Mastering Your Credit Card (and Not the Other Way Around!)

Mastering Your Credit Card (and Not the Other Way Around!)

The average credit card balance in America ballooned to $5,910 in 2022. This figure is up 13.2% from the year before according to Experian, and it spells out a worrisome (and costly) trend for consumers. After all, credit card interest rates were on rise throughout all last year and well into 2023, mostly due to changes to the federal funds rate by the Federal Reserve. The fact is, consumers with credit card debt pay an average interest rate of 20.92% as of February 2023, compared to just 16.65% in the second quarter of 2022.

Fortunately, you have the power to use credit cards to your advantage — and to avoid paying exorbitant interest rates altogether. Consider these tips to master credit cards instead of letting them rule over you this year.

• Plan purchases to carry no credit card balance. While interest rates are incredibly high right now, you can use credit cards without paying for the privilege. Instead of racking up balances and hoping you can afford the bill, use credit cards for planned purchases only — and for spending that’s backed up by money in the bank. Provided you pay your credit card balance in full each month, today’s sky-high interest rates can’t hurt you.

• Consolidate high-interest debts. You can get a break from today’s high rates by consolidating credit card debt you already have with a 0% balance transfer credit card. Many cards in this niche give you 0% APR on balance transfers, purchases or both for up to 21 months. This gives you time to pay down your balance with zero interest, which can help eliminate debt faster and save money along the way.

• Earn rewards for your spending. If you’re still using your old credit card from college or haven’t bothered to upgrade in the last few years, you could be missing out. Today’s credit cards let you earn as much as 2% cash back on spending with no annual fee, or you can opt to earn generous rewards for travel instead. Just make sure you carry no balance, as interest rates on these cards can be even higher than regular credit cards.

• Put your perks to work. Finally, check whether your credit card has other, often unpromoted, benefits. Depending on your card, you may have access to perks like purchase protection against damage or theft, extended warranties on items you buy that come with a manufacturer’s warranty or even travel insurance protections. If you already have access to these benefits or others, knowing ahead of time is the best way to put them to good use.

Credit cards offer convenience and a range of features you can benefit from, but they can either be a blessing or a curse for your finances. Ultimately, your best bet is taking control of your credit card use before it controls you.

Building A Fortress Balance Sheet for Your Business

Ironically, the worst time to approach a bank for a loan is when you're in desperate need of one. To increase your chances of getting the necessary support, it's essential to build a fortress balance sheet long before you request a loan. The fortress balance sheet concept involves utilizing banking analytics to develop a balance sheet that impresses not only your banker but also potential investors. Here are three key concepts to consider when constructing your fortress balance sheet:

1. Debt-to-Equity Ratio: This ratio is calculated by dividing total liabilities by total equity. The goal is to have significantly more equity than debt, aiming to get the ratio below 1.0. When your equity outweighs your debt, it portrays a financially stable position.

2. Debt Service Coverage: A fortress balance sheet ensures you have enough cash to cover debt obligations and more. Calculate your earnings, add back interest expenses and non-cash items like depreciation, then divide this number by your debt service payments. A ratio below one indicates potential financial trouble, while a ratio over two signals a healthy financial standing.

3. Liquidity: Cash is king, and it is crucial to have a balance sheet that is rich in liquid assets. Avoid having excessive unused equipment or other non-liquid assets. The goal is to have sufficient current assets to pay off short-term liabilities promptly.

Strategies to Build Your Fortress Balance Sheet:

1. Manage Inventory and Receivables: Efficiently control inventory and receivables to avoid the need for additional debt to fund your operations.

2. Adopt a Banker's Perspective: Continuously monitor and improve your debt service and debt-to-equity ratios. Consider reducing shareholder distributions to maintain a healthy equity balance, minimize the use of credit lines, and cut unnecessary costs.

3. Eliminate Non-Performing Assets: Regularly assess your business assets and dispose of non-performing ones. This might involve consolidating locations, selling obsolete inventory, or getting rid of outdated equipment, with the aim of converting these assets back into cash.

