Author: Service2Client

Considerations When Selling a Business

How To Selling a BusinessAccording to the U.S. Small Business Administration and Project Equality, 60 percent of business owners plan to cash out of the business in the next 10 years. For the baby boomer generation, it’s especially important as they contemplate retirement, with this generation reportedly owning 2.3 million businesses. When it comes to getting a business ready for sale, there are many components to review and get organized before looking for prospective buyers.

The first thing owners looking to sell their business are being asked is why they’re selling. This may occur for many reasons – voluntary or not. Some people are looking to retire, while others might be looking to exit their business because things soured with partners. These are just some of the reasons why business owners or partners want to sell their business or stake in a company. Entrepreneur magazine says there are “three ways to leave a business – sell it, merge it or close it.”

According to Entrepreneur magazine, there are many considerations for business owners when they are contemplating selling. For profitable companies, it’s more often due to choosing to sell, but not always. When there’s the desire to sell a business, if the owners can show potential purchasers some or all of the following, chances are it will sell sooner than later and for a fair price: growing income, profitability, and a customer base, along with a business plan and product/services with long-term potential.

Another consideration is timing of the sale. Ideally, getting the business’ house in order will benefit both the seller and the buyer. With this in mind, it’s important to have a few backup buyers in case the first deal falls through. One reason a deal may fall through is because the buyer didn’t qualify for financing before the sales process got serious. This planning can give the business owner and potential buyers time to review, audit and organize financial records; review and determine the business structure; and determine and analyze the business’ customer base. This review and organization will be able to help the new buyer maintain business continuity, if they decide to purchase the business.

The next step is to get documents in order. Organize the cash flow statement, balance sheet and income statements, along with tax returns from the past few years. It’s important to inventory all equipment, intellectual property, trade secrets, etc. to see what can be sold and transferred and verify the current market value of each. Taking stock of both sales records and suppliers, and getting contact information for both will help make a sale more likely. Depending on if the information is proprietary or not, it’s important to have this ready to share, under confidentiality, with potential buyers. An operating manual and a general overview of the business are also necessary in order to show the company’s presence clean and repaired.

Another consideration is how business assets that aren’t so easy to touch will be valued. According to the American Bar Association, goodwill is an intangible asset, such as reputation, along with intellectual property like trademark. The New York State Society of CPAs’ (NYSSCPA) publication, The CPA Journal, reports that goodwill has an indefinite life, and one way to see if it meets the test of being goodwill is if it “is inseparable from the business.”

Another consideration when selling a business is to see its recent cash flow and to calculate it properly for potential buyers. According to the NYSSCPA and the Statement of Financial Accounting Standards (SAFS) 95, cash flow from operating activities (CFO), per the SFAS 95’s statement of cash flow (SCF), is calculated by starting with the net loss or income and then factoring in differences in working capital and non-cash sales.

Once the CFO is calculated, this figure shows how much the business earns from its operating activities, as the name implies. It’s important to see how this figure differs from investing or financing operations that may be ancillary to the company’s irregular financials. Once this information is known, it gives potential buyers an accurate assessment of the company they are buying to see if they’re comfortable with the existing business. Showing a business that’s doing well can help attract buyers at a fair price.

While each business is different and the reasons for exiting it vary, understanding what potential buyers are looking for can increase the chances of a fast sale at a fair price for both seller and buyer.

Sources

https://www.score.org/blog/how-profitably-exit-your-online-business

http://archives.cpajournal.com/2002/0102/features/f013602.htm

https://www.entrepreneur.com/encyclopedia/selling-your-business

https://www.americanbar.org/content/dam/aba-cms-dotorg/products/inv/book/213938/5070556_SamCh.pdf

The Challenge of Accounting for Goodwill

http://archives.cpajournal.com/old/14152806.htm

https://www.sba.gov/blog/7-tax-strategies-consider-when-selling-business

What Every Taxpayer Needs to Know This Season

New Tax Laws 2021The IRS is currently suffering a severe backlog in processing returns from 2021 for the 2020 tax year. As of Dec. 31, there were still more than 6 million unprocessed individual returns with notices and pending refunds. There are a few things every taxpayer should know that can help them navigate any delays in filing or speeding up the process to make filing this year as smooth as possible.

Pass on the Paper

Nothing speeds up the process like electronic filing. Despite the uptick in electronic filing over recent years, the agency is still buried in paper, receiving almost 17 million paper filings last year.

When filing electronically, there’s a good chance you’ll see your refund within 21 days of acceptance. Just make sure you keep track of your submission and that it is accepted and not bounced back.

