Author Archives: c05572520

Tax Tip Tuesday – Diversification – July 23, 2019

Are  you  familiar  with  strategies  that  are  available  to  help  you  spread  your  investments   across  taxable,  tax-­‐deferred  and  tax-­‐free  accounts?

The  subject  of  “diversification”  is  often  discussed  when  topics  such  as  mutual  funds,   stocks,  bonds,  real  estate  and  other  investment  classes  are  on  the  table.  However,  what   about  tax  diversification?

The  primary  reason  for  developing  a  tax  diversification  strategy  is  it’s  impossible  to  know   precisely  what  your  tax  rate  will  be  throughout  your  retirement  years,  especially  if   retirement  is  still  many  years  away  for  you.

Putting  all  of  your  investments  in  only  one  type  of  account  is  unlikely  to  be  the  most  tax-­‐ efficient  strategy.    Tax  diversification  can  help  protect  your  investments  and  minimize   risk  from  significant  tax  rate  changes.

Give us a call so that we can set aside a time to discuss your investments and make sure they are set up the way you want!

Tuesday Tax Tip – Protecting Yourself from a Plunging Market – May 14, 2019

Just because the market takes a dive, doesn’t mean your nest egg has to. Despite market volatility, anybody with a safe, guaranteed investment option can sleep well knowing their money is right where it should be…protected from market volatility.

Fixed Indexed Annuity (FIA) owners, for example, have been sleeping well these past few days knowing their hard-earned money and retirement assets, such as their IRAs, are protected from sudden market downturns.

Unlike Variable Annuities, which are securities investments, FIAs are safe insurance products and only insurance licensed professionals may offer these safe tools.

Key FIA benefits include:
• No Loss of Principal
• Locked in Gains
• A Guaranteed Stream of Income for Life
• Liquidity
• Tax-Advantaged Accumulation

Give us a call today to determine whether an FIA is an appropriate option to complement your retirement planning strategy and ask yourself…

Where do you want to be?


Tuesday Tax Tip – What A Will, Will and Will Not Do – April 30, 2019

Sound confusing? Many Americans are confused by what can and what cannot pass by their will. Many also assume that a will takes care of everything.

There are several situations in which a will does not control the transfer of an asset. Disposition of property may be determined by state law, federal law or a private contract, depending on the form of ownership of an asset. For example, IRA assets pass to heirs via beneficiary designation forms, not a will.

Regardless of how perfect and well drafted a last will and testament may be, the terms of your will do not override the terms of your insurance policies, IRA or 401(k) custodial agreement.

It is critical to make sure all beneficiary designation forms are up to date. If you made a beneficiary designation mistake, it could be too late to fix it – some errors cannot be corrected. Do a beneficiary review at least once per year and any time a life changing event occurs such as a birth, death, marriage, divorce or other event that impacts your assets.

Here are just a few common assets that do not pass through a will:

 Joint Tenancy Property
 401(k)
 POD Account
 Pension Plan
 Totten Trust
 Annuity
 Community Property with Right of Survivorship
 Life Insurance Policy


Tuesday Tax Tip – Naming a Trust as Your IRA Beneficiary – 4/23/19

Do you plan to name your trust as the beneficiary of your IRA? While a trust may be ideal for most of your estate, naming a trust as the beneficiary of your IRA is not usually the most tax efficient move.

Even assuming a trust has been properly drafted (commonly called a “see-through trust”), a Multi-Generational IRA (MGIRA) strategy is not available if there are multiple individual beneficiaries.

Beneficiaries will all be stuck using the oldest trust beneficiary’s life expectancy for purposes of calculating RMDs. The opportunity for the youngest trust beneficiaries to enjoy tax-deferred distributions over their (usually longer) individual life expectancies is eliminated.

When it comes to taxes, RMDs will be taxed based on the individual income tax rate of the RMD recipient. This means that if RMDs are “trapped” in the trust, trust tax rates apply. Trust taxes hit the highest bracket (37%) for trust income over $12,750 in 2019.

There will always be situations where a trust makes sense. However, make sure you have all the facts and seek advice from qualified advisors and qualified trust attorneys. They will help ensure your trust is set up to operate according to your distribution plan and will satisfy your personal planning goals.

