Dear Cafetax readers,

I started Cafetax over 3 years ago as a personal hobby and amazingly was receiving almost 500 visitors a day during it’s peak traffic time. I love the creativity that comes with building a website and building Cafetax was an absolute blast. I must have built it, tore it down and rebuilt it 5 times. Furthermore my writing improved dramatically over the life of the blog. Basically.. I learned as much as my readers day.

I have decided to shut down Cafetax because my time is fully devoted to my company website arborfirm.com.  On my website I am maintaining a separate blog which focuses on financial planning, investment planning and taxes. I hope that all my Cafetax readers will choose to subscribe to my company blog right away. Not only will I continue to post thought provoking pieces, but we are going to highlight one stock per day as part of our “stock of the day” series (real original right.. ha). This is strictly for educational purposes with the intent of bringing awareness to individuals who don’t always have time to research stocks on a routine basis.

Cafetax will officially close on March 25th. The journey will continue at arborfirm.com/blog-2 . I hope all of you either subscribe by email, RSS or whatever preferred method you use. You can enter your email in the form below to subscribe.

Thank you,

Joe

The end of the year can be hectic for many small business owners, both personally and professionally. Outside of shopping for the holidays and performing any year-end business tasks, you may have found yourself thinking about how next year is going to be better than the last. Many of us make New Years resolutions, but we forget to set goals for our business and the new year.

A great way to set goals and review how your company is performing is to create, monitor and update a business plan on a consistent basis. Don’t have a business plan? That’s ok, it’s never to late to create one. Business plans can vary widely between each business so it’s not a bad idea to work with a professional or use software that will walk you through each part of your plan.

I will admit, in the past I hadn’t used a business plan for my tax firm, but I started one this year when my partner and I opened our separate financial planning / wealth management firm. I use a combination of Microsoft Excel and www.liveplan.com. LivePlan is a great business plan guide that will help you uncover things you otherwise may not think of when creating a plan. It also creates a nice presentation that you can give to investors, lenders, shareholders or partners if needed. I use Excel to model our cash flow projections and sales goals. You may refer to this as your companies budget. What software you use will most likely depend on your type of business and the level of detail required. Don’t forget, you can also hire a professional or assign many of these tasks to an internal employee if they are qualified.

Create the initial plan

Step one is to take the time and create a plan. If you create the plan yourself you can use software to help walk you through the tiring but rewarding process. As I mentioned earlier, I use liveplan.com. I originally had our entire business plan on Excel, but my partner and I wanted a full business plan on paper. After couple long nights in the office we finally finished. The result? We actually changed parts of our business model after realizing that parts of our plan were flawed. Those changes will make us a drastically better company going forward.

Plans are dynamic, not static

This is where I often find myself beating my head against the wall. I have worked with several of my clients and their business plans because I am their CPA. The problem? Business plans can go stale fast and sometimes business owners just don’t have the time to update them. But they really need to be updated.. Especially when your working with projections and budgets. A business plan can be useless if it doesn’t change with your business. Make a schedule to review applicable parts of your plan quarterly and annually. If you can, update your budgets monthly. We update our budget every month and review the entire plan at least twice a year.

Reviewing your plan

Reviewing your plan allows you to work within a dynamic plan, adjusting your forecasts appropriately and making any needed changes to your business model. Reviews can be handled in many different ways. You may hold a partners meeting once a year or maybe you decide to sit down with your accountant every quarter. Regardless, almost everyone should have some type of year-end review that allows them to evaluate the past year and update projections and budgets for the new year. A budget can be super helpful, for example, you may have projected $200,000 in revenue for the year, but when you review the actual numbers  you realize that your company only made $175,000 in revenue. You have now exposed a discrepancy between your initial plan and actual numbers. This type of analysis enhances your ability to evaluate your business model and update it for a more profitable future. Our year-end review allowed us to make the necessary adjustments for 2013. It was actually so important to us that it helped us change some of the criteria for what type of clients we focus on attaining towards new business.