Validate Your Return Properly

To file electronically and have your return accepted, you’ll need to validate your return with last year’s adjusted gross income. As simple as this sounds, it’s not as easy as looking at last year’s return if your 2020 filing is still pending. In this case, you’ll need to enter $0 for your 2020 AGI or the agency may reject the filing.

Reconcile Your Child Tax Credits and Stimulus Payments

Returns with innocuous errors are one of the biggest causes of notices and held-up returns. Simple mistakes or the careless compilation of a return can cause matching errors and throw a wrench in the processing of a return, with two issues being prone for the average taxpayer: the advance child tax credits and stimulus payments.

Taxpayers should pay extra attention to and double-check these areas of their returns to avoid delays. While taxpayers may receive a Letter 6419 for child tax credits or 6475 for stimulus checks, it’s still a good idea to verify your payments for these two areas online for the best accuracy.

Another snafu that can arise is for married couples filing jointly. You may each receive separate letters showing only half of your total payments. Make sure you verify and report the total amount in these cases. Remember that avoiding math errors can save a lot of time and headaches later.

New Questions on Page #1 – “Virtual Currency”

More and more taxpayers are also owners of some type of cryptocurrency. If you are one of them, then this year, for the first time, you’ll need to answer a new “stand-out” question on page one of your tax return.

There is now a simple yes or no question on the front of every Form 1040, asking if you received, sold, or exchanged any cryptocurrency.

Your answer should be “Yes” if you staked, sold, exchanged, mined, or used crypto to purchase goods or services in 2021. If you only purchased cryptocurrencies and held them, then you should make sure you check “No.”

A “Yes” here is a flag to the IRS and they’ll be looking for you to report income from staking and mining or gains or losses on Schedule D. It can also fast track your return to the manual review pile, adding further delay to processing your return. But remember, that’s no reason to not answer truthfully.

Taxing Saturdays

Reaching the IRS via phone is notoriously difficult (which is why having a CPA prepare your taxes can be more than worth it). Average wait times are exceeding 23 minutes. In response, the IRS is adding monthly walk-in hours on select Saturdays at certain Taxpayer Assistance Centers, starting on Feb. 12.

To access this service, you’ll need government-issued photo identification, a Social Security card or your Individual Taxpayer Identification Number, and any IRS letters or notices. If you are filing on your own, this can help clear up issues; but remember, it’s best to use a paid preparer. They can handle both administrative issues and offer their expertise.

Conclusion

The IRS has a huge backlog of returns with issues, often resulting from simple avoidable problems such as “math errors” or paper filing. Do yourself a favor and follow the advice in this article to make this year less “taxing” on everyone.

Give a College Savings 529 Plan For Graduation

College Savings 529 PlanIf you really want to make impact in your new grad’s life, make an investment in his or her future with a 529 College Savings account. There are two versions: an investment account and a prepaid account. Assuming you are opening an account now and don’t have time for investment growth, you may need to fund it with a significant chunk of money for it to be useful. The savings plan is good for building an investment balance over time, including while the student is in college. On the other hand, the prepaid option is a good way to reinvest a windfall – such as an inheritance or proceeds from the sale of property.

A 529 College Savings Plan allows the account owner to open, fund, choose the investments and name the account beneficiary – yet you still retain control of the assets. Be aware that contributions do not qualify for a federal tax deduction, but more than 30 states allow a limited tax deduction or credit. While earnings and withdrawals used for qualified education expenses are not taxed at the federal level, there are a handful of states that do impose state taxes.

However, because you – the giver – retain control of the account, you can be assured that the money won’t be wasted on a trip to Cancun or a gap year backpacking through Europe. You determine when, how much and what distributions are used for. If you’re not happy with the student’s choices, you can change the beneficiary to someone else or keep it for yourself.

Gift Strategies for Retirees

There is generally no annual contribution limit to a 529 plan, but the total amount in a beneficiary’s account may not exceed the balance limit determined by each state. 529s are state-sponsored, but most states let non-residents open a plan. In addition, some states allow anyone who contributes to a 529 plan to take a state tax deduction. This way you also can invite friends and family to enjoy a tax deduction while contributing to the account for one big, combined graduation gift.

In 2022, you can contribute up to $16,000 per beneficiary ($32,000 per married couple) to a 529 plan without having to file a gift-tax return. However, if you want to stockpile the account for a big splash on graduation day, the IRS allows you to frontload up to five years’ donations in one year (up to $80,000; $160,000 for a married couple) outside the gift tax limit, although no other gifts can be made to the same beneficiary over the next five years. In this case, you must make the required election on a gift tax return that year to be allocated over five years. This five-year front-loading approach can be an effective estate planning strategy to remove assets from your taxable estate, yet retain control over them.

