Author: Service2Client

Part 1: Pre-Retirement Planning Guide

4 min read

Pre-Retirement Planning GuideOne of the more insightful quotes of baseball great Yogi Berra was, “If you don’t know where you’re going, you’ll end up someplace else.”

When you’re young, first starting out in life and career, the path to professional success and personal fulfillment isn’t always clear. Most people start out on a track and then adjust as they go along — based on what they learn, who they meet, and cultivate their choices given their opportunities.

Fortunately, the path to retirement need not be so nebulous. By the time you start thinking about retirement, most people have quite a few certainties in their life, such as career, family and assets they hold like their home and investment portfolio. Clearly, this is a great foundation for retirement planning. But it is only the beginning.

There are a lot of factors to be considered before entering this new phase of life. The following is Part 1 of a two-part series on the steps to take in pre-retirement planning.

1. Budget

Most people live on a budget, whether they mean to or not. That’s because, barring excessive spending on credit, most people can only spend as much as they earn. Once you retire and are no longer earning income, spending is generally reduced to match your new income sources, such as Social Security, a pension, investment interest, and dividends, etc. For most retirees, that means they need to spend less than they did before, at least in terms of regular monthly expenses.

Therefore, the first step in planning for retirement is to identify what your income sources will be, how much they will provide each month, and compare that to how much you will need. It is generally advisable to keep working until you have paid off major debts such as your mortgage(s), car payment(s), and any significant balances on credit cards, home equity or personal loans. The ideal plan is to retire when your annual household expenses match or are less than your long-term retirement income sources.

2. Goals

Just as you did as a young adult, you should establish goals for your retirement years. You may have already accomplished buying a house, having a family, and working a fulfilling career — but life doesn’t end at retirement, and neither should goal setting. Otherwise, days can turn into months and years, and you’ll wonder why you never landscaped the backyard the way you wanted or took that trip to Europe. Setting goals and funding sources before retirement gives you these projects to look forward to.

3. Finances

Up until now, your finances may be all over the place. You may have one or more 401(k) plans still managed by former employer custodians. You may have investment accounts in various places, having been persuaded to open new accounts by different brokers, college savings plans, and health savings accounts. If you’re married to someone with lifelong income and investments, double that scenario.

When you start thinking seriously about retirement, consider consolidation. It’s time to roll over old accounts into a Roth or traditional IRA. It’s time to think about whether it’s more efficient to pay taxes on tax-deferred money now or after you retire, depending on your current and future income tax brackets. It’s also time to buckle down and max out your current investment options, such as a 401(k) and IRAs. In 2024:

  • Each spouse over age 55 may contribute up to $23,000 to an employer retirement plan (e.g., 401(k), 403(b), 457(b), or Thrift Savings Plan), plus an additional $7,500 in catch-up contributions, for a total of $30,500 on the year (up to $61,000 for a working couple).
  • Each spouse over age 55 may contribute up to $7,000 to a traditional or Roth IRA (or combined between the two), plus an additional $1,000 catch-up for a total of $8,000 (up to $16,000 for a working couple).

For a two-income household behind on retirement savings, these opportunities alone offer the ability to save $77,000 a year until retirement. But you may ask: How can you afford to save that much and still maintain household expenses? Check out next month’s Part II: Pre-Retirement Planning Guide for additional steps on how to design a comfortable and secure retirement.

Actions Lottery Winners Should Consider

4 min read

What to do if you win a lotteryWe all have those days when we dream of striking it rich with a winning lottery ticket. Never having to work again while living a life of luxury. While your chance of finding a four-leaf clover is higher than winning the lottery, we can still dream, right? And while we are dreaming, let’s talk about the best ways to deal with landing such a large sum of cash. And since lottery winners have a limited time to claim their prize, it’s important to take prudent steps when managing the money.

How Much Do Winners Actually Take Home?

Let’s take a look at actual prize amounts from recent winnings. The October 2023 Powerball jackpot of $1.2 billion translated to a cash value of $551.7 million. Depending on what the winner decides – either taking the lump sum or opting for a multi-decade annuity – they have a serious decision to make.

