Put Your Plan Into Action (or Your Next Vacation!)

This month is all about budgeting.  You’ve done your taxes and got an unexpected bill and now you want to plan accordingly throughout the year.  Perhaps you’ve gotten a big return and want to spend it wisely.  Maybe this is just the year you’ve decided to get your finances on track and reach those long term goals you’ve been thinking about.  Either way, this month I’ll be sharing various tips and strategies to organize, budget and spend wisely.  Maybe you can use some of these methods to help you save for that relaxing summer vacation you were hoping to get around to this summer!

     Last week was all about the 50/20/30 strategy.  It’s just a simple guideline to make sure you have enough money to save and enough money to play, without going overboard on either!  Now that you’ve sat down and considered your budget, what’s coming in and what’s going out.  It’s time to start putting it to work!  Here’s a week by week checklist to help you implement your goals.

     Before the 1st of the Month

Set your budget goals by following the 50/30/20 rule.  Decide how much of your budget will go toward necessary expenses. Allocate the leftover budget to your goals, according to priority.  Remember, It is up to you to decide what goals that extra money will go towards.  How quickly would you like to build your emergency fund?  Was there a large purchase you were hoping to save for, like new living room furniture?  That’s the excitement of building your own budget.  They’re your goals, and you get to meet them in a financially responsible and sustainable way.

     Week 1

Follow your spending carefully the first week by downloading a financial tracking app or using your online banking tools.  The first week of following this budget is where you can find the spending that slips out from under you.  Perhaps your Starbuck’s tab is a little higher than you thought.  These things are fine, you can either decide to cut back to save a little extra money for other goals or work it into your “extras” category.  Don’t wait to fine tune the initial outline of your budget.

     Week 2

You’ve been super conservative the first week, trying not to go overboard on spending, and now you’re getting antsy.  Before you blow the rest of your play budget for the month think of the next big expense you have coming up.  For example: That vacation!  There’s no sense in blowing all your play money on new sunglasses, hat and bathing suit for a beach vacation you can’t afford anymore.  Setting aside a little money at a time will save you from the feast or famine financial conundrum so many people find themselves in.  Instead of shopping or eating out, spend that time researching your travel interests and figure out how to spend your well saved money on location!

     Week 3

Check in on your ratio goals.  Now that you’ve almost made it through the whole month, check back in to make sure you’re meeting your savings goals.  Have you made those transfers into savings automatic yet?  Sometimes you can focus so much on not spending, you forget about putting the extra away.  If it’s sheer willpower to not spend your extra dough, make those savings transfers right away so you don’t even see them!  Out of sight, out of mind, until Maui.

     Week 4

Congratulations!  You made it through the month.  Now check your monthly statement.  Did you fine tune your budget enough?  Make sure to adjust your goals for next month as well as reward yourself for your success!  Try that new restaurant you’ve been hearing about.  See, goal oriented budgeting isn’t so hard after all!

Take a sigh of relief and repeat.  

3 Habits to Improve Productivity

Most business owners when they first start out are excited to be their own boss.  They’ll be their own best boss ever!  When in reality, they wind up being their own slave driver because they’re passionate about what they do, and that’s what it takes to get things done.  Those days, weeks or even months of burning the midnight oil can take it's toll on anyone, and could actually be diminishing your productivity.  Keeping healthy and reasonable habits amid your demanding lifestyle could help make the most of your efforts and keep you sane in the process.

1. The early bird really does get the worm.

     Staying up late to get work done may seem like a good idea, sometimes it seems easier to stay up later than wake up earlier.  However, not all 8 hour time blocks are created equal.  Staying up late creates more obstacles to productivity, even biological reasons, like your body producing melatonin once the sun goes down to make you sleepy.  Waking up early gives you the advantage of mental clarity and energy for your work day.  Staring at a computer screen in the dark, or even worse, taking work to bed with you, interrupts your work AND your sleep so you don’t get good results from either.  Your brain needs it’s rest and recuperation time to be able to handle tomorrow’s tasks.  Unapologetically enforce your own bedtime.

2.  Straighten out your goals before meeting others'.

     How often do you wake up to missed phone calls, urgent emails and even before your coffee is done brewing, you have already jumped into work like yesterday never ended?  Take a moment for yourself to get off the phone call/email treadmill.  Take 10 deep, slow breaths or heck, light a candle and mediate, whatever it takes to get you focused on the goals YOU want to achieve for the day.  It may seem too simple to matter, but taking a moment for yourself is stress relieving which helps you better handle the day ahead.  Focusing your energy on specific goals you set for yourself also helps drive your day more productively rather than just reacting to what’s going on around you.  Take the wheel.