You also can maximize your gift by making it a two-for-one. In other words, gift it to your high school grad, then keep funding it during his university years. Any leftover balance can be his college graduation gift if he’s planning to go to law school or get an MBA. If not, you always have the option to keep the balance or gift it to him anyway – although proceeds not used for education expenses will be subject to taxes on earnings and a 10 percent penalty.

Student’s Choice

The 2019 SECURE Act enhanced the College 529 plan with additional options. Your new graduate can now use the money to pay for expenses associated with a registered apprenticeship program, or use up to $10,000 to repay student loans. Note that if proceeds are used to pay student loans, the loan interest cannot be used as a deduction that tax year.

The 529 gives your new graduate the option of how and when to use the funds. After all, the pandemic has thrown many young adults off course in different ways. Some are opting to go straight into the job market without a degree, while others are taking a gap year or two to get a feel for what type of career they want to pursue. With the College Savings investment plan, your contributions have the opportunity to grow tax-deferred indefinitely. Some states place time or age limits on the use of a prepaid plan. However, you can always retrieve unused assets from a 529 (subject to earnings and penalty taxes), so they are not lost by any means.

Banning Masks, Banning Russian Oil, Making Lynching a Federal Hate Crime and Saving Sunshine

hr 2471,S 1543,HR 6968,S 623,HR 3076,HR 55Consolidated Appropriations Act, 2022 (HR 2471) – This legislation will fund the federal government through September 2022, but also includes a plethora of other bills folded within for the purpose of quick passage by both the House and Senate. Among them is the reauthorization of the Violence Against Women Act and the allocation of $13.6 billion in additional aid to support Ukraine in its conflict against Russia. The bill was signed into law by President Biden on March 15.

STANDUP Act of 2021 (S 1543) – STANDUP is the anacronym for Suicide Training and Awareness Nationally Delivered for Universal Prevention. It authorizes the Department of Health and Human Services (HHS) to give preference to state, tribal and local educational agencies when awarding certain grants for priority mental health needs. Specifically, plans must include evidence-based suicide awareness and prevention training policies. The bill was introduced by Sen. Maggie Hassan (D-NH) on May 10, 2021. It passed in the Senate on Dec. 14, 2021, the House on Feb. 28 and was signed by the president on March 15.

Suspending Energy Imports from Russia Act(HR 6968) – This bill was introduced by Rep. Lloyd Doggett (D-TX) on March 8. It is the bill that bans the import of Russian oil in response to the country’s invasion of Ukraine. The act also gives the president permanent authorization to impose visa- and property-blocking sanctions based on violations of human rights. In addition to oil, the act blocks importation of other Russian products such as mineral fuels, mineral oils and products of their distillation, bituminous substances and mineral waxes, with the exception of prior contracts or agreements. Subject to congressional approval, the president may waive this prohibition for national interest reasons. The bill also takes initial steps to suspend Russia’s participation in the World Trade Organization. The legislation passed in the House on March 9 and is currently under consideration in the Senate.

Sunshine Protection Act of 2021 (S 623) – The purpose of this legislation is to make daylight savings time the new, permanent standard time. The bill states the change would begin on Nov. 5, 2023, in order to give airlines and other industries time to adjust their schedules and processes. States that currently contain areas exempt from daylight savings time will have the option to choose standard time for those areas. The bill was introduced by Sen. Marco Rubio (R-FL) on March 9 and passed in the Senate on March 15. It is currently under consideration in the House.

Postal Service Reform Act of 2022 (HR 3076) – This bipartisan act was introduced by Rep. Carloyn Maloney (D-NY) on May 11, 2021. It passed in the House on Feb. 8, the Senate on March 15 and is awaiting the president’s signature to become law. The bill will repeal the annual prepayment requirement for future retirement health benefits; establish a Postal Service Health Benefits Program to offer health benefit plans for USPS employees and retirees; coordinate enrollment for retirees under this program and Medicare; and develop a publicly available dashboard that tracks service performance and reports on USPS operations and financial conditions.

