Timothy W. Tuttle &
Volume 15 Edition 08
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Major Events This Month:
For August 2019
September 2: Labor Day
Summer is starting to wind
down and the kids will soon be headed back to school. Now is a great time to
review if you've had, or
will have, any special taxable events this year. The first article highlights
five taxable items that come as a surprise to many people. This month's
newsletter also includes spending traps to avoid when headed to the fair, ways
to manage the burden of student loan debt, and cash flow strategies that can
save your business.
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.
I Owe Tax on That?
Wages and self-employment
earnings are taxable, but what about the random cash or financial benefits you
receive through other means? If something of value changes hands, you can bet
the IRS considers a way to tax it. Here are five taxable items that might
- Scholarships and
financial aid. Applying for scholarships and financial aid are top
priorities for parents of college-bound children. But be careful - if any part
of the award your child receives goes toward anything except tuition, it might
be taxable. This could include room, board, books, travel expenses or aid
received in exchange for work (e.g., tutoring or research). Tip:
When receiving an award, review the details to determine if any part of it is
taxable. Don't forget to review state rules as well. While most scholarships
and aid are tax-free, no one needs a tax surprise.
- Gambling winnings.
Hooray! You hit the trifecta for the Kentucky Derby. But guess what?
Technically, all gambling winnings are taxable, including casino games,
lottery tickets and sports betting. Thankfully, the IRS allows you to deduct
your gambling losses (to the extent of winnings) as an itemized deduction, so
keep good records. Tip: Know when the gambling establishment
is required to report your winnings. It varies by type of betting. For
instance, the filing threshold for winnings from fantasy sports betting and
horse racing is $600, while slot machines and bingo are typically $1,200. But
beware, the gambling facility and state requirements may lower the limit.
compensation. Unfortunately the IRS doesn't give you a break on the taxes
for unemployment income. Unemployment benefits you receive are taxable.
Tip: If you are collecting unemployment, you can either have taxes
withheld and receive the net amount or make estimated payments to cover the
- Crowdfunding. A
popular method to raise money for new ventures or to support a special cause
is crowdfunding through websites. Whether or not the funds are taxable depends
on two things: your intent for the funds and what the giver receives in
return. Generally, funds used for a business purpose are taxable and funds
raised to cover a life event (e.g., special causes or medical assistance) are
considered a gift and not taxable to the recipient. Tip:
Prior to using these online tools to raise money, review the terms and
conditions and ask for a tax review of what you are doing. If you need to
account for taxes, reserve some of what you raise for this purpose.
Cryptocurrencies like Bitcoin are considered property by the IRS. So if you
use cryptocurrency, you must keep track of the original cost of the coin and
its value when you use it. This information is needed so the tax on your gain
or loss can be properly calculated. Remember, the tax rate on property can
vary if you own the cryptocurrency more than a year, so record all dates.
Tip: For those considering replacing cash with things like
Bitcoin, you need to understand the gain or loss complications. For this
reason, many people using cryptocurrency do so for speculative investment
When in doubt, it's a good
idea to keep accurate records so your tax liability can be correctly calculated
and you don't get stuck paying more than what's required. Please call if you
have any questions regarding your unique situation.
Headed to the Fair? Avoid
These Spending Traps
If you've ever attended a
state or county fair, you know it's really easy to spend a lot of money, and
fast. The best way to avoid overspending is to know the problem areas and be
prepared. Here are five typical fair spending traps (and tips to avoid them):
- Paying full price for
admission. In 2019, the price of admission for a state fair can cost a
family of four well over $50. Most fairs offer pre-sale discounts or set aside
days with special rates. Some examples include half-price admission days,
opening day, closing day or certain days during the week. In addition to
admissions discounts, you can often find discounted ride tickets or coupons
for food or attractions before the day you head to the fair.
- Not having a food
strategy. Do you really need that whole deep-fried onion? Or entire bucket
of fries? If you go to the fair with some friends, opt for the small portion,
wide variety strategy. Take turns buying the goodies and share. It's a perfect
way to try new things without overindulging! Your budget (and digestive
system) will thank you later.
- Impulse buying.
While it's really cool that the blender can turn a bushel of apples into a
smoothie in six seconds, it doesn't mean it's worth $300. There are a lot of
fun and unique products to buy at the fair, but have a plan. If you will be
doing some shopping, identify your needs and create a spending budget prior to
taking in the product demonstrations.