Wrapping up the year end review

As I mentioned earlier, every business will have a different style business plan with different levels of detail and a different schedule of reviews. After my partner and I review our year-end numbers, we discuss the discrepancies and expectations for the coming year.  These conversations can be pretty thorough because we are discussing the operation of our business model, what has changed, what we have learned and what we want to do different. Our cash flow projections and sales goals (new client goals) are tied together. We use past data and current market information to adjust our expected revenue for each new client and existing client. This allows us to model sales goals into the cash flow forecast. These calculations can be pretty tricky and detailed, but they allow us to work within a set of expectations that we know will produce a desired set of results. These projections are also tied into our business plan at liveplan.com, which we update.

Many small businesses have the potential to increase their profitability by creating and monitoring a business plan and budget. This is a very high level overview of what it can mean to maintain a business plan and perform year-end financial reviews. Don’t be afraid to try a software package or ask for professional help. Don’t be afraid to create a business plan.

Yelp got us.. they fooled us and we paid for it. I am not an expert in marketing, advertising or SEO, but I do know enough to make somewhat informed decisions. A couple of months ago we received a call from Yelp soliciting their services. My partner and I had already decided to allocate some additional money to marketing and advertising, despite the fact that 95% of business comes from referrals. I always looked at Yelp as a “yellow book” advertiser and thought of Google as the best form of organic, natural online advertising. If you want to put money into Google advertising, you can pay-per-click with Google Adwords. My understanding is that a Google Adwords campaign can cost between 1 cent and 2 dollars per click. If someone sees your advertisement but does not click on it, that is considered an “impression”. Naturally you pay for clicks with Google, not impressions. So where were we fooled?

After the savvy Yelp salesman explained to us why they are more useful than the Yellowbook, he told us that for $500 a month we could reserve one of their “financial” advertising categories. This would ensure that we receive 1200 hits to our website a month. I asked the salesman if they would be directed to our website or the Yelp page and he replied, “there would be 1200 hits to our Yelp page.” I estimated that about 2% of the 1200 would continue on to our webpage and 2% would actually inquire about our services, leaving about 20 to 30 new potential clients looking for tax or wealth management services.

After about 2 weeks we noticed that there was 0 traffic to the Yelp page and 0 from Yelp to our website. We emailed Yelp to make sure everything was ok and that’s when the mea culpa hit us in the face. It read something like, “We guarantee 1200 impressions which you don’t have the ability to track”. 1200 impressions!!! We went back to the contract and what do you know… it said 1200 impressions are guaranteed. SHAME ON US!! We are paying 42 cents per impression, with no way of guaranteeing the quality of the impression.

The bottom line… We would never willingly pay 42 cents per impression with the other online options available. We should have read our contract, rookie mistake. And shame on Yelp for a terrible business practice. Originally Yelp tried to lock us into a 1 year contract. Now I can see why. We agreed to a 3 month contract and have received 0 traffic from Yelp advertisements through the 3 months. Apparently I need to stick to my day job, taxes and wealth management. The good news, at the end of the day I still have a smile on my face

Shame on us. Shame on Yelp.

Back to that fiscal cliff stuff.

Purchasing long-term care insurance can be expensive and not possible for some people. On the other hand, not having long-term care coverage can be a risk that costs you and your family more down the road. How might life insurance play a role in your long-term care?

The Basic Five Questions About Long-Term Care

Some life insurance issuers offer life insurance with a long-term care rider available for an additional charge. If you buy this type of policy, you can pay the premium in a single lump sum or by making periodic payments. In any case, the policy provides you with a death benefit that you can also use to pay for long-term care related expenses, should you incur them.

The amount of death benefit and long-term care allowance is based on your age, gender, and health at the time you buy the policy. The appeal of this combination policy lies in the fact that either you’ll use the policy to pay for long-term care expenses or your beneficiaries will receive the insurance proceeds at your death. In either case, someone will benefit from the premiums you pay.

The long-term care benefit is added to the life insurance policy by either an accelerated benefits rider or an extension of benefits rider.