Emmett Till Antilynching Act (HR 55) – This act was introduced by Rep. Bobby Rush (D-IL) on Jan. 4, 2021. This act designates lynching as a federal hate crime, and imposes the criminal penalties of a fine, a prison term of up to 30 years, or both. It applies to anyone who conspires to commit a hate crime offense that results in death or serious bodily injury; kidnapping or an attempt to kidnap; aggravated sexual abuse or an attempt to commit aggravated sexual abuse; or an attempt to kill. The bill passed in the House on Feb. 28 and the Senate on March 7. It is awaiting the president’s signature to become law.

A joint resolution providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by Centers for Disease Control and Prevention relating to “Requirement for Persons To Wear Masks While on Conveyances and at Transportation Hubs” (SJRes 37) – The purpose of this joint resolution is to nullify the CDC rule issued in February 2021 to require face masks on planes, trains, buses, and other public transportation systems and hubs in order to prevent the transmission of COVID-19. It was introduced by Sen. Rand Paul (R-KY) on Feb. 10 and passed in the Senate on March 15. It is currently in the House for consideration.

The 50/30/20 Budgeting Rule Explained

The 50/30/20 Budgeting Rule ExplainedYou may or may not have heard of the 50/30/20 budgeting rule, but it’s a good one – one that will help make organizing your finances a lot simpler. The basic idea is to divide up your after-tax income and allocate it to spend this way: 50 percent on your needs, 30 percent on wants and 20 percent on savings. Below are more details on how to do this.

Spend 50 percent on needs. These bills are those that are necessary for survival, such as rent/mortgage, groceries, utilities, health care, insurance and paying the minimum amount on your debts. Other things like Starbucks, Netflix and dining out might feel like needs, but if you get honest, they really aren’t. (They fall into the next category.) To get started, here’s a free worksheet. If you’re spending more than 50 percent on your needs, then look for areas to cut expenses or downsize your lifestyle. For instance, you could eat in (and make delicious coffee at home), maybe take public transportation to work or even choose a smaller home or more modest car. While these compromises might not be very fun, they’re necessary to make you fiscally healthier. Plus, they’ll pay off in the long run, which will feel really good.

Allocate 30 percent for wants. The best way to look at this category is to think of everything that is optional. It includes obvious choices like going to your favorite restaurant, joining a gym, buying that new techie gadget or a gorgeous new purse. Another way to frame wants are, for instance, choosing a more expensive entrée like lobster instead of a pasta dish, or buying a Mercedes instead of a no-nonsense Honda. That said, living a spartan life with no feel-good experiences isn’t realistic. We all have desires. But if you find you’re spending more than 30 percent on these things, a way to cut back is to plan ahead on splurging and do it less often. This way, treating yourself might feel better than it normally would.

Sock 20 percent away on savings. This category, of course, includes your savings account, as well as investment accounts like IRAs, mutual funds and stocks, which may or may not be part of your retirement. Besides saving money to pay for future bills, it’s also recommended to put away at least three months of expenses in an emergency fund, should you lose your job or have unexpected events occur. If you spend this allotment, start replenishing it as soon as you can. Other things that fall into savings are paying more on your debt instead of minimum payments because you’ll be reducing the principal and future interest you’ll owe; so in effect, you’re saving. While tucking funds away might seem impossible, once you get in the habit of it, you won’t miss it. And a few months down the road, when you take a look at the sum you’ve accumulated, you’ll most likely be super happy.

Admittedly, saving money and managing it is a challenge – you’re not alone. As of January 2022, the personal saving rate was 6.4%, down from 8.2% in December 2021. So take heart. If you’re saving anything at all, you should count that as a victory. You’ll be way ahead of the crowd. In the end, seeking a financial equilibrium and erring on the side of saving will contribute to a more abundant life in the long run.

Sources

https://www.investopedia.com/ask/answers/022916/what-502030-budget-rule.asp

The Rise in Ransomware Attacks and How to Keep Safe

RansomwareCybersecurity experts estimate that there is a ransomware attack every 11 seconds. This makes it a challenge to individuals, businesses, and even governments.

In ransomware attacks, cybercriminals encrypt a victim’s network or data, making it inaccessible until a ransom is paid. Despite organizations’ efforts to reduce the attacks, cybercriminals also are advancing their attack methods. For instance, an organization may have backups they can use to restore their systems, but the criminals also demand ransom not to publish the sensitive company information they have in their possession.

Ransomware is not a new cybersecurity threat. It is traced back to 1989 when the first ransomware was released through floppy disks and required a victim to send money to a post office box in Panama. As technology has now advanced to allow for always-on connectivity, the prevalence of ransomware has grown tremendously. The use of Bitcoin and other cryptocurrencies as payment makes it more complicated as they are difficult to trace. These attacks, such as the WannaCry, CryptoLocker, etc., have resulted in billions in losses through infrastructure and business outages and millions of dollars being paid to the attackers.

