This past Sunday, while the weather was cold and dreary, we decided it was time to clean out our closets.  Molly and I went to work piling up Goodwill items.  We enlisted the help of our kids with the task. Hanna created a spreadsheet to itemize and categorize the goods. Yes, even our teenager was eagerly involved since the work revolved around a computer.  Greta took pictures and packaged up the items. Michael simply added sound effects and destroyed piles, so we sent him off to his lair where he could build and destroy his own piles.

Within an hour or two we had several bags of well-organized goods to deliver to Goodwill. Hanna finished the spreadsheet and printed the pictures.  I made a quick trip to Goodwill and dropped off a car-load of clothing.  Of course, I retrieved the receipt and returned home to finish up the job of filing away my records.

The IRS requires substantiation of non-cash donations. I always tell clients to do four things when donating non-cash items:

1. Get a receipt with a date of donation
2. Create and itemized list of goods donated
3. Take pictures
4. Track mileage

Following the above protocol will allow you to properly value your donations, which will more than likely lead to higher donation values…..which in return saves you tax dollars.

One note: remember that all items donated need to be in good or better condition for the IRS to allow the donation. Pictures should cover this need, as well as substantiate the value of your donation.

Our Sunday afternoon proved to be a profitable venture. When all was said and done, our donation will save us over $200 in taxes…..that’s like putting $200 in our pocket. Plus my closet is clean!  The bad news is my kids want their cut of the loot, but that’s a blog post for another day!

Any of the above information is intended for informational purposes only and is not intended to be considered tax advice or implemented as such.

Many people make the mistake of using their personal and business computers to save important documents as their sole means of storing valuable data. While using an accessible computer is certainly an easy solution, it should be noted that computers do fail.

What would you do if your computer’s hard drive crashed today? Would you have the necessary data to get back up and running in a reasonable timeframe? While the thought of losing music and pictures will sting, losing important personal and business documents could be devastating.

Small business owners are especially at risk. Those of you who use accounting software, such as Quickbooks, are walking a tight rope if your data is not backed up. Ask yourself this question: what would I do if my hard drive failed? The risk of losing data is very serious and very real.

The good news is the solution is usually pretty simple…..back up data to a SECURE off-site facility. Just like flat-screen TVs, off-sight data storage is getting less expensive. There are many options to choose from. Companies such as Crashplan, Mozy, Carbonite, Sharefile, I-Cloud, and many others are inexpensive ways to secure your data. Note: Due diligence is required on your part to make sure that the back-up chosen meets the security requirements of your industry, if you are backing up business documents.

What to look for

1. Storage Space
How much data do you intend to back up? Music and pictures can eat up a great deal of space, so make sure you know how much you need before you start the search.

2. Security
This is extremely important for sensitive data, such as tax returns. Again, due diligence is required to make sure the site you chose has the right amount of security to protect your documents.

3. Complexity
How hard is it to retrieve data? If you are technically challenged, then make sure you can easily acquire and retrieve your data without calling customer service. Some providers as quite simple and others are more complex.

4. Price
Obviously, price is a big part of the decision, but make sure you compare from an apples to apples standpoint. You must factor in items 1-3 into the price situation to make a solid decision.

In our crazy high-tech world, data is king. Many of us can put the data of our entire financial lives on a thumb drive the size of a fingernail. It’s staggering the power of technology, but we must respect the fact that technology does sometimes fail. So, don’t rely simply on your computer to store all of your information. Take the time to set up proper back-up protocol and secure your data. You’ll sleep better as a result!

If you are a small business owner and pay an individual or business more than $600 in a year, you (the business owner) will need to send that business or individual a 1099. This reporting requirement is put in place to allow the IRS a means to track income for business owners, which can lead to additional revenue for the coffers….and the coffers need revenue!
The small business owner is also required to submit a document called a 1096 to the IRS summarizing all the 1099s reported.