Tuesday Tax Tip – Are You Responsible for a Gift Tax? – 2/6/19

If you give a non-spouse a gift valued more than the annual exclusion amount, you could be  subject to a gift tax.

For 2019, the annual federal gift tax exclusion amount for gifts to a non-spouse is $15,000 per person, per year.

If you are married, you and your spouse may give up to $30,000, per person, per year, free from federal gift tax.

Although there are no immediate tax concerns for the recipient of a gift because federal gift tax is imposed upon the donor, the recipient could be liable for capital gains tax in the future. Highly appreciated gifts such as real estate or stocks will render the recipient liable for capital gains tax when he or she decides to sell the gift at a later date.

The general rule from the IRS is that the recipient’s basis in the gifted property is the same as the basis of the donor. The IRS provides this example: If you were given stock that the donor had purchased for $10 per share (which was also his/her basis) and you later sold it for $100 per share, you would pay tax on a gain of $90 per share.


Tuesday Tax Tip – Prohibited Transactions and IRAs – 1/15/19

A prohibited transaction is an impermissible transaction under the Internal Revenue Code that occurs between an IRA and a disqualified person.

Disqualified persons include the IRA owner, the owner’s spouse, the owner’s lineal descendants (and their spouses), IRA beneficiaries and any IRA fiduciary.

If you engage in a prohibited transaction, under IRS rules, your entire IRA will lose its status as an IRA. Your tax-deferred IRA will then be treated as though the assets were distributed to you as of the first day of the year the prohibited transaction occurred. Ordinary income tax will be due on the distributed amount and if you are under age 59½ you will also be subject to a 10% early distribution penalty.

Below are just a few common examples of traditional IRA prohibited transactions:

• The sale, exchange or leasing of property involving your IRA
• Borrowing money from or lending money to your IRA
• Receiving personal benefits or payments from your IRA
• Using your IRA as collateral for a loan
• A transfer of your IRA plan income or assets to, or use of the assets by or for the benefit of,
a disqualified person

Strategy Tip: If you are unsure whether the transaction you wish to participate in with your IRA is
prohibited (a lot of self-directed IRA owners have faced this problem) you may want to consider
splitting your IRA prior to the transaction. You will essentially carve out the amount you want to
use from your original IRA, creating a separate IRA specifically for the questionable transaction.
This way, if it turns out that the transaction you wish to engage in is in fact a prohibited
transaction, it will only impact this second IRA and you avoid destroying your entire original IRA.


Check Withholding Now To Avoid Tax Surprises Later

With the year more than halfway over, the Internal Revenue Service urges taxpayers who haven’t yet done a “Paycheck Checkup” to take a few minutes to see if they are having the right amount of tax withholding following major changes in the tax law.

A summertime check on tax withholding is critical for millions of taxpayers who haven’t reviewed their tax situation. Recent reports note that many taxpayers could see their refund amounts change when they file their 2018 taxes in early 2019.

The Tax Cuts and Jobs Act, passed in December 2017, made significant changes, which will affect 2018 tax returns that people file in 2019. These changes make checking withholding amounts even more important. These tax law changes include:

  • Increased standard deduction
  • Eliminated personal exemptions
  • Increased Child Tax Credit
  • Limited or discontinued certain deductions
  • Changed the tax rates and brackets

Checking and adjusting withholding now can prevent an unexpected tax bill and penalties next year at tax time. It can also help taxpayers avoid a large refund if they’d prefer to have their money in their paychecks throughout the year.

You can use the free IRS Withholding Calculator to check your withholding now.

Special Alert: Taxpayers who should check their withholding include those who:

  • Are a two-income family.
  • Have two or more jobs at the same time or only work part of the year.
  • Claim credits like the Child Tax Credit.
  • Have dependents age 17 or older.
  • Itemized deductions in 2017.
  • Have high income or a complex tax return.
  • Had a large tax refund or tax bill for 2017.

How Businesses in California Can Acquire and Keep a Positive Cash Flow – July 17, 2018

As the saying goes, “cash is king!”  Cash flow is the lifeblood of any business organization. Small-business owners are often so concerned with other matters that they fail to pay proper attention to managing their cash resources properly.