Ransomware has grown so much that organized gangs are offering cybercriminals services for hire. This is made more intricate by the availability of ransomware-as-a-service (RaaS) to provide infrastructure to other cybercriminals to escalate their attacks.

Ransomware has become such a global threat that in a joint advisory made up of CISA, FBI, NSA and International Partners, has called for every government, business, and individual to be aware of this threat and take necessary action to avoid becoming victims.

President Joe Biden also continuously issues warnings to business leaders to strengthen their companies’ cyber defenses. The risks of cybersecurity are expected to increase with the ongoing invasion of Ukraine by Russia.

On the other hand, there are efforts to reduce the threat scale by various groups. One such group is the Cyber Threat Intelligence League (CTI-League), made up of cybersecurity experts from different countries. They have helped take down malicious websites, detect vulnerabilities, collect and analyze different phishing messages, and assist law enforcement organizations in creating safer cyberspace.

Protecting Against Ransomware

Before a ransomware attack is fulfilled, there are detectable activities that can aid in mitigating an attack. In any case, the attackers target specific user behavior, unchanged default security configurations and common technology vulnerability. This means that ransomware attacks can be avoided. Some ways to keep safe from ransomware include:

  1. Timely patches – ensure to patch operating systems and other software immediately whenever a patch is released. Patching also should apply to cloud environments, including virtual machines, serverless applications, and third-party libraries.
  2. Keep backups – it is impossible to fully protect an organization’s network as one user action may expose the network to attacks. Regularly backing up data is crucial. However, ensure that cloud backups are encrypted and can’t be deleted or altered. Also, always keep a backup version that is not accessible through the cloud to ensure business continuity in case of an attack.
  3. User training – users are considered the weakest link in the line of defense against cybersecurity. An attack can start with a seemingly legit email containing a link or an attachment that downloads malware to a device once clicked. Therefore, continuous user training and phishing exercises will help reinforce user responses to suspicious emails.
  4. Secure and monitor RDP – as more people adopt remote working, they rely on the remote desktop protocol to connect to office computers or colleagues. This has made RDP one of the most commonly used methods for attackers to gain access to a network. Therefore, businesses should use Network Level Authentication (NLA) and use unique and complex passwords for users to authenticate themselves before making a remote connection. Other ways include multifactor authentication, setting time limits to disconnect inactive RDP sessions automatically, and limiting login attempts.
  5. Use up-to-date antivirus software – this should be used to regularly scan the systems and scan files downloaded from the internet before they are opened.
  6. Network monitoring – use network monitoring tools and intrusion detection systems to look out for any suspicious activity.

The CISA, FBI, NSA, and International Partners joint advisory discourages paying ransom to cybercriminals and recommends following the CISA ransom response checklist and reporting to cybersecurity authorities such as the FBI, CISA, or the U.S. Secret Service. System administrators should also follow incident response best practices that can aid in handling malicious activity.

What Does the Metaverse Mean for Businesses

Metaverse for BusinessesMetaverse has become a buzzword with much debate on its potential implications once it is fully realized. As far as businesses are concerned, the metaverse presents new opportunities and challenges, especially for marketing, branding and communication professionals.

Understanding Metaverse

Metaverse became a hot topic thanks to Facebook announcing its rebrand to Meta in October 2021. However, the metaverse is not new and can be traced back to 1992 in the fiction novel “Snow Crash” by Neal Stephenson. Stephenson used the term to refer to a virtual world where people can do different activities.

As the internet moves to a new iteration as Web 3.0, different players are working toward creating their metaverse – or rather, a unified virtual space. This virtual environment is intended to be used to carry out activities such as playing games, attending meetings, buying digital goods and services, tourism, education and even for work.

Although metaverse might seem like a futuristic notion that will require massively advanced technologies, its foundational elements are already in place. This is because it’s enabled by virtual reality (VR) and augmented reality (AR). Some users, especially gamers, have had experiences with virtual reality and augmented technologies. Some online retailers already use augmented reality on their e-commerce platforms to help shoppers experience a product before ordering it.

However, metaverse technology seeks to connect all of these separate apps and platforms to create a continuous experience that will integrate audiences and elements from different platforms into one. The metaverse will be characterized by a boundless and decentralized virtual economy and immersive social experiences.

It is not possible yet to gauge how disruptive the metaverse will be, but one sure thing is that it will introduce new ways of doing things. As has already been witnessed, to keep up with trends, businesses had to adapt to technologies such as social media platforms even when they were initially created for social interaction. Hence, businesses need to be prepared.