3.  A healthy mind starts with a healthy body.

     Everyone hates this one.  But the simple fact is that exercise consistently keeps you feeling great physically and emotionally while boosting your energy level.  Yes, it’s hard to tear yourself away from work, but at least 30 minutes a day isn’t that big of a sacrifice for the payoff you reliably get.  It keeps you balanced and energized and your brain functioning at top capacity.  An added bonus, it will most likely help you know when bedtime is as well.  

     Incorporating these things into your daily routine might be difficult at first.  The temptation to fall back into your long but only partially productive hours can seem easier, but only because you’ve been practicing bad habits for too long.  Think of your new habits as an investment in your business.  If you’re not doing well, how will your business thrive?

     

What Does Stephen Do After Tax Season? (The Four Things An Accountant Does During Off Season)

     What I personally like to do, is lay back on some tropical island, order myself a Mai Tai and relax until about February when I get all the frantic emails and phone calls.  JUST KIDDING!!!  While I do like to plan a little getaway after the stress of tax season, there’s still work to be done throughout the year.  So what do I do?  I’ll tell you...

Financial Consulting and (light) Advising

     If I had to name at least one of my skills, it would be analyzing cost efficiency.  I can help you increase your company’s profits by seeing where some spending may be extraneous, or I can help you with ways to decrease your tax liability.  Believe me, these plans cannot just be implemented overnight. Having a tax strategy throughout the calendar year, before April 15, will save you more money than last minute deductions.  Not to mention monthly, weekly, if not daily general accounting, bookkeeping and payroll tasks.  If you have me doing these things throughout the year, it is easy for me to give you quarterly updates on your company’s finances.

Handle Extensions

     While the pressure gauge drops after April 15, that doesn’t mean the work is over.  Often I recommend filing extensions for those who need more time to organize their financial documents.  While you still need to estimate and pay the appropriate amount by April 15, the extension gives people more time to play catch up in order to avoid filing for additional extensions.

Off Season Assistance

     Those who didn’t file tax returns for previous years often seek my help during off-season hours.  For any businesses who are dealing with audits, I may be asked to prepare various financial statements or compilation reports. 

Workshops and Continuing Education

     In the off season, I seek opportunities to continue my education and do any training or seminars on tax strategy and preparedness.  In fact, I did a Lunch and Learn this past March with the Richmond Business Alliance. I'm already looking to do more in the near future! 

While it’s true that my mailbox is full during those busy months of filing, my plate is still full throughout the year.  However, if you have any tax questions, it is more likely that you can reach me more promptly before the hysteria begins.

Keep Your Options Open by Planning Ahead

Okay, you’ve heard me say it before, but getting ready for next tax season NOW, is imperative.  By this time you’ve already gotten past the elation of a sizable return or the drudgery of paying that surprise lump sum.  So, begin to direct your attention to being the best proactive business owner you possibly can be.

Purchasing sophisticated accounting software to help keep you organized does you no good if you’re scrambling to enter your shoebox of receipts at the last minute.  Keeping your records up to date not only helps you rest easier at night, it helps keep an eye on the vitals of your business, which also helps you rest easier.  It’s a vicious cycle.  Doing this will help you make decisions in real time, rather than hindsight.  Updating your books with regularity, at least once a week, is like going to the gym.  You know it’s a good idea, but you put it off until eventually the paperwork (or pounds) pile up, then it seems an even more unsurmountable task.  Think of it as part of your overall financial health and just DO IT for the longevity of your business.

     To Do:

• Document invoices, bank statements and receipts.  Expenses for travel and entertainment are the most reviewed by the IRS so make an extra note on it’s business purpose and who attended the event.
• Always have an updated record of accounts receivable and accounts payable.
• A Form 1099 must be filed for any contractor you pay over $600 in a year.  This needs to be done in January, not at the last minute.  You should be able to predict by June if you will pay a subcontractor more than $600 by the end of the year.  You need their current address, tax ID number, and proof that they are a subcontractor to your business and not an employee.  This includes invoices or business cards.
• If you are the subcontractor paid more than $600 in a year, be sure to include that amount in your taxable income.  June is also a good milestone month to consider year-end bonuses or seasonal hires as they can both affect your tax liability.
• If you are audited, you are responsible for at least 3 years of previous tax and income records.  If they believe fraud is involved, that time period could be extended to 6 years.
• Check for accuracy; reconcile bank accounts and income statements.

