
- You report no income or
not all of your income.
- Your tax return involves
issues with other taxpayers whose returns are being audited.
Other reasons: reporting too
many losses, deducting too many work expenses and claiming too many charitable
contributions may also trigger an audit.
Always be prepared
Use your past tax return as a
checklist of items to keep on hand:
- A copy of your signed tax
return and all supporting documents
- Worksheets that support
- Forms W-2
- Forms 1099 (all versions)
- Forms 1095
- Business Forms K-1
- Canceled checks of
- Receipts supporting
- Itemized deduction support
- Child care receipts and
- Bank statements
- Investment statements
- Mortgage statements
- Credit card statements
- Major purchases or sales
- Receipts for any
- Proof of fair market value
for any inherited items
- Mileage logs for business,
charitable and medical transportation
- Business meals and
cellphone use documentation
- Educational expenses
FYI: Always use copies of
records during an audit. Keep your original documents.
More ways to prepare: Check
IRS.gov to review its Audit Techniques Guides (ATGs). They are used by IRS
examiners and can identify areas for potential audits, as well as help you
understand what the IRS may question.
What to do if youíre
Your tax return may never be
audited. But if it happens, here are a few tips to make the process go more
- Respond to the IRS in a
timely manner. If you donít, an in-person meeting may happen.
- Ask for help. NEVER tackle
the IRS alone!
- Know what is being asked.
Get a clear understanding of the core questions.
- Understand how the auditor
has been trained. IRS auditors are trained in certain areas. These are
published in the ATGs.
The bright side: If you are
audited, you may end up with a refund. In FY 2018, approximately 30,000 audits
resulted in refunds, totaling $6 million.
Kiplinger.com, Forbes.com, Nerdwallet.com
Make Setting Salaries Easier
With These 5 Steps
Whether you are hiring for
the first time, filling an open position, or conducting annual performance
reviews, finding a salary range that attracts and retains valued employees can
be a difficult task. Here are some suggestions to help make the process a bit
easier for you and your company:
- Know what your business
can afford. Like any business expense, you need to know how it will affect
your budget and cash flow. Make a twelve-month profitability and cash forecast
and then plug in the high end of the annual salary range you are considering
to see if itís something your business can absorb. After all, the greatest
employee in the world canít help you if you donít have the money to pay them.
Donít forget to account for increases in benefit costs, especially the
escalating cost to provide healthcare. Once you establish a budget, you can
allocate your spending plan to your payroll.
- Understand the laws.
In general, the federal government sets the minimum requirements (minimum wage
of $7.25 per hour, overtime rules and record keeping requirements). States and
localities often add their own set of rules. For example, the state of
Illinois, Cook County and the city of Chicago all have different minimum wage
requirements. If you are located in Chicago you need to adhere to the highest
rate. So research all payroll rules that apply to your location at the
beginning of the process. When reviewing the rules, donít forget that
different rules often apply depending on the number of employees in your
- Review and update job
descriptions. Take some time to review key jobs and update them as
appropriate. With new positions, note the exact tasks and responsibilities you
envision for the role. Then, think about the type of person that will succeed
performing these responsibilities. Once you have a clear picture of who you
are looking for, you can begin to build a detailed job description and narrow
in on a specific salary range.
- Establish value ranges
and apply them. Value is key when determining the perfect salary amount.
Define the range of value for the position and then apply that valuation to
the current personís performance within the defined pay range. Use websites
and recruiters to establish the correct range of pay, then apply experience
and employee performance to obtain a potential new salary amount. Remember,
size of company, location and competitiveness of the job market are all
factors to consider.
- Factor in company
benefits. A strong suite of employee benefits is a powerful tool to couple
with a competitive salary. Donít be afraid to communicate their value to
prospective and current employees (they help with retention, too!). According
to Glassdoor, health and dental insurance are the most important, but
flexibility is close behind - over 80 percent of job seekers take flexible
hours, vacation time and work-from-home options into consideration before
accepting a position.
Finding the right salary can
be tricky, but with some preparation and research, you can find the balance that
satisfies the needs of your business and your employees.
How To Protect Your Social
Very few things in life can
create a higher degree of stress than having your Social Security Number (SSN)
stolen. This is because, unlike other forms of ID, your SSN is virtually
permanent. While most instances of SSN theft are outside your control, there are
some things that you can do to minimize the risk of this ever happening to you.
- Never carry your card.
Place your SSN card in a safe place. That place is never your wallet or purse.