Exceptions
There are some exemptions and exceptions to the amounts listed above. For example, if you pay someone more than $10 in royalties, a 1099 must be sent. If you pay an incorporated company, you do not need to mail a 1099. If you pay an attorney more than $600, even if incorporated, you must supply a 1099. For a complete list of guidelines, click here to review the filing instructions from the IRS.

Important Dates
1099s need to be received by recipients on January 31st or earlier.
1096 (transmittal to the IRS from the business) must be received by the IRS on Feb 28th or earlier.

Helpful hints
• If you pay someone more than $600 a year, have that person complete a W-9. This document simply asks for the necessary information to complete and properly report a 1099. You can find an IRS copy of a W-9 here.
• Keep up as the year goes on. As the year progresses, it may be helpful to track your expenditures to see who you are paying and how much. If someone is getting close to the $600 mark, have them complete a W-9. Remember, it’s easier to ask someone to complete this form prior to paying them!
• Track expenses with software. This is the best way to assist in the above scenario.

Conclusion
If you are a small business owner, it’s important to follow the appropriate protocol. There are many exceptions, exclusions, and details when it comes to 1099 reporting, and the worse thing to do is nothing. Be proactive and speak with your tax preparer to determine if you need to file this informational return. The IRS is cracking down and penalties are on the rise. So jump in….the water’s uncomfortable, but it’s better than the alternative. Stay proactive and keep your business compliant.

What will 2022 look like for you financially? Are you doing the right things today to create financial balance between today and tomorrow? Here are a few of the changes put into place within our tax code to allow you to save for your future:

401k & 403b contribution limits increased from $16,500 to $17,000. The catch-up provision remains unchanged at $5500 for those 50 and older.

Traditional and ROTH IRAs remain unchanged at $5000 with a $1000 catch-up provision for those 50 and older.

The maximum amount allowable for SEP contributions increased by $1000 for 2012 from $49,000 to $50,000.

SIMPLE IRAs remain unchanged at $11,500.

Health Savings Accounts also will see an allowable increase for contributions:
Single =$3100
Family =$6250

While the above changes do not represent the entirety of the tax code changes (I only wish!), the above list is simply a quick guide to some of the more commonly used investment vehicles. It’s also wise to speak with your tax preparer to discuss the ability to maximize the tax advantages available for your specific situation.

Our tax code gives us many opportunities to create tax savings while saving for our future, especially for self employed individuals. We need to take advantage of these opportunities. I would suggest making a commitment (maybe as a New Year’s resolution) to make the most of the above opportunities and save for your future.

One of my favorite financial tenets is to “Control What You Can Control.” Essentially, your tomorrow will be financially brighter if you can control how much you spend, how much you save, and how much you pay in taxes. By utilizing a tax-advantaged retirement plan, two of the three tenets can be met: savings and controlling taxes.

As a holistic financial advisor, I don’t simply throw out the new retirement contribution limits as a matter of fact. I discuss these limits as a way to encourage us all to take advantage of saving for our future, reducing taxes, and creating a balanced life financially.

I wish you all a joyous 2012!

You might ask what this has to do with financial planning. Well, I might suggest you turn the question around…..what does financial planning have to do with being thankful? It’s often hard for us to take the appropriate time to be thankful for what we do have. Our fast paced world tends to point us in the direction of over-achievement and not self-satisfaction and contentment. We want the next best thing, the latest and greatest new gadget, the best house, and on and on.

Is what our crazy world teaches us really what we truly desire? Or, is want we want right in front of us?

One of my favorite meetings with clients is my goal setting meeting. This meeting enables clients to communicate their true desires. Years of doing this meeting with clients have revealed a simple truth: what people truly want can’t be bought….and that is simply meaningful relationships with those we care about.

Back to my question: what does financial planning have to do with being thankful? This is a big part of what I do with my clients. I truly encourage them to focus on things that have true meaning in their lives….things in which they are thankful. Certainly wise financial planning can assist in creating experiences that can enhance our relationships….vacations, travel to see family and friends…etc.