  

Remember, having tax questions and asking about options in February is not really setting yourself up for success.  Last minute scrambles to save severely limit your options.  Ask your accountant about some of the things you can do to reduce your tax bill.  If it looks like your revenue is sky-rocketing, it might be a good time to purchase that large piece of equipment you’ve been wanting, therefore decreasing your income.  Also, keeping tabs throughout the year will help your liability be less of a surprise when the time comes, meaning you can accurately predict how much money you need to set aside.

5 Things To Do To Avoid A Post-Traumatic #TaxSeason

     Everyone finally gets to take a moment to catch their breath after all the preparation they put into (or paid for) preparing their tax return.  Finalizing the paperwork is both scary and relieving.  But now that it’s over, what to do next?  Just sit around for another 12 months until it's time to start scrambling forms together again?  No. Whether you are stressed about your tax liability or wondering what to do with that large sum of money, here are 5 things you can do to prepare for next year.

Refinancing

The Real Estate industry is all abuzz about how low the rates are starting off 2015.  Remember though, a financial move that could reduce your payments or interest affects your tax liability at the end of the year.  Reducing your interest rate reduces your itemized deductions, this could lead to a larger amount owed to Uncle Sam come next April 15.  If you do some preemptive accounting, you can suitably tailor your withholdings or estimated tax payments throughout the year.  Avoiding that jaw dropping liability takes a little more planning than crossing your fingers and hoping for the best.

Installments

If your tax bill is too large for you to be able to pay it all in one lump sum, you can request an installment agreement or payment plan.  If you’re unable to pay your tax bill because of a singular event, filling out the proper forms should be enough.  If you often find yourself falling short of your tax bill, it’s time to start thinking of increasing your estimated payments or withholdings.  The IRS has been willing to combine previous installment plans with new ones, but the third time is not the charm in this case.  To read about these plans visit http://www.irs.gov/Individuals/Payment-Plans-Installment-Agreements.

Secure Your Income for Retirement

Why not make the maximum contribution to your retirement fund.  Whichever works best for you, either a traditional IRA or a Roth IRA, you’ll save money in taxes by allocating the funds to your retirement.  A Health Savings Account (HSA) is also a savvy way to increase your deductions and put your hard earned money to work for you.

Unintended Savings 

Keep saving that big return!  Uncle Sam held on to it for you all year,   if you can live without it, a big return can be good for putting away in your emergency fund, college savings for your child or a large home repair you know is coming down the road.

Unemployment

Unfortunately, if you’re collecting unemployment checks, you still have to pay taxes on that income.  You can request federal withholding from these checks to cover that amount.

     As long as you do a little preparation throughout the year, paying taxes won’t be as much of a burden come April.  Tax laws are ever-changing, so being up to date on what’s relevant this year will help you plan according to their benefits or disadvantages.

New At Being Self Employed? Be Aware of Self-Employment Taxes

Did you just start your own business or become self-employed? First things first, I think congratulations is in order! However, there are many things to consider when you’re working for your self, one of them is of course taxes and more specifically self-employment tax. For those new to this concept there are a few things that you need to know, self-employment tax has been put in place to cover social security and medicare totaling 15.4% of your income earned for 2014. For previous years, the rate varies. Anyone who makes under $177,00 will pay this tax, however if your earning over that amount you’ll have to pay an additional .09% medicare tax on income earned. 

Something else to consider:

"You can deduct the employer-equivalent portion of your self-employment tax in figuring your adjusted gross income. This deduction only affects your income tax. It does not affect either your net earnings from self-employment or your self-employment tax." (From the IRS.gov website) 

Anyone earning over $400 must file for self employment tax unless you’re a Church Employee, in that case you must file if you earned over $108.28.

So you have set aside every month, or quarter, an amount that equals in what you owe in Self-Employment taxes, what do you do next? You'll need form 1040-ES in order to complete this process. 

No one said that being self-employed was easy but these are some of the things you need to be aware of when filing and preparing your taxes for this and next season.

For complete information about self-employment tax please visit the IRS.gov website by clicking here