It’s important to consider inflation factors if choosing the multi-decade annuity option. For example, when it comes to 30 payments taken over 29 years, the first consideration is to determine if there’s a 5 percent increase in the amount for each subsequent year. However, it’s important to keep inflation and the value of money going forward in mind.

For example, between March 2021 and March 2023, the average monthly inflation rate was 5 percent or higher, according to Statista Research Department. It peaked during June 2022 at 9.1 percent on a monthly basis. If the lump sum was taken before inflation increased during the post-COVID-19 reopening, or the annuity was increased by 5 percent, lottery winners without a plan to preserve and increase their earnings would have seen their money’s purchasing power decline.

Another thing to consider is how to legally navigate the tax code. For example, when it comes to federal taxes, 24 percent is automatically withheld. According to the 2024 Federal Tax Code, large winnings will put the winner in the 37 percent tax bracket. If the winner is single or married, the 37 percent bracket kicks in at $578,125 and $693,750, respectively. Additionally, winners also are required to determine compliance with state, county, city, etc. taxes. State taxes can vary greatly; looking at you: Pennsylvania at 3.07 percent, and New York at 10.9 percent.

When it comes to being generous through philanthropy, winners can work with their legal and financial professionals to determine how to offset taxes. This can take the form of direct donations, creating a donor advisor fund (DAF) to get the tax benefit immediately, especially if the lump sum is taken, but also if an annuity is taken. With 2023’s standard deduction threshold of $13,850 (single) and $27,700 (married couples), winners might consider how to make charitable donations part of a tax reduction plan.

Another question to ask is whether establishing a trust would be helpful when sorting out one’s distribution of assets. If a winner dies intestate (without a will), the state of that person’s residence will determine who gets your money – regardless of who you may have wanted to receive it.

Similarly, setting up a trust may be beneficial for both claiming the lottery winning anonymously, and it can help determine how to give money to family members. A trust can be set up for a family member or a pet’s care and can be conditional on releasing the funds when the individual reaches a certain age.

While these steps are not comprehensive, and each winner will have unique circumstances, there are many legal and financial considerations to think about immediately upon winning and before claiming a jackpot.

Sources

https://www.irs.gov/credits-and-deductions-for-individuals

https://www.statista.com/statistics/273418/unadjusted-monthly-inflation-rate-in-the-us/

Contingent Liability Defined

4 min read

Contingent Liability, What is Contingent LiabilityAs the name implies, a contingent liability for a business does not always happen and depends on how the future unfolds. When it comes to a business analyzing a contingent liability, it focuses on the probability of the business realizing it, the time frame within which the liability might occur, and the accuracy of the contingent liability’s estimated amount.  

When to Record and Notify of Contingent Liabilities

Projected contingent liabilities are typically recorded if the contingent liability will materialize and can be reasonably projected with a high level of accuracy. Examples include a company making good on a large-scale product warranty, a business facing a government probe or ongoing litigation, or an organization having to satisfy a guarantee on debt.

When recording contingent liabilities, businesses must adhere to three accounting principles from generally accepted accounting principles (GAAP) and the International Financial Reporting Standards (IFRS):

1. The Full Disclosure Principle

This requires consequential and pertinent financial details and essentials to be documented thoroughly in financial statements. Relevant fiscal circumstances that have a reasonable likelihood to negatively impact a business’s future net profitability, cash flow, and assets highlight the importance of why a company’s solvency is the primary focus of this tenant.   

2. The Materiality Principle

This focuses on the necessity of financial statement disclosure. Preparers of the financial statements must determine if including financial information (or not) on the business’s financial statements would give interested parties substantive information to help them determine whether or not to engage with the company.

3. The Prudence Principle

This last principle focuses on ensuring income and assets are reported accurately, along with requiring liabilities and expenses not to be reported too low. When applying this principle through the lens of contingent liabilities, if there’s more than a 50 percent chance of the event occurring, it and the associated expense are documented. Recording the liability gives a fair reporting of the expenses and obligations.  

Naturally, if there’s a strong likelihood of reducing a business’s ability to sustain profitability, it also can reduce investor interest in buying part (or all) of the company. Similarly, while being transparent by disclosing contingent liabilities, a business might not be able to secure lending if the lender doesn’t have faith that the debt will be repaid according to the loan’s terms.