So, yes, financial planning does have a connection to the things in our lives in which we are thankful. If we are wise with our financial resources, we can enhance our relationships….regardless of our place on the career ladder.

During this Thanksgiving Holiday, what are the things you are thankful for? I would encourage you to take the time to explore your connection of your life and your financial resources. Are they working together hand and glove?

For me, it’s simple. I am extremely thankful for my family and friends…included in that category of friends are my clients. I enjoy my relationship with them and relish the time we spend with each other on our journey together.

Happy Thanksgiving!

As a fee-only advisor, I frequently speak with business owners and individuals who are self-employed or contractors. Unfortunately, I have seen many mistakes that have negatively impacted the success of the small business owner.

For instance, improper ownership titling, improper business entity selection, improper tax reporting, poor record keeping, and omissions of favorable tax deductions can pillage profits from the business owner.

While the American dream of controlling your own destiny in the business world is still alive and well, it seems we have a few more hoops to jump through to get there. Taxes may be a bit more complicated. Hard workers and solid employees may be harder to find. Regulations and compliance seem to have a tighter grip on us all. The business environment is not as inviting as days of old.

As with any goal worth achieving, the work may be tough, but the end result is worth all the blood, sweat, and tears. The place to start is at the foundational level.

McDonald’s would not have sold a gazillion burgers if the foundation of the business was not solid. Apple and Microsoft would not have both achieved great success, all while changing our world, if they did not manage their financial picture properly.

Even if you don’t aspire to grow your business to the size and complexity of McDonalds, Apple, or Microsoft, every successful business should be built on a solid foundation. However, many busy business owners struggle with the financial aspect of their business and miss important steps that will help them achieve a more profitable business.

Free Ebook for Business Owners

That’s why I created an free ebook to help small business owners make sure they have a strong financial foundation in place that will allow them to build their business for success. In the ebook, I offer up a number of practical tips to help you set up your finances properly so you can make the most of your business.

Whether you’re a seasoned business owner, new entrepreneur or someone who wants to become self-employed, I think you’ll find this ebook to be a valuable tool for you.

To get the free ebook, just sign up for my financial tips emails. Just enter your email address below and we’ll send you a special link to download the ebook.

I hope you enjoy the ebook and find the tips helpful for you and your business!

Once you’ve read it, feel free to email me your thoughts or share your feedback below. I would love to know what you think. And, if you like what you read, I encourage you to spread the word!

If money market and CD rates are paying laughable returns, why not invest in solid dividend paying stocks to get a better return on investment?

In a perfect world, it would be great to buy a stock and use the dividend paying ability of the stock to shore up income needs. But, we don’t live in a perfect world, and, unfortunately, the dividend approach does involve risk.

Let’s first review how a stock’s dividend works.  If someone owns 100 shares of XYZ stock that is trading at $100 a share, the value of the stock is worth $10,000.00. If the stock pays a dividend of $3 a share, the stock’s dividend yield is 3%. So, this scenario would produce a total dividend pay-out of $300.

The arguable theory is that 3% is much better than the lousy money market rates out there in today’s market. Investing $10,000 in a stock yielding 3% seems like a better way to capture a decent return, right? Why not buy a stock like Johnson and Johnson? Again, this sounds great in a perfect world, but remember we don’t live in a perfect world.

Let’s look at Johnson and Johnson, which is usually thought of as a solid stock. J&J has a nice yield of roughly 3.5%. Buy $10,000 of J&J and the 3.5% yield produces a nice little return. If an investor bought J&J in Mid July this summer, the price was hovering around $67 a share.  Move ahead to mid August and the price of the stock falls to almost $60. That produces an unrealized loss of over 10%. As of this writing, the stock is trading at close $64 a share…still a 4.5% loss.  The 3.5% yield doesn’t outweigh the 4.5% unrealized loss. This dividend strategy involves risk to the principle, which is not a risk involved ( or should not be involved) in the principle invested in money markets or CDs.

