Becoming a Smarter Renter

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It seems everyone has a tale of a bad rental experience. If you rent anything – a home, a piece of equipment, or a car – here are some hints that can make it a positive experience.

Read all agreements. Read the lease agreement thoroughly prior to signing. Ask for clarification of anything you do not understand. Look for clauses in the agreement that might suggest the property owner has problems with its current tenants. If the agreement seems unfriendly, don’t sign it.

Negotiate up front. Be ready to negotiate your lease terms up front. If anything is unclear in the lease, have it clarified and put in writing. Be very clear about security deposits, first and last month’s rent, and services included in the lease.

Follow the terms. Be the tenant that pays a little early, not the one that always pays late. That way if you ever need a little extra time to pay, you have established the necessary trust to do so.

Proactive disclosure. If you think you will need a temporary exception to part of the lease, try to include it in your upfront negotiations. If this is not possible, consider proactively disclosing the exception to your property owner.

Keep the property clean. This is especially important if you have a pet in your rental property. When landlords come into your home, you will build confidence if the place looks like you treat it as if you owned it. The same is true with rental equipment. Always return it cleaner than you received it.

Know the owner and neighbors. Building a relationship with the property owner and your neighbors helps. If your neighbor has a problem with you, wouldn’t you rather have them come to you than to your landlord? Establishing a good working relationship with a landlord will help you when you need help with a problem in your home or with the equipment you rent.

Leave with a smile. This is especially true for home and vacation rentals. Before you leave, have the property cleaned and hassle-free for the landlord. Request a reference from the landlord for future rentals.

Four Tips for Building an Emergency Fund

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When facing life’s inevitable bumps in the road, an emergency fund is essential to maintaining financial security. Planning for emergencies is like buying insurance: you pay into an account and hope you’ll never have to use it. But life happens. Cars break down. Roofs leak. Kids get injured. Having money in the bank to cover those unexpected expenses can reduce stress and keep you from relying on credit cards and loans to make ends meet.

Here are four easy and effective ways to establish and maintain an emergency fund.

  • Start small. Many financial planners advise setting aside enough money to cover at least six months of expenses. That’s a worthy goal. But for many people it’s also a daunting task, an objective that will take years – not months – to achieve. So set a realistic and achievable amount for your emergency fund, and then get in the habit of contributing regularly. Then don’t touch the account except for real emergencies. Leave it alone and it will grow.
  • Pump it up. When you get a bonus, cost-of-living adjustment, tax refund, or windfall, consider using a portion of that money to bolster your emergency account. Fight the temptation to increase spending with every new dollar that comes along.
  • Make it automatic. With online banking, it’s easy to set up routine transfers from your regular checking account to a separate savings account. If allowed by your employer, allocate a portion of each paycheck to an emergency fund. Consider establishing the account at a financial institution other than your regular bank. As the saying goes, “Out of sight, out of mind.” If the money never shows up in your regular checking account, you’ll be less likely to use it for everyday spending.
  • Sell stuff and slash expenses. Think about selling some of your unused stuff through yard sales, online auctions, or consignment shops. This can generate cash to bolster your emergency fund. Take a hard look at your budget and consider everything fair game: expensive dinners, vacations, cable television, and so on. You may find that a surprising number of dollars can be freed up and stashed away in savings. The key, of course, is to direct those savings – immediately, if possible – away from regular spending and into your emergency account.

If you’d like more ideas for setting financial goals or building up an emergency fund, give us a call.

How Much Do You Need to Retire?

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The statistics are staggering. The majority of Americans do not save for retirement or have not saved enough for retirement. Make sure you’re taking these three steps to be financially prepared for your retirement. Nearly half (45 percent) of working-age households don’t have any retirement assets, according to the National Institute on Retirement Security. Of those working-age households close to retirement (age 55 and older) nearly two-thirds have less than one year’s worth of their annual salary in retirement savings.

The goal

So how much do you actually need to retire comfortably? There are many variables to consider, including retirement age, available pensions, and investment return assumptions. Mutual fund broker, Fidelity, estimates you need enough savings to replace roughly 85 percent of your pre-retirement income. Many experts estimate you will have to save between 8 and 12 times your pre-retirement annual income to reach this goal.

But the amount you need depends on when you plan to retire. For example, Fidelity estimates a person planning on retiring at age 65 will need to save 12 times their pre-retirement income. By delaying retirement by just five years, to age 70, your savings estimate lowers to 8 times your annual income.

This may be why an increasing number of Americans plan on delaying retirement or working during retirement. A majority (51 percent) of workers surveyed in 2016 by the Transamerica Center for Retirement Studies said they plan on working during retirement.

Some ideas to consider now

These are sobering realities, but there are actions you can take to be in a better position during your golden years.

  1. Contribute as much as possible every year to your employer provided retirement plans. With a 401(k) pretax retirement plan, for instance, up to $18,000 can be contributed each year, or $24,000 if you are age 50 or older.
  2. Contribute as much as possible to a Traditional or Roth IRA every year, up to the $5,500 maximum, or $6,500 if you are age 50 or older.
  3. If available, contribute as much as possible to a health savings account (HSA), which can be used to offset medical expenses, up to $3,400 a year, or $4,400 if you are age 55 or older.

If you’d like to review your tax-advantaged retirement strategy, call to schedule an appointment.

Five Financial Lessons to Teach Your Children

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“Dad, I need some extra money to go to the movies with my friends.” If you are a parent, you’ve probably heard countless requests like this.