Contingent liabilities that are expected to occur/settle in the short term are usually more impactful. Conversely, contingent liabilities that are anticipated to be settled over the long term are less impactful because there’s a smaller chance of the event actually materializing.     

Another consideration when it comes to generally accepted accounting principles is that there are three categories of contingent liabilities, which are all based on the probability of it occurring.

  1. If the likelihood of the liability arising is more than 50 percent and the loss can be projected with relative certainty, this is recorded as an expense on the income statement and a liability on the balance sheet. This also can be referred to as a probable contingent liability that can be reasonably estimated (and reflected on financial statements).
  2. If the contingency meets one, but not both, of the criteria of a high probability contingency, the contingent liability is required to be documented in the footnotes of the financial statements. This also can be referenced by stating that the liability is as likely to occur as not.
  3. If a contingent liability does not meet either of the first two conditions, the rest fall into this category. Since the probability of a cost arising due to these liabilities is highly unlikely, and while reporting these in financial statements is not required, companies sometimes do disclose them.

With contingent liabilities being naturally uncertain, these approaches give business’ some level of certainty to evaluate and make reasonable judgment calls to manage internal and external expectations.

U.S. Beneficial Ownership Information Reporting Begins

4 min read

The U.S. Treasury recently enacted a new reporting requirement aimed at quashing illicit financial transactions. The agency believes that corporate anonymity is enabling money laundering, terrorism, and drug trafficking. As part of the 2021 Corporate Transparency Act (CTA), certain companies are now required to report information about their beneficial owners. The goal of the new registration requirements is to create a centralized database of beneficial ownership information.

There has been push-back from some lawmakers and small business organizations, citing this as an erroneous regulatory process that just makes life harder for small businesses. Efforts to carve out exceptions or delay the implementation failed. As a result, the Treasury Department officially opened beneficial ownership information reporting on Jan. 1, 2024.

Who is Subject to Reporting?

Generally, a company may need to report beneficial ownership information if it is a corporation, LLC, or other business entity created by the filing with a U.S. secretary of state or a foreign company registered to do business in the United States. Reporting requirements for trusts and other entity types are more dependent on state law.

At first glance, the rules make it look like all businesses are subject to reporting. There are exemptions, however, including nonprofits, publicly traded companies, and certain large operating companies. The FinCEN’s Compliance Guide provides an exemption qualification checklist.

Reporting Timelines and Requirements

First, you only must file an initial report once. There are no annual reporting requirements. Filing deadlines vary based on when a company was created or registered with the relevant secretary of state.

  • Before Jan. 1, 2024, => Deadline of Jan. 1, 2025
  • Between Jan. 1, 2024, and Jan. 1, 2025, => You have 90 calendar days after receiving notice of the company’s creation or registration to file.
  • On or after Jan. 1, 2025, => Deadline is 30 calendar days from the company’s creation or registration.

While there is no annual filing requirement, filing updates are necessary within 30 days of any changes. Ownership activity subject to change reporting includes registering a new business name, a change in beneficial owners, or a beneficial owner’s name, address, or unique identifying number previously provided.

What Do You Need to Report?

Beneficial ownership reporting must identify the following data.

At the company level, it must report:

  • Company name, both legal and trade (if applicable)
  • Company physical address (no post office boxes)
  • Jurisdiction of formation or registration
  • Taxpayer Identification Number

For each beneficial owner, the following must be reported:

  • Name
  • Date of birth
  • Address
  • Driver’s license, passport, or other acceptable identification

Depending on the situation, there also may be reporting requirements about the company applicant. This is generally a person involved in the creation or registration of the company. The same four pieces of data as for a beneficial owner would need to be provided.

As a general rule, a beneficial owner is someone who controls the company or owns 25 percent or more.

The full definition and all exemptions to whom constitutes a beneficial owner or company applicant can be found here.

No financial information or details about the business operations are required.

How and Where to File

You have the option to file online or via PDF. Filing online can be done through the Beneficial Ownership Information (BOI) E-Filing System on the FinCEN site.

There is no cost to file.

