Welcome to Keller & Owens’ Blog. It brings you the latest tax and financial news that matter to your bottom line.

Include Your Tax Paperwork in Your Spring Cleaning

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Looking to minimize clutter? Here are recordkeeping guidelines that will help you do just that while retaining what’s important.

  • Income tax returns. Keep these at least seven years. Hang on to the back-up documents, such as Forms W-2, mortgage interest statements, year-end brokerage statements, and interest and dividend statements, for the same amount of time.
  • Supporting paperwork. Keep cancelled checks, receipts, and expense and travel diaries for a minimum of three years.
  • Stock, bond, or mutual fund purchase confirmations. Retain these while you own the investment. You can destroy them three years after you sell.
  • Real property escrow and title statements. Retain these documents as long as you own the property so you can prove your purchase price when you sell. They can be destroyed three years after the date of the sale.

As you purge your financial clutter, be sure to shred or otherwise destroy the discarded paperwork. These documents often reveal your social security number, bank and brokerage account activity, and other personal information that could lead to the theft of your identity.

Contact us for more recordkeeping tips.

Sunk Costs Could Lead to Bad Business Decisions

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Do you think pulling the plug on a failed contract would be “wasting all the money” your business has spent to date?

If so, you may be making the choice based on emotion and “sunk costs.” Sunk costs are past expenses that are irrelevant to current decisions – such as those spent on non-performing contracts. Why are they irrelevant? Because that money is already spent and generally cannot be recovered.

While admitting mistakes may be difficult and ego-bruising, staunching the flow of cash and changing course by abandoning a failed contract can be a wise decision. That’s because the only relevant costs are those that influence your company’s current and future operations.

For example, say your firm hires a new sales representative. You spend thousands of dollars sending the rep to training seminars. You assign mentors who take time from their busy schedules to provide on-the-job coaching and oversight. But despite your best efforts, the new hire isn’t working out. The rep doesn’t fit your firm’s culture, doesn’t grasp the company’s goals and procedures and doesn’t generate adequate revenues for the business.

As a manager, what should you do? At some point, you may need to terminate the employee and start over with someone else. But what about all that time and money you spent on training and mentoring? Those are sunk costs. Acknowledge that you can’t get them back, cut your losses, and start anew. Throwing good money after bad won’t salvage a poor business investment – or a poor business decision.

Teach Your Children This Vital Skill

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Financial literacy is a vital skill in today’s world. Will your children be able to handle their finances when they became adults? Here are tips to help ensure the answer is yes.

Shave spending. Take the weekly allowance to the next level by helping your child develop a budget. Review the results to reinforce good habits.

Stress savings. Even young children can grasp the power of compound interest. A simple example is asking your child to put a dollar in a piggy bank. Offer to pay five percent interest if the money is still there in a week or a month. Make the same offer at the end of the first time period, and pay “interest on the interest” as well.

Introduce investments. Create a portfolio, either real or paper, consisting of shares of one or more stocks or mutual funds. Make a game of charting the investment’s progress on a regular basis.

Cover credit. Take on the role of lender and let your child request an advance on a weekly allowance. Charge interest.

Talk taxes. Use word search or crossword puzzles to teach tax terminology. Consider creating a “Family Economy” game using examples from your own budget.

Lessons in financial responsibility can benefit your children now and in the future. Get them started on the right path.

Complaints Can Be Opportunities

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When a customer complains, think of it as three opportunities in one.

  • An opportunity to get feedback on something that’s not working right in your organization.
  • An opportunity to convert a disgruntled customer into a loyal customer.
  • An opportunity to head off negative publicity.

Here are four steps to take to convert a complaint into a positive outcome.

  1. The initial response. Be respectful and helpful. Avoid becoming defensive or saying “it’s not our fault.”
  2. Understand the complaint. What’s the true complaint? It may not be easy to stay calm when faced with an angry rant, but making sure your customer knows you’re listening can defuse hostility and ill will. Gathering the facts provides valuable feedback to help you pinpoint the problem and find out what went wrong.
  3. Fix the problem. Have established procedures so your employees know who has the responsibility and the authority to correct a problem. Do employees need managerial approval to compensate a customer for inconvenience with an upgrade or refund? What actions can your employee take to remedy the customer’s immediate concern?
  4. Follow up. A phone call or letter within a reasonable time can ensure the problem has been resolved and turn the customer from “disgruntled” to “loyal.”

Do You Have Enough Emergency Savings?

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A December 2015 survey by a consumer financial services company showed that 36% of the people who participated said they dealt with their most recent unexpected expense by using savings. Would you be part of that group? Here are tips for starting your “rainy day” fund.

Define how much emergency savings is enough. A good starting point is to plan for your emergency fund to cover three to six months of expenses. Another good starting point: Ask yourself how much you’ll need to cover minimum monthly expenses without resorting to credit cards or lines of credit. Your assessment of an adequate balance will vary based on your financial situation, including the vulnerability of your income. For example, a one-earner household is more vulnerable than a two-earner household when it comes to paychecks, so the one-earner family generally will need to set aside more for emergencies.

Track how much you already have set aside. Include all sources in your accounting. For instance, some companies provide payment for accrued vacation and/or sick leave to laid-off employees. If your company provides this benefit and you maintain significant balances, you may not need as much in an emergency fund to help you weather an unexpected layoff.

Decide whether to pay off bills first. Putting excess cash toward high interest credit card balances might make more sense than funding a savings account that earns a much lower rate of interest.

Keep your funds liquid. Emergency money should be easy to get at. You don’t want to have to sell investments at a potential loss or pay withdrawal penalties in order to cover an unexpected hit to your finances. Look into savings or money market accounts as places to accumulate cash.