Metaverse in Business

As any new technology helps early adopters gain a significant advantage over competitors, metaverse will be no different. However, it may initially favor large businesses that can afford to take risks and have budgets to invest in enabling requirements. Despite this, different-sized businesses should get ready to adjust their marketing strategies to the virtual economy.

There are predictions that the metaverse could generate vast revenue to the tune of $1 trillion. Hence, the metaverse has a massive business opportunity, including advertising, demand for new hardware, virtual events, e-commerce, etc.

As an example of the readiness for companies to adopt metaverse, consider Nike. The brand has already taken steps into the metaverse by filing for trademark applications, indicating its intention to make and sell virtual branded sneakers and apparel.

Businesses will benefit differently from the metaverse. For instance, companies manufacturing computer chips and servers stand a good chance for a significant gain to their businesses. So will cloud service providers that will be vital for the metaverse virtual worlds.

Manufacturers also will use the metaverse to create digital models of their products using digital twins technology (a virtual representation of a physical object or process). This will help adjust manufacturing processes, carry out quality control, product demos, and simulate the supply chain.

Remote work that was highly adopted due to the recent pandemic will be enhanced by the metaverse. It will be possible to have co-working spaces and carry out virtual trainings and simulations.

It also will help promote physical businesses. By interacting with objects in 3D form, shoppers can try on clothes online, check out houses, cars, etc. The ability to shop virtually means that businesses can design brands to suit different customer needs and increase retail sales.

Such possibilities mean that marketers will need to research customer behavior and preferences in the virtual space. This will require businesses to set up metaverse teams if they want to remain competitive. This is especially necessary to reach customers where they spend their time.

On the downside, there are concerns about privacy issues and data harvesting – like any other technology. The decentralized characteristic of a true metaverse also means it will be challenging to regulate. Such cases introduce risks to businesses. Nevertheless, such risks have never stopped businesses from adopting new technologies.

Conclusion

Customer experience is vital in any business. For businesses to continue maintaining long-term relationships with customers, they may have to adapt and use virtual avatars to serve as customer service agents. Thus, businesses need to be more innovative to tie existing communication channels to the metaverse channel. They can do this by formulating an entry plan to the metaverse while ensuring a balance between opportunities and risks.

How To Maximize the Potential of Your 401(k) Plan

Maximize 401(k), Maximize 401kOne of the easiest ways to save for retirement is to participate in an employer-sponsored retirement plan. You simply select a percentage of your paycheck that you would like transferred to your 401(k) (or similar) account. Not only does your employer make the transfer for you, but it comes out of your paycheck before income taxes are taken out. This way, you avoid paying taxes on that income from each paycheck, and those taxes are not due until you withdraw the money from your retirement plan. This usually happens once people retire and enter a lower tax bracket.

That’s the simple beauty of investing in a 401(k) plan. However, with a little more effort, you can do a better job of maximizing its potential. The following are strategies to consider.

Take Advantage of an Employer Match

Most employers offer to match your 401(k) contribution up to a certain percentage. For example, an employer might contribute an additional dollar for every dollar you contribute, up to 3 percent of your pay. Although the plan may allow you to defer more than 3 percent, it’s always a good idea to contribute at least the same percentage as your employer agrees to match. After all, the employer contribution is basically free money. Be aware, however, that your contributions, employer matches and all interest, dividends and capital gains earnings in the account will eventually be taxed as income when distributed. If your employer offers a matching contribution to your 401(k) plan, try to defer at least the percentage of your income required to take full advantage of that match.

Contribute More Each Paycheck

The best way to maximize your 401(k) is to deter the maximum amount of income you can from each paycheck. Remember, it comes out of your income before it ever hits your bank account, so you can learn to live on less while building up your retirement savings. In 2022, employees may contribute up to $20,500 for the year; those age 50 and older can save up to $27,000 (an increase for each group of $1,000 versus 2021). Another benefit is that employer matches do not count toward that contribution limit.

If you are not currently maxing out your 401(k) plan contribution, consider these tactics to help you get there.

  • Increase your deferral rate gradually, such as once a year or each time you receive a raise, promotion or bonus. This will enable you save more without changing your take-home pay. Just be sure that increasing your deferral rate does not cause you to exceed the annual contribution limit.
  • Some companies implement an automatic escalation feature, such as increasing your deferral rate by one percentage point each year – unless you opt out. If this is the case, don’t opt out of the automatic increase.
  • A good time to increase your deferral rate is during the annual enrollment period when you are thinking about the cost of other benefits and how they will impact your household budget.

