Regardless of whether you opt to become a leader, or prefer to remain an involved, concerned and committed member of an organization, your ability and effectiveness will be positively enhanced, and your actual degree of personal responsibility, is often directly related to your willingness, ability and understanding of the essentials of organizational budgeting. While nearly … Continue reading “5 Things To Know Before You Review A Budget”
Regardless of whether you opt to become a leader, or prefer to remain an involved, concerned and committed member of an organization, your ability and effectiveness will be positively enhanced, and your actual degree of personal responsibility, is often directly related to your willingness, ability and understanding of the essentials of organizational budgeting. While nearly every group mandates creating and approving an annual budget, very few do so in a way that actually makes the group more effective. Wouldn’t it make sense, therefore, if groups dedicated time and effort, to training their constituents, and especially their leadership (and most involved and concerned members), to all the essentials and necessitates of the various aspects of budgeting, and how to use it effectively? With that in mind, this article will briefly discuss five things you should know and understand, before you prepare, consider and review a budget.
1. What are the needs, priorities and goals for the organization? Budgets should never be created in a vacuum, but rather must be tools for evaluating needs and priorities, and allocating the best proportion of time, money and other resources, in the most efficacious manner. Since effective groups constantly evolve, this is a significant reason why the method most used for creating budgets (which, unfortunately, is generally merely taking the previous year’s document, and adding a certain percentage). Great budgets address how a group should operate and create plans and programs, etc.
2. Carefully evaluate both revenues and expenditures: Are you optimally and efficiently raising revenues, as well as spending as you should, rather than falling into the trap of, too much, too little or just right? Is your fundraising performing as it should, and running on the proverbial, all cylinders? Avoid being myopic, and just cutting across the board, but rather, use zero-based budgeting, so you
The first month of the year is over and now it’s time to compare how you did last month. But you can’t because you don’t have anything to compare to since you haven’t yet completed your budget for the year.
It is important that you prepare a budget, no matter how small or large your business is. It’s almost impossible to experience growth and profitability without one.
Here are three reasons why you need to have a budget for you business.
1. Plan for Profit. The number one reason you need a budget is so you can plan for profit. You can’t just say “I’m are going to make $500,000 this year” without documenting how you are actually going to reach it. See within your budget you will have detailed out where this income is going to come from such as the different services and/or products you offer. You will break down which months will have higher revenue then others so that you can plan your spending. You with chart out the new opportunities and program launches costs as well as the offsetting and expected revenues. Listing out all of the way you can bring in revenue will help you determine if you goal is actually achievable or not.
2. Avoid Overspending. The second reason you need a budget is to avoid overspending. Having a budget helps keep you on track with your spending. When you do not have a budget you are more likely to spend money whenever you want just because you have it. Then when costs come up that need to spend money on you can’t or you scramble to try and generate or “find” it because you don’t have it. Once you get into this cycle it is very hard to get out of it. Having a budget forces you
“The hardest thing in the world to understand is the income tax.”- Albert Einstein
Albert was right: The U.S. tax code is difficult. In 1913, it was 400 pages long. Since then it’s exploded to 73,954 pages of complex language designed to extract as much money as possible from your wallet.
Who reads all of that? No one. The code is so complex that U.S. tax preparation is one of the major growth industries… not just in America, but globally.
But while you must pay the tax man his due, there are some important escape hatches for Americans. It may be too late for 2014’s tax year, but there’s plenty of time to prepare for next year… if you start now.
The Golden Rule: Reduce Your Taxable Income
The fundamental element of any short-term tax strategy is to reduce your taxable income for the calendar year. There are three basic ways to do this.
Property acquired by gift or inheritance isn’t included in the taxable gross income of the beneficiary. That makes gifting an ideal way for a family to save tax.
For 2015, you can make tax-free lifetime gifts and bequests of up to $5.43 million. (For gifts or bequests to U.S. citizen spouses, the lifetime limits don’t apply.) Due to the concept known as “portability,” a surviving spouse can use a deceased spouse’s unused gift/estate tax exclusion. You could allocate some of your estate to your heirs, perhaps by creating a tax-deferred offshore private insurance policy.
Bear in mind that the first $14,000 (or $28,000 per married couple) that you gift in 2015 is tax-fee, and doesn’t apply towards your lifetime limit.
Payments made on behalf of another person to an educational institution for tuition, or to a medical provider for medical costs (including insurance), are also excluded from the gift tax, and don’t affect your
There are some tax downfalls linked with trading mutual funds that should be given consideration. Awareness of these downfalls will reduce taxes and stop surprises from happening while visiting your CPA firm.
One thing to be aware of is, that it is possible to sell a mutual fund unknowingly or what one client called a “Stunner” sale. This may arise if your mutual fund has an option to issue checks out of your investment in the fund. Whenever checks are deducted from the investment, a partial sale of the investment is being executed. A taxable gain or deductible loss arises from each check written, with the exception of funds that have shares that are always one dollar values (e.g. money markets). Furthermore, each sale needs to be listed on the annual income tax return as a line item.
Some clients are also surprised when taxable sales results from rebalancing the portfolio of fund investments. Most mutual funds allow investors make modifications and allocate the way the account is invested. Rebalancing and reviewing an investment portfolio is a basic principle of money management. The rebalancing and transferring of money from one mutual fund to another mutual fund is a taxable sale of the mutual fund that was transferred.