Accelerated benefits rider –An accelerated benefits rider makes it possible for you to access your death benefit to pay for expenses related to long-term care. Example: You pay a single premium of $50,000 for a universal life insurance policy with a long-term care accelerated benefits rider. The policy immediately provides approximately $92,000 in long-term care benefits or $92,000 as a death benefit. If you incur long-term care expenses, the accelerated benefits rider allows you to access a portion, such as 3% ($2,610), of the death benefit amount ($92,000) each month to reimburse you for some or all of your long-term care expenses. Long-term care payments are available until the total death benefit amount ($92,000) is exhausted (about 35 months). Whatever you don’t use for long-term care will be left to your heirs as a death benefit. (The hypothetical example is for illustration purposes only and does not reflect actual insurance products or performance. Guarantees are subject to the claims-paying ability of the issuer.)

An extension of benefits rider increases your long-term care coverage beyond your death benefit.

You may consider another angle as well. If you have a sum of money, is it earning anything significant? Single premium policies may have return of premium guarantees. Consider the example above; if two years down the road interest rates go back up, the policy holder can still grab their cash value ($50,000), but at least for now (during the low-interest environment) they have additional life insurance and long-term care coverage and didn’t risk any of their money (if the policy functions this way).

Deciding whether a combination policy is right for you depends on a number of factors. Do you need life insurance and long-term care insurance? How much life and long-term care insurance will you need? How long will you need it? Will the long-term care part of a combination policy provide sufficient coverage?

There are five estate planning documents you may need, regardless of your age, health, or wealth:

1) Durable power of attorney
2) Advanced medical directives
3) Will
4) Letter of instruction
5) Living trust

Durable power of attorney
A durable power of attorney (DPOA) can help protect your property in the event you become physically unable or mentally incompetent to handle financial matters. If no one is ready to look after your financial affairs when you can’t, your property may be wasted, abused, or lost. A DPOA allows you to authorize someone else to act on your behalf, so he or she can do things like pay everyday expenses, collect benefits, watch over your investments, and file taxes.

Read the rest on our other blog

Don’t worry, we will still post exclusive CafeTax blogs We just have to split the time now.  =)

IRA and retirement plan limits have been released for 2013 and we finally have a bump in IRA contribution limits for 2013 from $5,000 to $5,500. See the rest here:

“IRA contribution limits
The maximum amount you can contribute to a traditional IRA or Roth IRA in 2013 increases to $5,500 (or 100% of your earned income, if less), up from $5,000 in 2012. The maximum catch-up contribution for those age 50 or older remains at $1,000. (You can contribute to both a traditional and Roth IRA in 2013, but your total contributions can’t exceed this annual limit.)”

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How will working during retirement affect my retirement benefits?

Many retirees choose to continue working when they retire. Some people are forced to continue working to meet their financial needs and some choose to work as part of their retirement lifestyle. Regardless of the reason you continue to work during retirement you should understand how continuing to work affects your retirement benefits, such as Social Security, pension plans, health care and other retirement plans.

Social Security benefits

It’s important to know that income you earn after you start receiving Social Security may affect the amount of your benefit check. Luckily, if you haven’t reached full retirement age you don’t need to worry about your benefits being reduced from additional earned income (except for taxes discussed below). Full retirement age is 65 to 67, depending on when you were born. At full retirement age you can earn as much as you want without reducing the benefit, but if you haven’t reached your full retirement age your benefits may be reduced by your earnings. Your benefits are reduced by $1 for every $2 dollars you earn over the “earnings limit”. In the year you reach your full retirement age benefits are reduced by $1 for every $3 dollars you earn over a higher special earnings limit until the month you reach full retirement age. Sound complicated? It can be; so make sure you consult with your financial professional if you are thinking about working and receiving Social Security. Social Security generally takes into account income items such as wages and self-employment earnings. Income from items like IRAs, investments, annuities and pensions generally won’t reduce your benefit.