Only take the card with you when you need it.
- Know who needs it.
As identity theft continues to evolve, there are fewer who really need to know
your SSN. Here is that list:
- The government.
The federal and state governments use this number to keep track of your
earnings for retirement benefits and to ensure you pay proper taxes.
- Your employer.
The SSN is used to keep track of your wages and withholdings. It also is
used to prove citizenship and to contribute to your Social Security and
- Certain financial
institutions. Your SSN is used by various financial institutions to
prove citizenship, open bank accounts, provide loans, establish other forms
of credit, report your credit history or confirm your identity. In no case
should you be required to confirm more than the last four digits of your
- Challenge all other
requests. Many other vendors may ask for your SSN but having it may not be
essential. The most common requests come from health care providers and
insurance companies, but requests can also come from subscription services
when setting up a new account. When asked on a form for your number, leave it
blank. If your supplier really needs it, they will ask you for it. This allows
you to challenge their request.
- Destroy and distort
documents. Shred any documents that have your number listed. When
providing copies of your tax return to anyone, distort or cover your SSN.
Remember, your number is printed on the top of each page of Form 1040. If the
government requests your SSN on a check payment, only place the last four
digits on the check, and replace the first five digits with Xs.
- Keep your scammer alert
on high. Never give out any part of the number over the phone or via
email. Do not even confirm your SSN to someone who happens to read it back to
you on the phone. If this happens to you, file a police report and report the
theft to the IRS and Federal Trade Commission.
- Proactively check for
use. Periodically check your credit reports for potential use of your SSN.
If suspicious activity is found, have the credit agencies place a fraud alert
on your account. Remember, everyone is entitled to a free credit report once a
year. You can obtain yours on the
Annual Credit Report
Replacing a stolen SSN is not
only hard to do, it can create many problems. Your best defense is to stop the
theft before it happens.
Basic Customer Retention
Questions You Need to Answer
Your businessís ability to
retain customers is one of the most important components to sustain growth and
profitability. Here are the three retention questions every business owner
should be able to answer:
- What percentage of your
customers return each year? The first step to understanding retention is
to know your customer retention rate. First, take your total customers from
the end of a period and subtract the total customers you added during the
period. Then, take that number and divide it by the total customers from the
start of the same period. The result is your retention rate for that period.
That rate by itself doesnít tell you much, so you need to compare it to the
same time period last month and for prior years. A rising rate means you are
on the right track; a shrinking rate means you need to make changes. According
to the Harvard Business Review, a 5 percent increase in your retention rate
increases profits by 25-95 percent! Example: Cutíem Nail
Salon starts the year with 700 active clients. They add 300 new customers
during the year, and their active client base is 800 at the end of the year.
On the surface things look good, right? This increase of 100 clients is over
14 percent! But when you calculate the retention rate, it is 71.4 percent (800
clients minus 300 new clients means 500 of last yearís clients still use
Cutíem. 500 divided by 700 equals 71.4 percent). But Cutíem doesnít know if
this is good or bad news, as it only makes sense when comparing it to the last
few yearsí retention performance.
- What percentage of your
revenue comes from returning clients? Core customers almost always
contribute the most to your profitability. But how much? To figure out your
returning customer revenue percentage, start with a list of revenue by
customer for the last 12 months. Identify the returning customers and add up
revenue attributed to them. Divide that number by your total revenue. Use this
information to balance your spending between new customer acquisition and
retaining your core customers. If you are like most businesses, you will
realize there is tremendous value in spending more time and effort on
retention, even when your business is full! Part 2 Cutíem Nail Salon
Example: Assume the nail salonís total revenue is $1 million and
the revenue from the 500 returning clients is $900,000. In this case, the core
customers represent 90 percent of the revenue but only 62.5 percent (500
divided by 800) of the customers!
- Do you know who your
most valuable customers are? Now identify which customers spend the most
and buy the most often. Odds are, many of your top customers have similar
characteristics. In the end, your goal should be to keep these customers happy
and get more just like them! Part 3 Cutíem Nail Salon Example:
In the example above, the average revenue per client is $1,250 per client or
over $100 per month ($1 million divided by 800 clients). If the top 20 clients
represent $100,000 in revenue or $5,000 per client, you can quickly see how
important they are!
Donít make the mistake of
assuming business success comes from constantly adding new customers. Most
sustained growth and profitability comes from first understanding marketing
activities targeted to keep your current customers. The best place to start is
to calculate and understand your base retention numbers.
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