At some point your kids will discover they can no longer rely on you for all their financial needs. Because recent studies have found that teaching financial literacy is lacking in many schools, it’s up to parents to provide the fundamentals of finance to their children. Here are some concepts you can use to begin introducing your kids to the lessons of personal finance.

  • Spend a little, save a little. Whether receiving a birthday gift or allowance money, teach your kids to get into the habit of saving a portion of what they receive. Help them create savings goals like the purchase of a bike or creation of a college fund.
  • Don’t worry about what others have. Teach your children to avoid spending money to follow the crowd. Take a look at the unused toy bin to demonstrate the point. Chasing the need to own $200-$500 sneakers can lead poor financial habits in the future.
  • Be money mindful. Remind your child to think before they spend money. Help them understand that wanting something doesn’t always mean that they need to have it. You can also help them to prioritize their spending. For example, saving for the running shoes your child might need for track may be more important than the money he or she would spend on a night at the movies with friends.
  • Learning about finances is fun. Set aside some time each week to learn about a new personal finance topic together. You can help your child learn about checking accounts, setting up a budget, getting a small loan, or simple ways to start saving. Getting them interested in financial topics at a young age will help them throughout their lives.
  • Tax talk. If your child is old enough to earn a paycheck, teach them tax basics. Walk them through their paycheck. Social security, Medicare, and withholdings are new concepts for them. Help them understand how the money is used. Don’t overlook other taxes as well. They also need to know that sales tax should be factored into the cost of items they choose to purchase.

It’s important to keep the conversation going. Encourage your children to ask questions, and get them involved with your household spending. There are many ways you can help them develop a healthy understanding of personal finance.

Don’t Assume It’s Correct Just Because It’s the IRS

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You may receive correspondence from the IRS that contains an error. What should you do?

Here are some quotes from actual IRS correspondence received by clients:

“Our records show we received a 1040X…for the tax year listed above. We’re sorry but we cannot find it.”

“Our records show you owe a balance due of $0.00. If we do not receive it within 30 days, appropriate collection steps will be taken.”

“Payment is due on your account. Please submit payments on or before June 31 to avoid late payment penalties and interest.”

It’s pretty tough to pay a balance due of $0.00 or submit a payment on June 31 when June has only 30 days. The message should be clear. If you receive a notice from the IRS, don’t automatically assume it is correct and then submit a payment to make it go away. The same is true for errors in any state tax agency notices. They are often in error. So what should you do?

Stay calm. Try not to overreact to the correspondence. This is easier said than done, but remember, the IRS sends out millions of notices each year. The vast majority of these notices attempt to correct simple oversights or common filing errors.

Open the envelope. You’d be surprised how often clients are so stressed by receiving a letter from the IRS that they cannot bear to open the envelope. If you fall into this category, try to remember that the first step in making the problem go away is to open the correspondence.

Review the letter. Make sure you understand exactly what the IRS thinks needs to be changed and determine whether or not you agree with their findings. Unfortunately, the IRS rarely sends correspondence to correct an oversight in your favor, but it sometimes happens.

Respond in a timely manner. The correspondence received should be very clear about what action the IRS believes you should take and within what timeframe. Ignore this information at your own risk. Delays in responses could generate penalties and additional interest payments.

Get help. You are not alone. Getting assistance from someone who deals with this all the time makes going through the process much smoother.

Correct the IRS error. Once the problem is understood, a clearly written response with copies of documentation will cure most IRS correspondence errors. Often the error is due to the inability of the IRS computers to conduct a simple reporting match. Pointing the information out on your tax return might be all it takes to solve the problem.

Certified mail is your friend. Send any response to the IRS via certified mail. This will provide proof of your timely correspondence. Lost mail can lead to delays, penalties, and additional interest on your tax bill.

Don’t assume it will go away. Until you receive definitive confirmation that the problem has been resolved, assume the IRS still thinks you owe the money. If you don’t receive correspondence confirming the correction, send a written follow-up.

Do You Live or Work in Kansas?

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If so, the recent changes WILL AFFECT YOU!

WHAT YOU NEED TO KNOW:

  • These changes are retroactive and apply starting January 1, 2017.
  • Business and rental income (Sole Proprietors, S Corporation and Partnership owners) which was previously exempt from Kansas tax is once again taxable.
  • Increase in tax rates for 2017.  The highest rate will be 5.2% for those with Kansas income in excess of $60,000.  These rates will increase again in 2018 to a high of 5.7%.
  • No taxpayer penalties or interest will be charged for underpayment of taxes due to this change in law as long as the underpayment is paid by April 17, 2018.
  • Limitations on itemized deductions will ease but not in 2017.  Starting in 2018 a portion of medical expense will be allowed and mortgage interest and property tax deductions will phase back in.
  • For W-2 employees, Kansas withholding tax rates were updated on July 1, 2017.  These rates have been updated for the remainder of 2017 at the higher 2018 rates to compensate for the first 6 months of withholding at lower rates.   However, some employees may still not have enough tax withheld for the year.

WHAT STEPS TO TAKE:

  • Consider making higher KS estimated tax payments to avoid a large Kansas tax bill at April 17, 2018.
  • Consider having extra Kansas tax withheld from your paycheck.
  • Contact us to prepare a projection of the Kansas tax you may owe for 2017.

Please contact us if you have any questions or concerns about these changes!

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.