Maintaining records is also important. Investors should save all the official tax receipts and correspondence such as Form 1099-DIV, statements and trade confirmations. The statements are helpful when the time comes to calculate the costs of investments that have been sold. Most fund companies allow investors to reinvest their dividends to purchase additional shares or fractional shares when the dividend is paid. These documents are necessary to calculate the amount of taxable gain or deductible loss when the investment is sold. This paperwork has extra valuable during an IRS audit. Some clients receive statements at the
Analyzing the decision to rent the property combined with the prospect of selling the home down the road may affect your decision. We usually look at the hypothetical sales transaction from the perspective of selling the property at gain or loss.
When a personal residence is sold at a gain, the transaction may qualify for the “home sale tax exclusion.” To qualify for this the homeowner must own and live in the home as the principal residence for at least two of the last five years. When the taxpayer/taxpayers meet all the requisites for the exclusion, they can exclude $250,000 gain if they are single and they can exclude $500,000 gain if they are married.
When a personal residence is sold at a loss, tax law considers this a non-deductible personal expense. To deduct losses on the sale of property it must be considered a business or investment property. Converting a personal residence into a rental property means that it is business property.
This is a pretty easy tax planning situation. Some taxpayers may consider going to their CPA firm to review the effect of the decision. This will cut down on unpleasant situations later when the returns are being prepared after the events have occurred.
Rental Property Conversion
When someone becomes a landlord the rental income and expenses incurred to maintain and operate the home are combined to calculate the net income or loss. Losses are limited by passive activity loss rules (PAL). Deductible expenses include utilities, repairs, and depreciation.
Depreciation is an interesting concept that may generate losses. For example, consider a home is rented out for what it costs to run it, because the home is located in bad neighbourhood and the owner is waiting for the market to recover. Most people think they would break even when calculating the income or loss,
Not paying your taxes on time entails various consequences. If you are having trouble paying your taxes in full, don’t let it hinder you in filing your tax return timely. Consider paying as large a percentage of the amount owed or borrow money from others in order to settle your tax liability in full. Filing a return and not including full payment can save you large amounts of penalties and fees. Moreover, payment plans are available and being on a current payment plans avoids IRS collection process which may include, property seizures, garnishments etc. Most CPA firms can advise you on these matters.
These are the ordinary penalties:
· “Filing Failure” penalty
5% per month on the amount of tax due on the return to a maximum of 25%
· “Payment Failure” penalty
.5% per month on the amount of your tax due on the return to a maximum of 25%
· Both “Filing Failure” penalty and “Payment Failure” penalty apply
The “Filing Failure” penalty lowers to 4.5% per month and “Payment Failure” penalty is
.5% per month. The combined penalty stays at 5%. The maximum penalty for both is 25%. Then, the “Payment Failure” penalty continues at.5% per month another 45 more months. Both penalties can go to a maximum of 47.5%.
Besides the penalties above, interest is charged on late payments. Also when you are self-employed, you take full responsibility for paying the taxes as money is earned through the year.
Payment extensions are provided when it can be proven that unwarranted hardship exists. Inconvenience caused by paying the tax isn’t enough grounds for unwarranted hardship. The taxpayer must show that paying the tax would cause significant difficulty and/or expense. For example, a fire sale, selling property at an extremely discounted price, since the person faces the difficulty of paying taxes.
When a payment extension is granted, interest is
Of all the wrongs society does to those convicted of crimes they did not commit, taxing any restitution they receive is far from the most horrific. All the same, it is heartening that lawmakers took the time to make clear that such awards come without strings attached.
The recently passed federal spending bill includes many ancillary provisions. The portion dealing with wrongful incarceration is a small section, appearing nearly at the end of the lengthy piece of legislation and taking up less than a full page. But the language makes clear that all wrongfully incarcerated individuals, as defined by the law, can exclude civil damages or monetary awards from their gross income, whether they were convicted at the federal or state level.
To a layperson, it may seem odd that this scenario was even in question. After all, if the government incorrectly convicts you of a crime, and subsequently recognizes that it has done sufficient harm to merit making some sort of compensation for the suffering you endured, it seems counterintuitive that another branch of the government would then turn around and demand a part of that restitution back in the form of income tax.
Yet prior to this amendment to the tax code, there had effectively been no rulings and a limited number of cases specifically dealing with the federal income tax treatment of such awards.
This may be, in part, because exonerated individuals make up a relatively small portion of the overall population. That is not to say the problem of wrongful convictions is small. In an opinion column for The Washington Post last summer, Samuel R. Gross cited a study he co-authored showing that just over 1 in 25 defendants who receive the death penalty in the U.S. are later found to be innocent. Gross, a law professor at the University
Anyone who works for themselves is considered self-employed by the IRS and required to file a Schedule C tax return on all income they receive. That includes everyone from someone already receiving social security who is paid in cash for mowing neighborhood lawns to the person who takes in money through sales, the carpet layer contracting with local stores for installation work and any others who bring in income. Some people even need to file more than one Schedule C.
The secret to making a business work for you lies in keeping receipts for every penny spent so that you can offset that income, and filing properly. Most independent contractors don’t have the time to do regular monthly bookkeeping so they’re stuck trying to organize everything when they tackle that disorganized pile of receipts at the end of the year. And if you know the IRS rules for your industry that can be enough, but you need to know what is considered normal for your industry.
Although it’s easy to find someone to prepare a Schedule C small business tax return for you, unless you know exactly what the IRS expects of a self-employed person that tax return will not be accurate and you’ll never get every tax deduction allowed.
Surviving a tax audit is very easy with organized records. Independent contractors will want to start by following these four simple rules:
- Never mix business income with personal income and expenses. The IRS can disallow otherwise worthy deductions if you mix them with personal business so always deposit all business income into a separate bank account.
- Keep a detailed diary of all business miles, especially if you use a vehicle also for personal miles. This is required in order to take the mileage deduction which is often a big one for independent contractors.