Could the Coverdell ESA be the Right Fund for You?

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You’re probably familiar with 529 college savings plans. Named for Section 529 of the Internal Revenue Code, they’re also known as qualified tuition programs, and they offer tax benefits when you save for college expenses.

But are you aware of a lesser-known cousin, established under Section 530 of the code? It’s called a Coverdell Education Savings Account and it’s been available since 1998.

The general idea of Coverdell accounts is similar to 529 plans – to provide tax incentives to encourage you to set money aside for education. However, one big difference between the two is this: Amounts you contribute to a Coverdell can be used to pay for educational costs from kindergarten through college.

Generally, you can establish a Coverdell for a child under the age of 18 – yours or someone else’s. Once the Coverdell is set up, you can make contributions of as much as $2,000 each year. That contribution limit begins to phase out when your income reaches $190,000 for joint filers and $95,000 for single filers.

Anyone, including trusts and corporations, can contribute to the account until the child turns 18. There are no age restrictions when the Coverdell is established for someone with special needs.

While your contribution is not tax-deductible, earnings within the account are tax-free as long as you use them for educational expenses or qualify for an exception. In addition, you can make a tax-free transfer of the account balance to another eligible beneficiary.

Qualified distributions from a Coverdell are tax-free when you use the money to pay for costs such as tuition, room and board, books, and computers.

Please call for information about other rules that apply to Coverdell accounts. We’ll be happy to help you decide whether establishing one makes sense for you.

Find the Best Employees to Contribute to Your Company

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Turnover is an often overlooked cost of doing business. Sometimes it can run as high as 25% of salary and benefits. One way to reduce this cost is to hire wisely. It’s an oft-quoted cliché that employees are a company’s most valuable assets. Try generating revenue with unmotivated or unskilled employees, and you’ll soon discover that the cliché rings true.

How do you locate the best employees?

Know what you’re looking for. Before you publish a job announcement or talk to potential candidates, consider the type of skills that would fit best with your company. This may involve clarifying the types of skills that are essential to your company, as well as skills that are specific to the position being filled. For example, if the business prides itself on written communications, you don’t want to hire a candidate who struggles with grammar or balks at the prospect of writing a report.

Look in the right places. Once you’re clear about the type of employee you’re hoping to hire, focus on discovering the best candidates and drawing them to your company. You might post the position on job boards of specific trade organizations, network with local colleges and technical schools, or ask for recommendations from your current employees. In general, the more specific skills you hope to find, the wider net you’ll have to cast.

Make the interview count. Potential candidates are often counseled to conduct mock interviews, and wise employers will hone their interviewing skills too. You want to identify candidates who will be eager to contribute to your company. Asking focused questions and listening with a purpose are key to the interview process. A good interviewer will also attempt to identify “red flags” that indicate potential problems. For example, the candidate may provide vague or rambling answers to simple questions. This could indicate normal interview anxiety, or he or she might be hiding key facts from you – information that could directly affect your hiring decision.

Finding quality employees that will mesh well with your company culture is not an exact science. But, thoughtful preparation and careful interviewing can pay dividends for years to come.

How to Build Your Business Credit

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Whether your firm has been operating for years, or you decided over last night’s coffee to start a new venture, you’re sure to face the need for business credit. Entrepreneurs often ask friends and family to invest in their start-up businesses, and many draw on personal funds to launch new firms. But to address ongoing business needs – such as requirements for inventory, equipment, and real estate – most firms seek additional help from credit card companies and banks.

Unfortunately, today financial institutions are more wary than they used to be about extending credit to small companies. And with many business revenues faltering because of market pressures, even well-established companies have found it difficult to obtain loans.

As a result, establishing good business credit has become more important than ever. To convince a lender that your company represents a good risk, you should first prepare a well-written business plan. It need not be as long as a Tolstoy novel, but should lay out in some detail your products, pricing, estimates, competition, and basis for cash flow projections. A clearly defined business plan will convince potential lenders that you’ve addressed the greatest obstacles to your firm’s success. Before approaching lenders, consider your business structure as well. For example, a limited liability company or corporation may be seen as less risky than a sole proprietorship. The goal is to present a professional image to convince the lender that your company will prosper in good times and bad.