When your balance sheet reflects a strong and stable financial position, banks and potential investors will be more inclined to seek your business rather than you having to convince them to lend you money.

Avoiding Tax Consequences When Borrowing Money From Your Business:

Borrowing money from your business may lead to unexpected tax implications if not handled correctly. To prevent disputes with the IRS, follow these steps:

1. Document the Loan: Treat the cash withdrawal as a loan and create a legally enforceable promissory note detailing the terms, including the loan amount, interest rate, repayment requirements, and the length of the note.

2. Corporate Documentation: If your business is a corporation, ensure that the loan is authorized and documented in company minutes.

3. Reasonable Interest Rates: The interest rate on the loan must be reasonable, and you can refer to the federal register to find the minimum published rates each month.

4. Proper Accounting: Record the transaction as a loan in your business's accounting system, clearly distinguishing it from other financial activities.

5. Evidence of Repayment: Keep records of repayment in line with the terms specified in the promissory note.

By meticulously following these steps, you can ensure that any loans taken from your business are treated as legitimate loans by the IRS, avoiding any potential tax issues.

Creating a cash flow forecast for you business

Business owners understand the #1 rule of business - don't run out of cash! But this is often easier said than done. One method of getting a better handle on your business's cash flow is by creating a forecast.

Here's a review of what a cash flow forecast is, the benefits of having a forecast, and the information needed to create this important report.

The basics

A cash flow forecast shows an estimate of the cash coming in and going out of your business over a certain period of time.

The time frame covered by the report can be whatever makes sense for your business (i.e. weekly, monthly, bi-monthly, quarterly, or annually). What's best for your business often comes down to what cash worries drive your need to make decisions.

One of the more popular formats is a rolling twelve-month forecast that allows a business to account for a full cycle of any seasonality in addition to large, single or periodic cash outlays.

The benefits

• Identify cash bottlenecks. Maybe you have a group of customers habitually making late payments, or your inventory is not turning quickly, so it is not turning back into cash quickly enough. A cash flow forecast can help you identify situations such as these  that prevent cash from flowing into your business.

• Budget for future payments. Large payments typically loom for every business, such as an annual insurance bill or quarterly estimated tax payments. Some businesses know they have large inventory purchase at certain eimes of the year. A cash flow forecast can help you set aside enough money to pay your monthly, quarterly, and annual obligations.

• Prepare for low revenue months. For businesses who are seasonal or don't earn their revenue evenly throughout the year, a cash flow forecast can help ensure that you've got enough money to pay the bills during cash flow negative months.

• Requested by many outside parties. Bankers, shareholders, investors, and other outside parties may request a cash flow forecast in addition to a balance sheet, income statement, and statement of cash flows. A cash flow forecast can be a big help in determining when to ask for a line of credit, often best done when it doesn't look like you need it!

• Project appraisal and business planning. A cash flow forecast lets you calculate multiple business scenarios and assess whether a particular project would be worth pursuing. Consider running at least three scenarios - a best case, a worst case, and one case in the middle.

Building the forecast

A cash flow forecast starts with your income statement. You then adjust the income statement by removing non-cash items like depreciation and amortization to get true cash numbers. Next, track changes in cash inflows and outflows from your balance sheet accounts to get a cash balance for the period. Then take the monthly cash change and see the cumulative effect over time.

By forecasting out future periods, you can easily see when your business will have excess cash and when you might be in a negative cash position...long before it occurs!

Please call if you'd like help creating a cash flow forecast for your business.

Get 100% From Part-Time Employees

In this tight job market, it can be difficult to find skilled candidates to help your business. Because of this, many small businesses are being forced to be creative by hiring part-time employees to meet their needs.

The hope is that because part-timers typically look for jobs that require fewer hours, you can often find a person with above-average skills for the position. This is especially true as many workers approaching retirement age exited the workforce during the pandemic, but are now exploring work alternatives due to recent inflation pressures. Some part-timers, however, must be guided initially to perform their jobs well. Here are some suggestions for setting up your part-time workers for success:

• Know why you’re hiring part-time help. Decide exactly what you want the person to do, what hours you want the person to work, and whom he or she will report to at work. The position may have precise duties, or it may involve filling in when needed.