Conclusion and Cautions

While the reporting is simple, the requirements should not be taken lightly. Failure to report could result in civil penalties of up to $500 per day and criminal charges of up to two years imprisonment and a fine of up to $10,000.

The message is this: Don’t wait – and don’t forget to file!

March Financial To-Do List

4 min read

March Financial To-Do ListReady or not, spring is right around the corner, and it’s the perfect time to get in fiscal shape for the rest of the year. However, tax preparation isn’t the only thing to put on your list. Here are a few other must-dos to keep you financially fit.

Purge Your Papers

After you finish your taxes, shred papers you don’t need, like credit card or ATM receipts. Then organize the papers you need to keep, such as car titles, loan paperwork, retirement statements, etc. Store them in a fireproof safe or password-protected file. You’ll also want to deactivate accounts (and apps) you no longer use. When you do this and rid yourself of that extra paper, as well as eliminate related files on your computer, it helps minimize the risk of your personal data being stolen should you or any institutions you’re registered with get hacked. Now, all of these tasks assume you’ve already filed with Uncle Sam and aren’t filing an extension. If you are filing an extension, that’s the next task on your list.

File a Tax Extension

And you’ll probably want to do so with E-File. But know this: an extension of time to file your return does not grant you any extension of time to pay your taxes. You should estimate and pay any owed taxes by your regular deadline to help avoid possible penalties. Finally, you must file your extension request no later than the regular due date of your return. For more info, check out this helpful page.

Evaluate College Aid Offers

If you have a high school senior, March is the time that they learn whether or not they’ve been accepted to colleges. It’s also the prime time to figure out how much money you’ll need for their education. If your child has been lucky enough to have received a financial aid letter, you’ll want to sit down and calculate how much cash you’ll need to supply or borrow. Generally, the universities include info in their letters about federal loans that you qualify for, so you can start that process. However, if you don’t like the offer that’s been extended, you can appeal it. Some schools may increase their offer.

Consider Buying Flood Insurance

April showers are just up ahead, but there are other forces of nature to contend with in spring: hurricanes, mudslides, and melting snow from freak freezes out of nowhere. All of these weather events breed water – and in some cases, too much of it. Check your homeowner’s insurance first to see if these acts of God are covered. If floods aren’t included, then flood insurance is something to look into. Even if you don’t live in a high-risk area, according to the National Flood Insurance Program, 20 percent of claims come from low- to moderate-risk areas. While annual premiums can run around $700 to 800 a year if you live in a low- to moderate-risk area, this could be less. Usually, there’s a 30-day waiting period before the policy kicks in, so it makes sense to buy it before you really need it.

Score on Deep Discounts

Now that winter is a distant memory, retailers are getting rid of cold weather inventory in March. Think winter coats, cozy clothing, and space heaters, for starters. Replacement windows and air purifiers are also priced low. And to get in the mood for spring cleaning, you may find vacuum cleaners on sale. Look for price cuts on (or around) St. Patrick’s Day, too. If you want to find more deals, you don’t need the luck of the Irish – just Google “March markdowns” and dive in.

Getting organized in March sets a great precedent for the rest of the year. Don’t miss this opportunity to get your financial house in order for the coming months.

Sources

https://www.consumerreports.org/financial-planning/march-financial-to-do-list/

https://www.bankrate.com/insurance/homeowners-insurance/cost-of-flood-insurance/#:~:text=The%20average%20U.S.%20homeowner%20may,on%20your%20individual%20rating%20factors.

What to Know About the Art Donation Deduction

4 min read

Art Donation DeductionIf you would like to donate artwork to an eligible charitable organization, you might be able to take a deduction on your tax return. However, the rules are complex. There are different requirements for different values, and there are scams you want to avoid that could lead to severe consequences for taxpayers who abuse this deduction.

Generally, the deduction for donated art is based on the fair market value of the property. This refers to the price the artwork could reasonably be expected to sell for on the open market. To qualify for the deduction, note that the value of an art donation may be limited to between 20 percent and 60 percent of the taxpayer’s adjusted gross income, based on the type of organization and whether the deduction must be reduced.