- Ignoring the weather.
All it takes is a pop-up thunderstorm or unexpected heat wave and you can
watch the prices on ponchos and bottled water shoot up faster than Old
Faithful at Yellowstone National Park. Before you go, check the weather, bring
appropriate gear and empty water bottles to fill at free water stations.
- Falling for carnival
gimmicks. All you need to do is make one of three basketball shots to win
that huge pink gorilla. Don't fall for it. Chances are the rim is one foot
higher, two inches narrower and the ball might even be egg-shaped. Go ahead
and give it a try for fun — just try not to get frustrated if you don't hit
the shot. Carnival games can be a good time if you have the right mindset.
Treat them as entertainment, not a way to easily win a valuable prize.
Fairs are a great way to
spend a late summer or fall day and make some memories. Saving some cash with
some savvy decisions makes it even better!
Smart Tactics to Manage
According to the Federal
Reserve, U.S. student loan debt is now $1.5 trillion with more than 44 million
borrowers. Only mortgage debt currently has bigger numbers among types of
consumer debt. Even worse, more than 10 percent of these loans are past due.
Here are some tactics to help make student debt easier to manage:
- Know the loan terms.
Not all student debt is created equal. Understanding the terms of all your
student loans is important. With this knowledge, select the correct loan
option and know which loan to pay first. Suggestion: Create a
spreadsheet with a student loan in each column. Then note the terms under each
loan. This will create a strong visual of your situation and show you which
loans are most important. Things you should know about each loan
- The interest rate
- The term of the loan
- Amount of any up front
- Pre-payment penalties
- When interest and
- Payment amounts
- Payment flexibility
- How the interest is
- Avoid accruing
interest. Some student loans accrue interest while you are in school. With
the compounding of this interest, your student loan amount continues to grow
with each passing year before repayment begins. Banks love this - you should
not. Suggestion: Figure out how to make some or all of the
interest payments while in school. This will not only lock the amount you owe,
it will reduce the amount of overall loan payments.
- Pay a little extra in
the early days. The math of loans benefits banks in the early years of the
repayment period. This is because the vast majority of interest is paid in the
first years of repayment. By the time you get to the last year of repayment,
payments are primarily the principal balance and interest is nil.
Suggestion: Pay extra every month as soon as payments start. While
this seems impossible as you enter the workforce, even $25 extra per month can
dramatically reduce the amount of total payments you make over the life of
your loan. For example, a $25 extra payment on a 10-year $50,000 student loan
with 5 percent interest would cut six months off the loan, save $834 in
interest, AND save $3,180 in future loan payments!
- Make small cuts
elsewhere. Having a hard time finding a few extra dollars to make extra
payments? Consider observing and then changing your spending habits.
Suggestion: Purchase one less latte a week. Drop one monthly
service from a bill. Eat in more often. Then use these savings as a bonus
payment on your student loan principal.
While student debt is often
an unavoidable outcome of getting a college education, it can be minimized if
actively managed. Small changes can yield results if planned for in advance.
Cash Flow Concepts That Can
Save Your Business
A sad and oft-repeated truth
is that half of all new businesses fail within the first five years. Although
many factors contribute to business failure, a common culprit is poor cash
management. All businesses, large and small, must deal with the uncertainty of
fluctuating sales, inventories and expenses. Follow these practices to moderate
the ebb and flow of cash in your business:
- Analyze cash flow.
If you don't know it's broken, you can't fix it. The starting point for any
meaningful action to control cash is discovering where the money's coming from
and where it's going. Get a handle on cash by monitoring your bank accounts
for at least one complete business cycle; then use that information to
establish a realistic forecast. This should be done throughout the year to
help you understand your seasonal cash needs.
- Monitor receivables.
Extending credit to risky customers, failing to identify late payers, refusing
to collect payment on a timely basis — these practices amplify cash flow
problems. Mitigate receivable fluctuations by generating aging reports. Use
the report to follow up when payments are late. You may even wish to offer
discounts to customers who pay early.
- Slow down payments.
Prudent cash flow management dictates that you retain cash as long as
possible. So pay your vendors on time — not too early. Of course, if suppliers
offer discounts for early payment, take advantage of cost savings whenever
possible. Also consider negotiating with suppliers to extend payment terms.
- Time large expenses.
If you know a property tax payment is due in May, start setting aside money in
a separate fund in October. The same holds true for any large payment that
comes due during the year. If your equipment is nearing the end of its useful
life or your roof is showing signs of wear, start saving now. Don't let big
expenditures catch you by surprise.