More businesses go out of business for this above all other reasons. The hard reality is this – When you’re out of cash, you’re out of business. The fortunate thing is that proper cash management, like many other skills, can be learned.

Once understood and implemented, you will wonder how you got along without using “cash management” as an integral tool in managing your small business.  This chapter will show you how.

What is Cash Flow?

Cash flow is the movement of money in and out of your business over a period of time; these movements are called inflow and outflow. Inflows for your business primarily come about from the sales of goods, collections of your receivables, borrowed money, investment income from interest, and finally, sale of assets.

Outflows for your business are measured by the checks you write and the cash you disburse to pay expenses. Some examples of cash outflow are payroll, operating costs such as utilities, rent and telephone, purchasing inventory, and any loan repayments.

A positive cash flow results if the cash inflows are greater than the cash outflows. A negative cash flow results when the opposite takes place; cash outflows exceed cash inflows.

Cash Flow Verses Profit

Although cash is critical, people think in profits instead of cash. We all do. When you imagine a new business, you think of what it would cost to make the product, what you could sell it for, and what the profits per unit might be. We are trained to think of business as sales minus costs and expenses, which are profits. Unfortunately, we don’t spend the profits in a business. We spend cash.

Profitable companies go broke because they had all their money tied up in assets and couldn’t pay their expenses. Working capital is critical to business health. Unfortunately, we don’t see the cash implications as clearly as we should, which is one of the best reasons for proper cash planning. We have to manage cash, as well as profits.

Cash flow and profit are two concepts that are very different from each other and very often misunderstood by many small-business owners. The two major differences between cash flow and profit come about due to:

  1. Difference in timing when transactions are recorded. Profits are the excess of revenues over expenses. Revenues are recorded in the books when your customers buy from you, with cash or on credit. Even though you haven’t received the cash, the sale shows up on your income statement and is part of your profits (assuming you are on the accrual basis). As part of your management review, if you were to look only at your income statement for that period of time, you’d think all was well because your books are showing a healthy profit. Your cash flow statement, however, shows a very different picture. This difference between when a sale is made and the cash is received can have serious financial consequences on your business if not understood and reviewed regularly.
  2. Type of transactions that are used when computing each one. The second important difference between cash flow and profit is the type of transactions included in each. Cash flow considerations include items such as funds borrowed, equipment sold, and loan repayments. These items don’t figure into profits and don’t show up on your income statement. But such items do have a significant impact on your cash flows. Likewise, there are other items such as depreciation which are not considered when computing cash flow but do play an important role when computing profit.

Practicing Proper Cash Management

Proper cash management can contribute much to the success of your small business. Cash makes business owners’ dreams come true! Managing your cash well means making the best, most productive use of what you have.   It involves knowing the following: 1) what your cash needs are; 2) when, during the year, you generally need cash; 3) the best sources for meeting additional cash needs.

Proper cash management also means you must be prepared to meet needs when they occur. The quality of relationship you maintain with bankers and creditors will go a long way towards determining your supply of cash.  Equipped with the necessary financial statement tools in hand (the cash flow statement, the cash projection and the variance report), you are ready to maximize the cash in your business.

What happens when your cash needs outpace your cash available?  The answer is clear – it is difficult, if not impossible, to plan for the future!  Even some of the best-managed companies may find themselves vulnerable to cash shortages.  Adding employees or inventory too rapidly is one way in which this can occur.

These ideas can provide relief and positively influence your cash flow:

  1. Bill promptly: Prepare invoices immediately after you have delivered your goods or services to each customer. Once the invoice has been prepared, be sure it is sent immediately to the customer.
  2. Payment in advance: A number of businesses require payment in advance for some part of the sales price, and often encourage up-front payment with a substantial discount. This leads directly to cash in the bank.
  3. Collect on your accounts receivable: If you do nothing else, make certain that your credit-and-collection system is operating at peak efficiency.
  4. Trim your Inventory: Inventory describes the extra merchandise or supplies your business keeps on hand to meet the demands of customers. Keeping too much product on hand can tie up a great deal of cash. Too many business owners buy inventory based on hopes and dreams instead of what they can realistically sell. Keep your inventory as low as possible.
  5. Accounts payable: Accounts payable represent amounts you owe to your suppliers that are payable sometime within the near future. In this case, “near” probably means between 30 and 90 days. To maximize the flow of your cash, you should speed up collection of your receivables, but slow the payment of your bills.
  6. Minimize Expenses: The absolute best way to improve your cash flow, and in particular to improve your accounts payable, is to minimize your business’ operational expenses and ensure you make the most efficient use of every dollar you spend.