On the plus side your Social Security monthly benefit is based on lifetime earnings. This is your primary insurance amount (PIA). Every year your PIA is recalculated, which means any new earnings might increase your benefit. Consequently, continuing to work could increase your future Social Security retirement benefits. The trick may be to analyze your possible reduction in benefits from working vs. potential increase along with the net cash flow your lifestyle ultimately requires.

Social Security taxation

Generally Social Security benefits are not subject to federal income tax, unless you have too much additional income! Unfortunately, any taxable income or tax-exempt interest is generally part of a formula that determines how much of your benefits are taxable. This will affect you no matter how old you are. Even taxable distributions from your IRA through required minimum distributions can cause your Social Security benefits to be taxable. This is another area that you should consult with your financial professional on. There are income thresholds you can try to stay under to limit the amount of tax your pay on your Social Security benefits. You can be a vastly more tax efficient retiree if your income planning takes the Social Security tax rules into consideration.

How will working affect my pension?

In normal situations your pension benefit is what it is. You can receive a salary from an employer and still receive your pension benefits from your prior employer, but if you still work for your original employer past retirement age or you retire and later return to work for that employer, it may impact your pension benefits and options.

Some plans may suspend your pension benefit if you work beyond your normal retirement date, while others may allow you to still receive your benefit. Some plans increase your computed benefit while your pension is suspended because you are working and some plans may limit this increase in benefits computed. A common practice is for the employer to allow for a phased retirement option. This allows the employee to work part-time while receiving all or part of their pension benefit. The important lesson to recognize is that there are different options an employer can take and you should discuss them with your plan administrator before making any hasty decisions.

Working after 70 1/2 may also open the door to contributing to a Roth IRA if you have earned income, or deferring required minimum distributions if your employer offers an active 401k plan.

Health benefits

Some people consider working part-time during retirement to retain medical coverage. Normally employers require a minimum number of hours to be eligible for medical benefits and some will offer benefits for part-time workers. Working part-time may be a good option for you if health benefits are offered, but what if they aren’t? If they don’t offer benefits for your part-time work you may be eligible for COBRA or you may need to look for private insurance. COBRA is usually available for 18 months after a qualifying event (such as a loss of coverage because you decreased to part-time). Of course, COBRA may be expensive with an additional 2% administration fee charged and it’s not available to employers with fewer than 20 employees. Private insurance can also be very pricy. When you turn 65 you will be eligible for Medicare benefits. Make sure to contact the SSA office around 3 months before your 65th birthday to discuss those options. Being late can be costly!

Working during retirement can have great benefits. Some people feel they will be healthier by staying mentally and physically active. You may enjoy the social benefits of continuing to work. Even if your income affects your other retirement benefits, the additional income should help your retirement savings last longer overall. Proper consideration of your benefits are still essential to being a tax-efficient retiree and a retiree who gets the most out of their retirement benefits. Considerations vary far beyond the scope of what was just discussed. Make sure to sit down with your financial professional and create a proper plan when you decide to work during retirement.

Financial & Tax Java

• How To Save Money For About Anything – christianpf.com
• Whats The Buzz? Tell Me What’s A Happennin’ – the wandering tax pro
• Understanding Pension Splitting Rules – Jim Yih @ retirehappyblog.ca

What to do When a Family Member Dies

Losing a family member can be a devastating and difficult experience that we are rarely prepared to deal with. As if handling the emotional difficulty isn’t hard enough, there are a variety of important financial tasks and decisions that must be made by you or the estate’s executor. With so much responsibility in such a difficult time many tasks and decisions are often forgot about. Below are some items to consider when you lose a family member.

Right away (initial tasks)

• Arrange for the funeral, burial, cremation and memorial service. Remember the decadent may have made arrangements ahead of time. Check their will or estate planning documents such as a living trust for a letter of instruction.
• Get your certified copy of the death certificate (usually provided within 24 hours of death). Have the funeral home file the certificate with the state and keep certified copies for future use.
• Locate documents such as: a living will, trust documents, deeds, titles, certificates. You may need military discharge papers to apply for future benefits as well.
• Report the death to Social Security office. Make sure to check for possible survivor benefits and return any funds received from the Social Security office for the month of death and after.
• Make a list of decadent’s assets.
• Contact the decadent’s workplace so you can collect any salary pay owed and collect belongings. Survivor benefits may be available for spouses or children.
• Contact IRA custodians and employers regarding pension plans. Make sure to review post-death distribution options and beneficiary designations.
• Locate insurance policies and contact any applicable insurance companies.
• Cancel all credit cards unless you’re named on the card and want to retain it.
• Retitle jointly held assets.