Some try to argue that the loss is simply a paper loss. This may be true, but it’s important to understand how this paper loss impacts the total portfolio. Most importantly, the asset that was once held in a safe, stable account (money market) is now put at risk.  By investing in an individual stock the total risk of the portfolio changes.

Risk should be focused. Most often the assets the investor would use for this dividend strategy are assets that are held for liquidity (emergency funds). Again, this changes the portfolio’s risk and may endanger the investor.

Three reasons why I don’t like this dividend strategy

1. The total value (principle) of the asset (Stock) is at risk. While the stock yield may outperform comparable interest rates, the total value of the stock is at risk to decline, as seen in the J&J example.
2. The company can change or stop the dividend.  There is no guarantee the company will continue to pay the dividend moving forward.
3. Individual stocks are much riskier than mutual funds. Due to the nature of an individual holding, the company’s stock could see wild swings based on the company’s performance.

The dividend yield idea may seem like a great idea on paper, but it’s important to take a closer look at the true risk involved with this sort of plan. Safety trumps yield when it comes to stability and the safety of our cash.  Investing should be done in a methodical approach. Simply chasing yield may produce a result not intended.  Focusing risk in the areas of the portfolio where risk should be held is appropriate. Areas of the portfolio which should contain little risk, such as emergency funds, should be held in stable investments, such as money market accounts. 

 DISCLAIMER: This publication is not a substitute for your common sense or for the guidance of your accountant, financial advisor, lawyer, or any other personal or professional advisor. It is designed to provide accurate and authoritative information, but neither the author nor the publisher renders any professional service (legal, accounting, investment advice, or any other professional service) to the reader through this publication. If you need expert advice for your situation, seek out and use the services of a competent, knowledgeable professional. Note that laws and rules applicable to your situation may change and may differ from those described in this publication. It is your responsibility to seek further professional guidance whenever necessary. The author, publisher, and seller jointly and severally disclaim any warranty, express or implied, for any general or particular purpose, including any warranty of merchantability. The reader should be aware that some of the information provided herein is subject to change without notice. It is the reader’s responsibility to determine whether updated information is needed.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, any US federal tax advice contained in these materials (including attachments) is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding tax-related penalties or promoting, marketing, or recommending to another person any transaction or tax-related

I was recently speaking with a friend of mine who shared a sad story. My friend’s good friend suffered a fatal heart attack at the age of 47. He went on to tell me that his friend leaves behind small children and had no life insurance.

This story, unfortunately, is not uncommon. Many people don’t have life insurance, which is tragic. Life insurance is needed as an income replacer for the family. In the story above the widow is a stay-at-home mom, which means the family’s income will cease…..other than social security survivorship benefits, which will be difficult to survive on.

What would happen to the financial well-being of your family if you or your spouse was faced with a premature death? Would your family become destitute? Would your spouse be able to sustain the family’s standard of living? Would your children’s education be in jeopardy? These are just a few questions that factor into the life insurance equation.

Life insurance needs are individual.  Simply utilizing multipliers (such as 10 times your income) is not the answer. Everyone has a differing life experience and set of needs and goals. The individual life insurance need should be carefully determined by utilizing a multitude of factors, such as number of dependents, age of dependents, education costs, and lifestyle….etc.

Once the amount needed is determined, it’s important to obtain the correct type of insurance.  As a fee-only advisor I only recommend term insurance. Keep it simple, and buy only what is needed. Don’t get sucked into some type of insurance that has an investment component.  These types of policies are complicated and line the pockets of those who sell them.

As we move into the holiday season, give your loved ones the gift of stability and make sure you are properly insured.

My office, which is in my home, was partially flooded by a faulty connection hose. Of course this occurred while I was out of town. The small hose that connects from the wall to the toilet dislodged and began to spout water. Luckily, my wife and kids were able to contain the damage, but enough damage was done to require the work of a water restoration team…..as well a claim to the insurance company.

Beyond the usual suspected damage (carpet, base boards, and dry wall), there were additional items that were destroyed.   Back in a storage area of our home we had many items damaged, such as family pictures, framed art….etc. 