• Communicate clearly. Explain the employee's job description and how they fit into the team. Confirm with your employee the work schedules and benefits they can expect. Discuss expectations of the role, and what they can expect from their manager. The more flexibility you can offer, the easier it will be to recruit somebody and the happier the new employee will be.

• Integrate with your full-time staff. Explain why you’re hiring a part-time person to current staff. Make it clear what that person will and won’t be expected to do. Designate who will manage and assign work to the part-timer. And be creative in making this employee feel like part of your team. This can be done by scheduling meetings when the part-time employee is present, and by deliberately arranging any celebrations so the part-time person can participate.

• Document processes and procedures. Success with part-time employees often depends on well-defined processes. This will make training easier, which means greater productivity in a shorter amount of time. It will also help identify problems and give them a plan to help improve performance.

• Offer a retirement plan. Consider offering a retirement plan to help recruit and retain qualified part-time (and full-time!) employees. Starting in 2025, part-time workers can participate in employer-sponsored retirement plans after completing two years of service with at least 500 hours worked. This means you can begin recruiting part-time employees now with the promise of being able to take part in your company’s plan when they complete their two years of service.

A part-time employment strategy could provide great rewards for your business if you plan appropriately.

Make Filing Your Business's Tax Return Easier with These Basic Tips and Tricks

Consider these suggestions for helping to make tax season smooth sailing this year for your small business:

• Reconcile your bank accounts. Preparing an accurate tax return starts with accurate books. Reconciling your bank accounts is the first step in this process. Consider it the cornerstone on which you build your financials and your tax return. Up-to-date cash accounts will also give you confidence that you’re not over-reporting (or under-reporting!) income on your tax return.

• Organize credit card statements. If you use credit cards for your business, develop an expense report for these expenditures, if you have not already done so. The report should recap the credit card bill and place the transactions in the correct expense accounts. Attach actual copies of the expenses in the credit card statement. You will need this to support any sales tax paid in case of an audit. Use this exercise to show you are only including business-related expenses by reimbursing your business for any personal use of the card.

• File employee-related tax forms. If you have employees, file all necessary W-2 and W-3 forms, along with the applicable federal and state payroll returns (Forms 940 and 941). Do this as soon as possible in January to allow time to identify any potential problems.

• Compile a list of major purchases. Prepare a list of any major purchases you made during 2022. Once the list is compiled, find detailed invoices that support the purchase and create a fixed asset file. This spending will be needed to determine if you wish to depreciate the purchase over time, take advantage of bonus depreciation, or expense the purchase using code section 179. Your choices create a great tax planning tool.

Sound overwhelming?  Call and set up an appointment so we can help you get your records ready for taxes!  616-802-4212

3 Reasons to Consider a Living Trust for Your Assets

Legal instructions are important to leave behind when you pass away. For most people that means having a will, but some people should consider having a living trust. A will tells a court what to do with your assets, while a living trust is a legal entity that controls your assets after you die.

Here are three reasons why it may be helpful to have a living trust:

1. You want to avoid probate court.

Living trusts avoid probate court.  Probate court is a judicial process that many assets included in wills must go through.

There are a lot of great reasons you will  want to consider when deciding on whether to form a trust for your assets. Probate is a lengthy legal process that can delay your heirs their  inheritance for several months at the very least.. It can be costly and your state may charge fees based on a percentage of the assets you leave behind. 

Assets in a living trust avoid probate court all together. When you pass away, control of the trust transfers to a person you choose, which may be a  relative or a paid professional trustee. They are tasked with managing the trust’s assets according to the instructions you leave behind.

2. You have heirs with special needs.

A trust can provide ongoing financial management for an heir with special needs who may never be able to manage their own affairs. Your heir may also lose eligibility for some forms of government assistance if they are granted their inheritance outright through a will. A living trust could help avoid that situation.