For the donation to qualify for a deduction at the full fair market value, the artwork must be used by the charitable organization in a way that relates back to its charitable purpose. For example, art is donated to an art museum or school. Otherwise, the deduction is limited to the amount of capital gain realized had you sold the property instead of giving it to a charity.

Requisite Tax Documentation

The IRS requires the following records to claim a charitable art donation deduction:

  • Name and address of qualified receiving charitable organization
  • Date and location of the donation
  • Detailed description of the artwork

The following details require additional documentation based on the value of the art donation:

  • $250 or more requires a documented acknowledgment from the recipient
  • $500 or more must file Form 8283 with a tax return, and records must be retained documenting how and when you obtained the artwork as well as its cost basis
  • $5,000 or more, the donor must obtain a documented qualified appraisal no more than 60 days before the contribution date
  • $20,000 or more must include the signed appraisal with your tax return
  • $50,000 or more, request that the IRS appraise the artwork and issue a Statement of Value to substantiate the value

Fractional Gift/Deduction

It is possible to make fractional deductions for an art donation as long as the artwork is wholly owned by the donor or shared between the donor and the charity. Furthermore, fractional donations must be completed within 10 years of the initial fractional gift or the donor’s date of death.

Artist Donation

The art tax deduction is more beneficial to collectors than artists. If an artist decides to donate a piece to a charity, he can deduct only the cost of the materials used to create the art – assuming he hasn’t already claimed them as a business deduction.

IRS Caution

Recently, the IRS has published warnings about art tax deduction schemes being promoted by fraudsters. It starts with a promotion encouraging (usually high net) taxpayers to buy art at a “discounted” price. The entity or person will offer various accompanying services, such as appraisal, storage, and shipping. The promoter may then help the taxpayer donate the artwork to one or more specific charities in order to claim a higher deduction than the purchase price.

The scheme generally involves waiting a least a year before donating in order to claim the deduction at an inflated fair market value. Some promoters work with taxpayers to donate art on a rotating basis every year in order to continue receiving the artificially inflated deduction. The following are some red flags from the IRS that indicate an art deduction scheme.

  • Be wary of buying multiple works by the same artist, especially when the art appears to have little to no market value beyond what the promoter is advertising.
  • Be wary of an appraisal that does not adequately describe the art in terms of rarity, age, quality, condition, the stature of the artist, the price paid, and the quantity purchased.
  • Remember that taxpayers are ultimately responsible for the accuracy of information reported on their tax returns. Avoiding taxes by participating in an overvalued art scheme could lead to back-tax payments, additional penalties and interest, additional fines, and even imprisonment.

Another option is to simply sell the art and donate the proceeds to a charity. The donor may owe capital gains taxes on the sale, but it’s possible that the charitable donation deduction will offset this expense.

As with all complex tax deductions, it’s a good idea to consult with a tax professional or legal advisor when donating artwork. This can help ensure that both the taxpayer and the charity are able to maximize the potential benefits of the donation.

 

Deepfakes and Social Engineering: The New Face of CEO and CFO Fraud

4 min read

What is a Deepfakes and Social EngineeringTechnological advancements have ushered in a new era of cybercrime, with deepfakes and social engineering tactics at the forefront of fraudulent activities. CEO and CFO fraud has become increasingly widespread, posing significant threats to organizations worldwide.

Understanding CEO and CFO Fraud

CEO and CFO fraud involves cybercriminals impersonating executives to manipulate employees to transfer funds or sensitive information. These scams often rely on social engineering techniques to deceive unsuspecting victims. While traditional phishing emails used in business email compromise (BEC)might use generic language, sophisticated cybercriminals now leverage deepfakes to make their schemes more convincing. They exploit human trust and undermine traditional security measures.

The Rise of Deepfakes

Deepfakes are highly realistic manipulated media created using deep learning technology, often involving video or audio recordings that appear genuine. With the aid of generative artificial intelligence (AI) tools, deepfake technology has become increasingly sophisticated. This is because the synthetic media generated using AI can realistically replicate a person’s voice, appearance, and mannerisms. These advancements in AI technology have made it increasingly challenging to distinguish between real and manipulated content, amplifying the effectiveness of social engineering tactics.