To establish good business credit, you’ll also want to make sure all required licenses are current and your firm is registered with the major business credit reporting bureaus such as Experian and Equifax. Work with vendors who report to these bureaus so that your on-time payments are tracked.

Of course, the key to building good business credit is making all your payments on time. As with personal credit, your business credit score will climb as managers prove their skill at monitoring the firm’s cash flow and their commitment to honoring the firm’s obligations.

Also consider having our office review your financial statements before you send them to the bank. If you need assistance with this or other business concerns, give us a call.

Don’t Underestimate the Power of Curb Appeal

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If you want to improve your home’s market value, curb appeal matters. The condition of your front yard, entry area, driveway, and sidewalks will color the impression of everything else a potential buyer sees during a visit. Homes with great curb appeal usually command higher prices and spend less time on the market. Luckily there are simple, inexpensive ways to help your home impress.

  • Make it sparkle. Walk around the outside your house and take note of what looks dirty. Parts of your house that may get grimy over time include windows, downspouts, gutters, siding, and garage doors. These can usually be tackled with soapy water and a scrub brush. For a bigger job, consider using a pressure washer.
  • Coat of paint. Updating the color of your front door, trim, or shutters may help your home look newer and more modern. A gallon of exterior paint costs about $30, so this will probably cost less than $100 overall.
  • Replace hardware. Don’t overlook your house numbers, entry door locksets, doorbells, mailboxes, or light fixtures. These elements add visual interest, but can detract from your home’s appeal after they show years of wear. Replace, clean, or paint pieces that have become dingy or out of date.
  • Mow the lawn. It’s hard to stay on top of mowing when the weather warms up, but a mangy lawn riddled with dandelions won’t make your home attractive. Try to cut it once a week to keep it looking neat.
  • Add landscaping. Planting a tree is a great way to add long-lasting dimension and appeal to your yard. Consider flanking your front door with trees or shrubs. Add a pop of color by placing flower planters on your stoop or adding window boxes to front-facing windows.
  • Install landscape lighting. Outdoor landscape lights lining a sidewalk or driveway provide safety and security, but they can also have big impact on your yard’s appearance. If you’re unable to install wiring for electric lights, solar-powered light fixtures can do the trick.
  • Incorporate outdoor art. Show a little of your personality by adding some tasteful features, such as a birdbath, beautifully arranged rocks, a sculpture, or wind chimes.
  • Upgrade fences and railings. If you have privacy fences or railings leading up to your front door, think about repainting or replacing them.
  • Fix the driveway. Cracked asphalt is not doing you any favors. Fill cracks with asphalt patch and coat the surface with blacktop refinishing compound.
  • Hide your trash bins. Everybody needs trash bins, but nobody likes to look at them. Store them in your garage or hide them behind a fence or enclosure.

Tax Filing Responsibilities of Estate Executors

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Your role as an executor or personal administrator of an estate involves a number of responsibilities. Did you know that part of your responsibility involves making sure the necessary tax returns are filed? And there might be more of those than you expect.

Here’s an overview:

  • Personal income tax. You may need to file a federal income tax return for the decedent for the prior year as well as the year of death. Both are due by April 15 of the following year, even if the amount of time covered is less than a full year. You can request a six-month extension if you need additional time to gather information.
  • Gift tax. If the individual whose estate you’re administering made gifts in excess of the annual exclusion ($14,000 per person for 2017), a gift tax payment may be required. Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, is due April 15 of the year following the gift. The filing date can be extended six months.
  • Estate income tax. Income earned after death, such as interest on estate assets, is reported on Form 1041, Income Tax Return for Estates and Trusts. You’ll generally need to file if the estate’s gross income is $600 or more, or if any beneficiary is a nonresident alien. For estates with a December 31 year-end, Form 1041 is due April 15 of the following year.
  • Estate tax. An estate tax return, Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, is required when the fair market value of all estate assets exceeds $5,490,000 (in 2017). One thing to watch for: Spouses can transfer unused portions of the $5,490,000 exemption to each other. This is called the “portability” election. To benefit, you will need to file Form 706 when the total value of the estate is lower than the exemption.
  • Form 706 is due nine months after the date of death. You can request a six-month extension of time to file.