The good news for us was we were able to document the damage by taking pictures after the fact.  But what if your home was hit by a tornado, severe flood, or fire?  

Here’s where forethought and some hard work pay off. By properly documenting and storing a list of contents, the homeowner will be assured the contents can be identified for insurance and tax purposes. In the Nashville flood of 2010, many people lost everything. Had the contents of the home been documented and safely stored, the process of documentation for insurance and casualty loss purposes would have been much easier.

How to document?

First, it’s important to document room by room…..including unfinished storage rooms! I feel the best approach is to use a two prong approach…..video and paper.  Create a spreadsheet listing the items in each room. Combine that data with a video and you have solid documentation.

How and where to store this data?

With today’s technology there are several ways to save data. It’s important to have several copies of this info stored. One or more copies should be stored in your home. Maybe the video and spreadsheet on a home computer, as well as stored in hard copy form in a fire proof safe. You may also want to keep a hard copy in a safety deposit box.  Finally, you can store a copy electronically through an online backup service such as Mozy.

While my small disaster was only a minor inconvenience compared to the flood of 2010, it created an interesting learning opportunity. What if my home had been destroyed by a fire?  How would substantiation of household items occur?

Hopefully this process will have the same effect as taking an umbrella to the golf course on a cloudy day.  It never rains when I take an umbrella, so hopefully you will never need this to use this information.  But it’s always better to have it and not need it than to need it and not have it!

I recently traveled out West to Seattle. While searching for a hotel, I stumbled across a deal that I couldn’t refuse. This well-known, national hotel was offering a rate ($150 a night) that included parking and valet services (a $20 a day value). The kicker was I would receive a $50 gas card for every night I participated in this package.

More and more banks are getting into the act of offering deals to new customers. I recently heard of Bank Direct out of Texas, which is currently running an airline miles promotion for customers holding a miles checking account. The basics of the deal are the bank will offer 100 American Airline miles for every $1000 deposited up to $200,000. So, a $200,000 deposit may reap 20,000 American Airline miles a year…..plus the account bears interest….albeit small.

I also have noticed banks who are offering deals for transferring assets into their institution. I have seen these deals range from $50-$200 for opening a new account. So, if you aren’t happy with your current bank, it might be worth it to take a look around…..just don’t forget to read the fine print.

We are all well aware of how many different credit card deals are available. Some cards come with airline mileage redemptions. Some come with golf rewards, and some come with a cash redemption strategy. The list is extensive. The key is to find the reward program that fits your needs. For example, there’s no reason to sign up for an airline reward credit card if the airline doesn’t offer many routes out of your local airport or simply is an airline you don’t frequent.

My favorite recent discovery was with a grocery chain. This large store is a well-known brand that just built a new store not far from my home. As a rewards member, we immediately started received coupons for $20 off $50 worth of groceries. While we still receive the coupons, the deal has changed. We now receive coupons for $10 off $40. These coupons are sent in two week cycles, so we would essentially have a coupon to use every week. It gets better: the store recently offered a combination deal that was a home run. If we would spend $50 a week in three out of the four participating weeks, we would receive a $50 gas card. We took our $10 coupon to the store and spent the required amount for the three weeks and received a $50 gas card. We saved $30 from the coupons and received a $50 gas card. What a deal!

The trend of rewarding customers seems to be growing. My wife tells me some of her favorite shops send her birthday deals of 15-25% off. I assure you, she uses them!

Another growing trend is in the world of online coupons, such as Groupon, Living Social, and the like. The deals can be great ways to save money. Just be sure to use the coupon, or you end up wasting money.

These ideas are simply that…..just ideas. I don’t offer any individual endorsements and must remind you to read the fine print of any deal in which you take part. This is extremely important! Sometimes there may be an offer that seems too good to be true, which may lead you to a scam. So, again I caution you to read the fine print. The world is your oyster, so go forth in search of your own deals, rewards, and steals!

Have you stumbled across any recent deals that where home runs? If so, I would love to hear some of your recent finds.