It is worth noting that deepfakes alone are not enough to guarantee success for these scams. Social engineering plays a crucial role in manipulating victims and exploiting their vulnerabilities. The fraudsters deploy various tactics, including creating a sense of urgency, leveraging trust and authority, and targeting specific individuals with access to sensitive information or decision-making authority.

A notable instance of this fraud is that of a Hong Kong-based multinational firm that lost $25 million after being duped by a deepfake impersonation of their CFO. Using a realistic video call, the scammer instructed an employee to transfer the funds to a supposedly urgent business acquisition in China. Unfortunately, the employee was unaware of the deepfake and fell victim to the elaborate scam.

In another instance, a cybercriminal impersonated the CFO of a prominent financial institution using a deepfake audio recording. The fraudulent call, which sounded identical to the CFO’s voice, instructed an employee to disclose sensitive client information. Believing it was a legitimate request from the CFO, the employee complied, unintentionally compromising confidential data and exposing the organization to regulatory penalties and lawsuits.

Mitigating the Threat

Organizations must implement robust cybersecurity measures and employee training initiatives to deal with the rising threat of CEO and CFO fraud facilitated by deepfakes and social engineering. Below are some strategies to consider:

  • Employee education and awareness: Companies can hold regular training sessions to educate employees about the dangers of social engineering tactics and how to identify suspicious communications, including deepfake content. They also can encourage vigilance and emphasize the importance of verifying requests, especially those involving financial transactions or sensitive information.
  • Multi-factor authentication (MFA): Businesses are implementing MFA protocols for financial transactions and accessing sensitive data. By requiring multiple verification forms, such as passwords, biometrics or one-time codes, MFA adds an extra layer of security that can help hinder unauthorized access, even if credentials are compromised.
  • Strict verification procedures and zero-trust policy: Organizations can establish strict verification procedures for any requests involving changes to payment instructions or the disclosure of sensitive information. Employees must verify such requests through multiple channels, such as phone calls or in-person meetings.
  • Advanced detection technologies: Companies also might invest in advanced detection technologies capable of identifying deepfake content and other forms of manipulated media. These tools use AI algorithms to analyze multimedia content for signs of tampering or manipulation, helping organizations identify potential threats before they escalate.

As deepfake technology advances, these scams will likely become even more sophisticated and challenging to detect. As Gartner predicts, by 2026, identity verification and authentication solutions such as face biometrics could become unreliable due to AI-generated deepfakes. Therefore, it is crucial to acknowledge the broader implications of deepfakes and social engineering. Regulatory bodies, technology companies, and other concerned institutions must collaborate to develop comprehensive frameworks that address the ethical use of AI, establish clear guidelines for deepfake technology, and enhance overall cybersecurity resilience.

Conclusion

As deepfakes and social engineering tactics continue to evolve, the threat of CEO and CFO fraud is a real challenge for organizations of all sizes. Sophisticated technology and deceptive practices have made it easier than ever for cybercriminals to impersonate executives and manipulate employees into unknowingly facilitating fraudulent activities. Organizations must adopt proactive approaches to mitigate the risks associated with deep fake-enabled fraud and to safeguard their assets and reputations in an increasingly digital landscape.

Debating U.S. Border Policies and Foreign Aid, Providing Tax Relief Before Tax Season, and Training More Nurses

3 min read

Debating U.S. Border Policies and Foreign Aid, Providing Tax Relief Before Tax Season, and Training More NursesThe Emergency National Security Supplemental Appropriations Act (HR 815) – Formerly known as the RELIEVE Act, this bill was originally written to improve veteran eligibility for reimbursement for emergency treatment. However, the bill was altered to incorporate the Senate’s effort to combine new U.S. border policies with aid for wars abroad. On Feb. 13, the Senate passed this bill to provide $95.3 billion in aid for Ukraine, Israel, and Taiwan. While the border policy portion of the bill was struck out, the Senate did manage to pass the foreign aid funding. The bill includes $4.83 billion to help deter China’s aggression against Taiwan, $9.15 billion in humanitarian assistance to civilians in conflict zones such as Gaza and the West Bank, $14.1 billion to support Israel’s war against Hamas, and $60 billion in aid to Ukraine. It is worth noting that about 75 percent of the Ukraine funding would be spent in the United States to refill inventories and purchase new weapons from American manufacturers. However, the House speaker has indicated he will not bring the bill to the floor for a vote until they have satisfactorily readdressed immigration policies affecting the U.S. border.