Other intermediate tasks (before 9 months)

• Notify the decadent’s creditors by mail and by placing a notice in the newspaper.
• File the will with the appropriate probate court, contact the probate court for instructions or contact an attorney for assistance.
• File applicable federal and state estate tax returns by their deadline (normally 9 months after death).

There are other tasks and items you may have to address and consider, such as changing and updating your beneficiary designations and updating your estate plan. With the emotional hardship of losing a family member it is easy to forget the most ordinary tasks you may need to perform, such as notifying their workplace or former organizations. This makes it easy to forget some of the basic financial and legal tasks. The list above doesn’t cover everything you will need to do, consider or evaluate, but it can help serve as an aid to you through a difficult process.

 Personal Finance Java

• The 4% Rule is Obsolete – www.FreeMoneyFinance.com
• Quote of the day – Social Security – allfinancialmatters.com

Tax Java

• Another Bad Tax Return Clutter Idea – mauledagain.blogspot.com
• How to minimize tax on the estate – retirehappyblog.ca

Cloud Based Bookkeeping Software for Small Businesses

It’s tax time. Which means it’s time to turn your shoebox full of receipts and bank statements into meaning information your accountant can use to prepare your tax return. Let’s face it, most small business owners do not go into business because they enjoy bookkeeping. Let’s talk about some online small business bookkeeping software options to help keep your financial records organized and relieve your bookkeeping headaches.

FreshBooks.

Cost: Free – $39.95/month

FreshBooks is a great online bookkeeping solution for small business owners. They started as an invoicing/billing service so those features are top-notch. Small business owners can send professional looking invoices, set up recurring invoices and payments, receive online payments, track employees & contractors time, and have FreshBooks automatically send reminders to your slow paying customers. They can even help small business owners manage sales taxes.

FreshBooks doesn’t stop at the invoicing and billing side. They also have an expense tracking feature to help you manage your bills, checks, and expenses. To save on data entry time, they offer the ability to import your expenses from your bank via a CSV or QBO file.

Best of all, it’s an online service meaning you have access to your financial information at anytime and from anywhere.

Outright

Cost: Free – $9.95/month

Outright is a very basic online bookkeeping software that lets you organize your small business finances. Outright is perfect for Ebay and Etsy sellers who started a small business as a hobby. It’s strictly for sole proprietors and single member LLC’s with basic bookkeeping needs. A cool feature is that Outright can link directly to your Ebay, Etsy, PayPal, bank, and credit cards, allowing you to automatically import your transactions, which eliminates the hassle of data entry. Outright will also automatically categorize your transactions, saving you even more time.

Outright offers useful financial reporting tools section that even provides business owners with the ability to put their financial data into graphs for visuals on how your business is doing. Outright also helps small business owners understand taxes by helping track sales tax, tools to calculate your estimated quarterly tax payments, and tools to assist with figuring out your annual taxes.

The biggest drawback is the lack of an invoicing feature and there is no ability to track your accounts payable (bills due in the future).

Overall, Outright is a better solution than using a spreadsheet or your bank statement to track your business finances. It’s a great solution for mompreneurs and other small business owners selling their hobbies on Ebay and Etsy.

Wave Accounting

Cost: Free

For a brand new online accounting service that just launched about a year ago, I was really impressed with what Wave Accounting has to offer small businesses! From the start, you can set up your account to fit your specific industry. Just like the other packages, Wave has invoicing and billing features, allowing small business owners to track money owed from their customers, offers users an expense center to record your bills and expenses, and allows you to keep track of your bills due. Wave Accounting also has a very useful reports section that allows you to run financial statements (including a balance sheet!), Sales Tax reports, income by customers, expenses by vendors, and you can track your gains/losses on foreign currency exchanges. Similar to the other accounting packages out there, they also allow you to connect your bank and credit card accounts to automatically download your banking transactions, eliminating the need for data entry.