Give us a call if you need more information about administering an estate. We’re here to help make your task less stressful.

Considering Paying for Your Child’s College Education?

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Should you pay for your child’s college education? Or should your child find the financing? There are compelling arguments for both sides, but ultimately, your family needs to do what’s best for your financial situation. Most families find that a combination of both works the best.

Parents should pay.

Arguments in favor of shelling out your hard-earned cash for a son’s or daughter’s higher education can be compelling. For one thing, college is a very expensive proposition these days. A year of undergraduate study at a private university can easily top $30,000 and public in-state schools can run over $12,000. Of course, if your student decides to get an advanced degree or go to medical or law school, he or she can run up a bill exceeding the cost of your home mortgage. Advocates of this point of view ask, “Do you really want to saddle your kid with that kind of debt so early in life?”

They add that if your child ends up working to pay for college, that’s less time available for study and making friends. And, of course, friendships built in college can generate a wealth of opportunities for a future career. Also, by investing in tax-deferred 529 plans, parents can withdraw funds free from federal and some state income taxes when it’s time for college.

The child should take the responsibility.

Others argue that covering the cost of your child’s college education should not be your priority. After all, they reason, your kid has a lifetime to pay back student loans, and making loan payments can generate a positive credit history. Advocates of this position also argue that kids who have to pay for their own tuition, books, and living expenses learn responsibility and value the investment that college represents. They also point to available tuition reimbursement plans provided by some companies or the military service option as a way to get a college education without breaking the bank.

Those on this side of the debate often argue that 529 plans are overrated as a savings vehicle because investment options can be limited and tax rules are likely to change, undermining future tax benefits. Finally, they reason that a parent’s own retirement savings should take precedence over saving for a child’s education.

Making the decision.

Of course, your family’s dynamics, the importance you place on a college education, and your personal financial priorities will factor into this decision. If you’d like help looking at the pros and cons of this important issue, give us a call.

“Everyone” is Not Your Customer

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Indiscriminately trying to sell to “everyone” can dilute your message, muddy your image, and waste your company’s resources. To market effectively, you have to know your customers. Remember: Satisfied customers come back, and they generally refer others. Here’s how to get started.

Think about your typical customers: ages, interests, gender, aspirations, and financial and social status. In order of importance, list what customers are looking for when they come to your business. Do they seek selection, quality, price, service, or some combination? Is efficiency, expertise, or willingness to accommodate special requests particularly important to your customers? Do they demand convenience, or are they looking for atmosphere, ambience, or status?

When creating ads or other marketing tools, emphasize what your clients value, and communicate in their manner and style. For instance, low prices may not appeal to those who are more concerned with status, and ads to sell power tools rarely feature people in suits.

Getting to know your customers is mutually beneficial. You provide products and services that customers find valuable while at the same time creating revenue opportunities for your company. And isn’t that win-win dynamic the reason you started your business in the first place?

How to be a Successful Saver

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How much money did you save last year? If your savings fell short of your goals, don’t give up. You can still take charge of your financial future. Here are tips to become a successful saver.

  • Set goals. Give your saving a purpose. Do you want to accumulate an emergency fund with enough cash to cover six months of living expenses? Other saving goals may include a college savings fund, vacation fund, or a fund for major purchases.
  • Treat your savings as your most important monthly bill. Write a check to savings first, or have your savings automatically deducted from your checking account or paycheck.
  • Take advantage of tax-deferred retirement accounts. If your employer offers a 401(k) or SIMPLE retirement plan, contribute the maximum amount allowed. No employer plan available? Contribute to an individual retirement account. The money you contribute can reduce your taxable income and grow tax-deferred.
  • Track your expenses. Highlight and eliminate unnecessary or wasteful spending. Control the use of your credit cards. The amount you pay each month in finance charges could go to savings instead. Get in the habit of giving yourself a regular cash allowance, and try to live with it.

For help in setting financial goals and developing a savings plan, call us.