3. You want ongoing conditions on an inheritance.

While a will generally just distributes assets immediately after your death, a trustee can be given detailed instructions on how to handle the assets over the course of many years. You could instruct that an inheritance is doled out in thirds every ten years. Or, you could make an heir's access to inheritance funds dependent on them avoiding legal trouble.

Remember, a trust only controls assets that have been placed into it, so assets outside the trust after your death won’t be immune to the probate process. Most importantly, you must have a trustee you can rely on to manage the trust. This person must be trustworthy and capable of following your instructions.

5 Reasons Why the Elderly Are More Likely to be Victims of Fraud

As people age, they are more likely to become a victim of fraud. According to the National Consumers League, nearly a third of all phone fraud victims are age 60 or older. 

• Seniors often generally have predictable income. Social Security benefits, pensions, 401(k) plans, veteran's benefits, and annuities - all are sources of income that fraudster hope to divert to their personal bank accounts. When a senior gives out personal information over the phone, a con artist is one step closer to his or her goal.

• Retirees may have sizable investments. Unfortunately, a lifetime of careful money management may be wiped out by a fraudulent investment "advisor." If an older person's home is paid off, his or her residence often represents an inviting target for reverse mortgage scams and property tax ploys. Fraudsters have been known to convince elderly homeowners to sign over the title to their homes.

• Seniors are more likely to be polite. Having been raised in a more civil generation, seniors may find it difficult to just hang up. They may balk at the idea that some telemarketers are, in fact, hardened criminals who ought to be serving time in jail.

• They're not as familiar with the Internet. Pop-up advertisements selling everything from magazine subscriptions to virus protection can be a front for gathering a senior's personal information. Elderly people who haven't been warned of the Internet's dangers may be susceptible to identity theft.

• Some elderly people have specialized needs.. Fake anti-aging products, inflated funeral and cemetery expenses, bogus pharmaceuticals, and unlicensed caretaking services are items that are often sold to trusting senior citizens.

If you have elderly parents or grandparents, be sure to educate them about fraud. 

As always, feel free to call us with any questions!  616-802-4212

Maximizing Charitable Contribution Deductions

Maximizing charitable contribution deductions is still a great tax savings tool, but it now requires more planning. Now is a great time to look at this area as part of your tax planning exercise.

Background

Typically, cash and non-cash charitable donations can be deducted on an itemized return. But with the standard deduction now $12,950 for single filers and $25,900 for married joint filers, itemizing this year is less beneficial for most of us.

More-so, many other itemizable deductions have been reduced as well, including miscellaneous itemized deductions, state and local tax deductions, and home loan interest deductions.

Leverage charitable tax planning

If you are hoping for maximizing charitable contribution deductions, you can still make it work. Read below to find out how.

Understand the above-the-line deduction expired

Unless Congress acts, the $300 above the line deduction for charitable contributions ($600 joint filers) expired at the end of 2021. Thus, charitable contribution deductions are only available if you itemize your deductions.

Conduct a year-end tax forecast

Plan now to see how close the amount of all your yearly itemizable items will come to exceeding your standard deduction threshold.

Bundle two-in-one

Consider bundling two years of charitable giving into one year. This will allow you to maximize your itemizations in one year, while using the tax savings of the standard deduction in the other year to help pay for your donations. Still not enough? Consider bundling three years of giving into one!

Maximizing charitable contribution deductions

When you can take advantage of the charitable deduction, consider donating appreciated stock held longer than one year. This is a better alternative than writing a check as you avoid paying capital gains and you can deduct the fair market value of the stock as a donation.

Look into a donor advised fund

When you establish this account, you receive an immediate charitable deduction for your contributions. Next, the contributions are invested, and finally, you can grant the funds to qualified charities over time.

Itemized deduction rules have changed, but there's still hope for maximizing charitable contribution deductions. You simply need to adjust your tax planning. Call if you'd like to discuss this or any other tax-planning strategies.