Consider an Annuity Option

The SECURE Act of 2019 included a provision that limits employers’ liability when they offer an insurer-issued retirement annuity option. A 401(k) annuity option typically offers the ability to convert that portion of your retirement account into a stream of income guaranteed (by the issuing company) for a certain period, or even for as long as you live. It’s usually recommended to put only a portion of your 401(k) savings into an annuity, as it has higher expenses and might have growth potential limitations. However, the annuity option is appealing because it can continue paying out income after your other investment options have dwindled, which ironically works much the same as a traditional pension (which the 401(k) was designed to replace). Not every employer offers an annuity option in their 401(k) plan, but thanks to the new legislation it could become more prevalent.

Invest More Aggressively

Americans are currently seeing the dramatic impact that a rise in inflation can have on their household budget. Now imagine that impact when you’re in retirement and living on a fixed income. One way to increase your potential earnings for a larger retirement nest egg is to invest in more growth-oriented assets now, while you’re still working. That generally means a higher allocation to stocks to help your 401(k) investment surpass the growth of inflation. In fact, many stocks are issued by companies that tend to increase revenues as inflation rises.

With additional effort and strategic planning, it’s not that difficult to get your 401(k) to work harder to help you save more for a long, fulfilling retirement.

How to Manage Your Aging Parents’ Finances

How to Manage Parents FinancesTaking over your aging parents’ finances is not easy. But it’s something that can be handled in an organized, compassionate way. Here’s a roadmap that shows how to embrace it and do the right things for everyone involved.

Start the conversation early. Right now, your parents might not need any help. They might be handling everything just fine. But there will come a day when they can’t – and they’ll need your help. The National Institute on Aging recommends that parents give advance written consent to designated family members so they can discuss personal matters with doctors, financial representatives and Medicare officials. If you don’t have this, you’ll be faced with some road blocks. If you open the dialogue now, you’ll circumvent obstacles, as well as get a better feel for what their future needs might be.

Watch for the signs. If you don’t see your parents often, and even if you do, the signs of when you need to step in might be a bit hard to detect. That said, there are some things to look for that will indicate that their needs are changing.

  • Unusual purchases. If you find out that your folks are buying things that don’t match their lifestyle, or entering lots of contests and sweepstakes, then it’s time to speak up. Behavior like this might get out of hand – or worse, they might be getting scammed. Older people are most vulnerable to the vultures out there. 
  • Stacks of unopened mail. Watch for this, as the letters might be unpaid bills and/or solicitations for sweepstakes. Both are problematic.
  • Complaining about money. If your folks seem to be always low on cash, or say “no” to activities that they usually enjoy, talk to them. They might need your help for a number of reasons, whether it’s reconciling accounts or remembering how to pay bills, or if they even paid them.
  • Physical setbacks. Fading vision can impede driving to the bank and arthritis can be painful while writing checks or typing on the keyboard. Whatever ailment your parents might suffer from, this could be a cue that they need your assistance.
  • Memory problems. This is somewhat self-explanatory, but specific things to look for are not knowing what day or year it is, or just forgetting things that your parents once always remembered.

Start slowly. Instead of charging in and announcing that you’re taking control, take baby steps. Maybe offer to write checks for them. Or offer to pay a bill or two. Gradual, gentle steps make them feel more at ease and comfortable with the new way of doing things.

Gather important documents. Things to collect are account numbers, credit card info, birth certificates, insurance policies, deeds and wills. Make sure they’re all current and up-to-date. Put them in a secure location so you’ll have easy access when you need them.

Consider power of attorney. This is key. Even if your parents don’t need your help at the moment, there will come a time when they will. There are several types of POA to consider: financial, medical or general decisions. Unlike written consent, this gives you legal authority to act on their behalf when they’re unable to.

Communicate what’s going on. Once you’ve started to manage your parents’ finances, keep your siblings, as well as theirs, in the loop. This way, if you’re unable to handle something, you can ask for backup support.

Keep your finances separate. It might be the easiest thing to do – mix your parents’ finances with yours – but in the long run, it’s not such a good idea. It can become a slippery slope. Granted, there may be times when your parents need a loan, but for the sake of clarity and personal record-keeping, it’s best not to jeopardize your own retirement and savings goals.

If you need more help, reach out to the National Alliance for Caregiving. As we all know, the circle of life is inevitable. But caring for your parents might be one of the most important things you’ll ever do – and chances are, you’ll want to get it right.