There are a couple of features that really stand out. First, your dashboard has a lot of great financial information about your business shown in graphs, providing the busy small business owner with a quick and useful glance at their finances. Secondly, Wave Accounting also has a separate tab to track your personal finances. Lastly, they are getting ready to launch a payroll service in the US, which will allow small business owners the opportunity to streamline their bookkeeping and payroll.

The biggest downfall is that Wave Accounting is not set up with any merchant processors, so your customers are not able to pay your invoices online. However, they do integrate with FreshBooks, so you could always use FreshBooks for your invoicing needs, if accepting payments online is important to your business.

Overall, I think Wave Accounting offers small businesses with a great way to manage their accounting, at a very affordable price (free)!

Xero.

Cost: free trial, $19-$39/month

If your business is looking for a full accounting package with lots of bells and whistles, Xero is the tool for you! They are one of the few online accounting services that really offer all the accounting tools that small and mid-sized businesses need. They offer a couple different packages, allowing their accounting services to grow with your business! As with the other services discussed above, Xero can handle your invoicing/billing functions, can track your expenses, has good financial reporting tools, offers the ability to link with your bank accounts, credit card accounts, and PayPal accounts for effortless downloading. They also can automatically code your entries, saving business owners even more time!

What sets the bar high for Xero is their additional features! Businesses can track their fixed assets and depreciation and they also offer inventory tracking. To really customize your accounting solution, Xero has an impressive list of add-on’s. Some of the add-on’s include payroll, to job tracking, to time tracking tools, to point of sale features, e-commerce, etc.

Their detailed dashboard is a perfect tool for small-mid sized business owners. You can quickly see your bank balances, receivables, and check out the bills that will be due soon.

If you’re looking for an online system to replace QuickBooks or that offers the usefulness you’re used to with QuickBooks, Xero is definitely an accounting package worth considering. Since it’s online, your software is always up-do-date and you can access your finances from any mobile device!

QuickBooks Online

Cost: free trial, $12.95-$63.16/month

Intuit’s QuickBooks products are the most commonly used accounting solutions for small and mid-sized businesses. Intuit sells a great accounting product and offers various packages to fit the individual needs of your business. A big plus to QuickBooks Online is you can start small and then expand your packages as your business grows. Their online bookkeeping software includes all of the standard bookkeeping and accounting tools that the other services listed above offer (invoicing, expense tracking, financial reporting, dashboards, tracking sales tax, etc).

The biggest downfall to QuickBooks online is that the online banking feature is not offered with the basic package. So you find yourself quickly upgrading to the higher packages. Another downfall is that the Online version is not as robust as the desktop version that most businesses are used to working with. However, creating software to work online is very different from the standard desktop model. I give props to Intuit for moving to the cloud and providing their users with a cloud based accounting software.

In closing, there are a lot of great online bookkeeping tools out there ready to assist with your accounting and bookkeeping needs. There are services that are designed to help with small hobby type businesses such as Ebay & Etsy sellers, to services that excel in invoicing/billing features, to services based around bank statement accounting, and services that offers a full accounting software package. Taking your bookkeeping to the clouds, provides you with the flexibility of being able to work on any device (desktop, laptop, Mac, and mobile) while also having access to your accounting information from anywhere and at anytime!

I want to take a moment to thank Masters in Accounting for nominating CafeTax as one of their 50 Top Accounting Blogs. If you blog or follow accounting and tax blogs check out the list they have complied. They are some great accounting blogs listed that you should have bookmarked as a reader.

On a side note to readers, there have been several successful attempts at hacking this blog and posting spam. I apologize for any emails that contain information not relative to the subject matter we produce.

Happy tax season and thank you for the recognition as one of your favorite accounting blogs!