Cash is king.  Simply put, “no cash equals no business.” It is the gas that keeps your business going.  As the owner, you must know how much cash comes in and how much goes out on a regular basis. Companies go out of business for cash flow problems over profitability.

Even otherwise-healthy companies can go under for lack of cash. It can kill a company if it sneaks up by surprise, but can be easily managed when there is a plan for it. Tracking the amount of cash you have is a vital function that you can never lose a handle on.

For more on this topic, please check out my book “Secrets of Small Business Success in the San Francisco Bay Area“.

How to Keep Records that Help You Control Your Business in California – June 26, 2018

Keeping accurate and clear business financial records can, for many business owners, be the most difficult, and frankly the most stressful, part of running a business.

Simply understanding these records is often challenging. And yet maintaining a set of clear and understandable financial records is perhaps the single most important factor that separates successful businesses from those that fail.

Good decision-making requires it. And you, the business owner, must take responsibility for obtaining this knowledge.

Use the basic principles of sound financial management on a daily basis – you can leave the more complicated accounting work to professionals, but don’t underestimate your need to know!

Maintaining good financial records is a must. For all of the things you will want to achieve in building your business – saving on taxes, obtaining financing, selling your business, monitoring your business’ progress – a solid bookkeeping system is essential.

Why You Need Good Records

Develop good habits from the beginning. Although you’d much rather spend your time selling your product or service, take some time to learn about financial records. Accurate and timely financial information is a must. Here are some of the reasons why you need a good financial record-keeping system:

  • To monitor the success of your business
  • To get the information you need to make decisions
  • To obtain bank financing
  • To obtain other sources of capital
  • To budget your money
  • To prepare your income tax return
  • To ensure compliance with federal and state payroll tax rules
  • To properly submit sales taxes
  • To distribute profits

Record Keeping Tips

For many small businesses the most common bookkeeping errors are also the easiest to fix. Use these six tips to help keep your business on sound financial footing.

  1. Use the right accounting system
  2. Maintain daily records
  3. Handle and review checks carefully
  4. Get a bank statement with a month-end cutoff
  5. Leave an audit trail
  6. Use a computer

There are five basic records that are required for any small business record-keeping system:

  • Sales records
  • Cash receipts
  • Cash disbursements
  • Accounts receivable
  • Accounts payable

Other important records include Payroll. This is perhaps the most complex function when it comes to accounting.  There are myriad state and federal forms that must be completed, and highly specific payroll laws that must be followed.

Most businesses have several types of insurance and, for each policy, you should keep detailed information about what is covered and the effective dates.

In addition, keep an accurate list of business equipment.  The list should describe the equipment and provide serial numbers, date of purchase and original cost.

Finally, keep records of your transportation expenses – those are the ordinary and necessary business expenses of getting from one place to another in the course of your business.

Record Keeping Requirements

There are four basic requirements your record keeping system must fulfill:

  1. It must be simple to use and easy to understand. The information will be kept current if the system is “user-friendly.”
  2. Your record-keeping system should be both relevant and accurate. It should be specific to your business in order to minimize time recording information, and recording only what is needed and necessary. “Accurate” means it should be free of errors, thus conforming to the standards you have for your record-keeping system.
  3. Your system should ensure that records are kept current. The information will only be effective if records are done in a timely fashion.
  4. Your record-keeping system should be consistent. The same standards and principles should be followed throughout the system, and at all times.

Knowledge of finances and financial record keeping is essential to business success.  Good decisions are only made with the benefit of quality information.  No matter how skilled you are at creating, manufacturing, selling or marketing your product, any profit you might earn will quickly dissipate if you do not know how to track it, save it, spend or invest it.

For more on this topic, please check out my book “Secrets of Small Business Success in the San Francisco Bay Area“.