 

Sources

https://bettermoneyhabits.bankofamerica.com/en/saving-budgeting/aging-parents-finances

How Businesses Can Stay Current with the Digital Economy

Digital EconomyAccording to the U.S. Chamber of Commerce, the level of usage and data swirling around the internet is expanding at an accelerating pace. The amount of data on the internet globally during 2020 amounted to 3 trillion gigabytes; and 2022’s traffic is expected to increase to 4.5 trillion gigabytes. As a result, the U.S. Chamber of Commerce is concerned about the challenges American companies will have when it comes to business competitiveness.

According to a survey from Statista titled “Challenges encountered as a result of digital transformations in global organizations as of 2020,” there are common challenges that businesses are facing, such as:

  • 51 percent of respondents said that “skill gaps have opened up on traditional teams as top talent moves to digital teams or products”
  • 48 percent said that “cultural differences or conflicts have arisen between traditional and digital teams”
  • 41 percent also mentioned that “traditional teams have struggled to keep up with the pace of how digital teams work”

With so many issues businesses face as technology races ahead, it’s important for organizations to recognize and adapt to the dynamics of digital commerce. According to Harvard Business Review (HBR), it’s important to align the business and its goals correctly, especially when it comes to getting the most out of software development. For example, when companies buy software, they generally use third-party software for all their needs. While accounting and human resources functions may be fine for standardized uses, there are often situations when a personalized approach is needed to provide customers with a memorable experience.

HBR suggests businesses take certain steps that can make the journey easier and more effective in the long run. The first thing to do is identify current information technology-focused employees, because they’re the most closely aligned and ready for the transition. Along with looking for outside talent, it’s important to let internal software developers have an active role in the process.

It’s also important to let developers be stakeholders (along with accountability for failure) for solving organizational challenges versus giving them rigid assignments. Don’t focus exclusively on punishing failure; instead, encourage developers to analyze, pick apart reasons why failure happened and how future experiments can incorporate learning from past failures. Include developers in discussions with the people who will be using the software (other employees and customers who will be using it in the future).

Let’s look at Domino’s mobile application development as a case study. They were able stand out by improving their app with a feature that gave customers the ability to track their order from when it was being prepared to delivery. This process included increasing the efficiency of its systems, practices and techniques, along with having employees who performed advertising related functions work closely with software developers. It helped their stock price increase dramatically, performing better than many publicly traded technology companies.  

One challenge for businesses going forward is since there are still tens of millions expected to come online with broadband, the amount of data and traffic will only increase. When it comes to broadband service requirements set by the Federal Communications Commission (FCC), they are at least 25 Mbps to download and 3 Mbps to upload. According to the FCC, approximately 14 million Americans lack broadband, with as many as 42 million reporting lack of access, according to Broadband Now Research. New York City’s Mayor’s Office of Technology reports that 18 percent of NYC residents lack broadband, making it problematic to work from home, access government services online, make doctor appointments, etc.

According to a December 2021 Digital Trade and U.S. Trade Policy report from the Congressional Research Service, there’s no stopping the expansion of trade in the digital world. It found statistics from the Department of Commerce for the “digital economy,” where 9.6 percent of GDP was generated from this sector. It also found that 7.7 million workers were employed because of this approach to commerce. However, unless businesses take care to ensure the same level of communication is accessible, formally and informally, there may not be the same level of efficiency for remote workers.

According to MIT Sloan Management Review, remote workers are at a disadvantage when it comes to indirect types of learning employees have compared with in-person settings. Whether it’s before work starts, during break or lunch time, or interacting with or observing a customer or client, employees working virtually have little to zero of these types of passive opportunities to learn on the job. Be it an additional comment after signing off an email, having a few opportunities to chat or talk online during breaks or similar, this type of passive informal communication needs to be addressed to make up for the in-person experiences other employees have.

While the way work will be conducted in the future can’t be predicted, it will certainly include using the internet – and for many employees, it will involve some time away from the office.

Sources

https://www.uschamber.com/international/ten-trends-in-2022-global-perspectives-for-business

https://www.statista.com/statistics/1133436/challenges-digital-transformation/

https://hbr.org/2021/01/in-the-digital-economy-your-software-is-your-competitive-advantage

https://docs.fcc.gov/public/attachments/FCC-21-18A1.pdf

Mind the Map: The Hidden Impact of Inaccurate Broadband Availability Claims

https://sgp.fas.org/crs/misc/R44565.pdf

https://sloanreview.mit.edu/article/overcoming-remote-work-challenges/