By taking these steps and
endeavoring to smooth out cash fluctuations, proficient managers keep their
companies strong throughout the business cycle.
No Excuses. Time to Lower Your
It's easy to push tax
planning to the sidelines when tax laws are ever-changing and hard to
understand. Here are some common (but often unfounded) reasons for avoiding tax
situations, plus tips to help get past them and start paying less tax this year:
- It doesn't make a
difference. This point of view is especially problematic in years with
unique situations.Even in uneventful years, external forces like new tax laws
can be managed if planned for in advance.
- Selling a house? You can
avoid taxes if primary residence requirements are met.
- Starting a business?
Choosing the correct entity can save you a bunch of taxes.
- Getting ready to retire?
Properly balancing the different revenue streams (part-time wages, Social
Security benefits, IRA distributions and more) has a huge impact on your tax
- It's out of your
control. Timing is important when it comes to minimizing taxes, and the
timing is often in your control. Bundling multiple years of donations into one
to get a deduction, holding investments over one year to get a lower tax rate,
and making efficient retirement withdrawals are just some examples of prudent
tax strategies that you control.
- There's not enough
money. There are tax strategies to be implemented at all income levels,
not just those at the top of the tax bracket. Tax deductions are available for
student loan interest, IRA contributions and others even if you claim the
standard deduction. Certain tax credits (called refundable credits) will
increase your refund even if you don't owe taxes. Missing any of these tax
breaks can unnecessarily increase your taxes.
- I only need help at tax
time. When the standard deduction doubled in 2018, many people assumed
they could kick their feet up and wait for a big refund. That assumption
proved to be false for a large number of taxpayers when their refunds came in
lower than expected or turned into a tax bill. Don't let this happen to you!
Every year has it's own set of changes and challenges that you should plan for
well before tax time rolls around.
- It's too overwhelming.
Tax planning is often as simple as looking for ways to reduce taxable income,
delay a tax bill, increase tax deductions, and take advantage of all available
tax credits. The best place to start is to bolster your level of tax knowledge
by picking up the phone and asking for assistance.
Thankfully, it's not too late
to get on track for 2019. If you haven't scheduled a tax-planning meeting, now
is a great time to do so.
Business Advice: Every
With competition abounding
for virtually every product or service, businesses need to hone every advantage
available to them. One of the ways you can set your business apart from the pack
is to create an awesome customer experience starting with the first interaction
that continues through the entirety of the relationship. How does one foster
this level of customer service? Here are four steps to help you get there:
- Make a great first
impression. The first impression a potential customer gets about your
business can come from many different avenues. Strive to make all of them
impressive. Is your website fresh? Are your customer service reps easy to talk
to on the phone? Does your social media offer timely, relevant information? Is
your lobby clean and organized? All details matter. A poor initial impression
may drive your potential customer to the competition without a second thought.
- Manage the outcome.
With every customer interaction, there are three potential outcomes: positive,
negative and neutral. In all cases, your goal must be to leave them feeling
positive about your business. Unfortunately, many businesses limit themselves
by removing the positive outcome right off the bat.For example, assume you
receive a call from a customer looking to hear about a new service. The
employee that handles the service is not available and you are limited in your
knowledge. The worst thing you can say is, "I'm sorry, the person responsible
for the service is not here at the moment." In the customer's mind, you
immediately removed the possibility of a positive outcome! Instead, engage the
customer to hear about their needs, gather as much information as possible and
commit to finding the answers for them and calling them back immediately.
- Search for useful
feedback. No matter how well you strive to offer top-notch customer
service, there will always be some instances that are less than favorable.
Oftentimes, customers are more than willing to tell you about it, but you need
to have a system in place if you want to hear the story in a helpful way. This
can be as simple as response cards at the front desk or an automated email
campaign looking for feedback. Encourage loyal customers to let you know how
you are doing so you get a holistic view of your performance.
- Turn problems into
opportunities. Knowing your strengths can reaffirm your approach and help
you set customer service performance goals. On the other hand, learning about
a bad experience from a customer's perspective will give you great insight
into how you can improve. Use these problems to focus your activity. Over time
the results of this continual improvement can have a tremendous impact on your
Creating a culture that
excels at customer service is attainable if you put in the effort to know your
customer's needs and understand that every impression matters!
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