Tax Relief for American Families and Workers Act of 2024 (HR 7024) – This bipartisan legislation was introduced on Jan. 17 by Rep. Jason Smith (R-MO). The bill includes a variety of tax-related provisions, such as enhancing the low-income housing and child tax credits, as well as offering additional tax incentives to promote economic growth for small and private business owners and entrepreneurs. The bill passed in the House on Jan. 31 and has the potential to pass in the Senate before the April tax filing deadline.

No Dollars to Uyghur Forced Labor (HR 4039) – This bill prohibits two U.S. government agencies from spending funds associated with goods procured via forced labor in the Xinjiang Uyghur Autonomous Region (XUAR) of China. However, if the State Department advises Congress of evidence that no forced labor was used in making particular goods, it may waive the prohibition. The act was introduced by Rep. Nathaniel Moran (R-TX) on June 12, 2023. It passed in the House on Feb. 13 and currently lies with the Senate.

A bill to improve performance and accountability in the Federal Government and for other purposes (S 709) – This bipartisan bill was introduced by Sen. Gary Peters (D-MI) on March 8, 2023. It is designed to improve performance and accountability within the Federal Government by re-evaluating the goals of federal agencies and authorizing a Deputy Performance Improvement Officer in addition to a Performance Improvement Officer. The act passed in the Senate on Feb. 8 and is now under consideration in the House.

Train More Nurses Act (S 2853) – This bill requires the Departments of Labor and Health and Human Services to research and prepare recommendations to make grant programs that support nurses more effectively. Specifically, how to increase pathways for experienced nurses to become teachers at nursing schools, particularly in underserved areas, and how to encourage more licensed practical nurses to become registered nurses. The act, which was introduced by Sen. Jacky Rosen (D-NV) on May 3, 2023, passed by unanimous consent in the Senate on Jan. 24. It is currently under review in the House.

Understanding How Variances Vary

3 min read

how to calculate VariancesVariance analysis is found by determining the difference between what was budgeted and what actually occurred. Additionally, when variances are added together, we get a better picture of how well a company is measuring its performance against expected metrics. It’s also important to be mindful that each metric is measured to determine what the actual cost is versus the industry’s standard cost.

Whether it’s materials, labor, electricity, or another metric, if the actual cost is lower than the standard cost for the same quantity of materials, it would be a favorable price variance. However, if the number of materials was more than the standard quantity, it would be considered an unfavorable variance. Examining variance allows us to analyze the price and quantity of the variable being analyzed. Always keep in mind that unusual or significant variances should be investigated to see why such anomalies exist.

It’s important to distinguish between variances and the types of inputs. When it comes to materials, labor, and similar variable overhead, variances to be analyzed are for price and quantity/efficiency. When it comes to fixed overhead, analysis looks at variances in budget and volume.

One way to conduct variance analysis is through the Column Method. The following example illustrates this:

A business produces widgets. The following assumptions are made:

  • 6,000 widgets are produced in a month
  • Direct labor hours are used as the basis to allocate overhead costs to products
  • Denominator level of activity is 8,060 hours, resulting in $48,360 in fixed overhead expenses budgeted.

Other cost assumptions include:

Direct Costs

Labor: 2.6 hours/widget @ $14 per hour

Materials: 10 pieces/widget @ $1/widget

Overhead

Variable: 2.6 hours/widget @ $8/hour

Fixed: 1.3 hours /widget @ $12/hour

However, the business saw the following costs for the month’s production:

Variable overhead manufacturing costs: $34,000

Fixed overhead manufacturing costs: $50,000

Both of the following are Direct Costs:

Material: 50,000 items bought @ $0.96/widget

Labor: 8,000 hours totaling $128,000

Materials Variance

Real Quantity x Real Price = 50,000 pieces x $0.96 per widget = $48,000

Real Quantity x Industry Price = 50,000 pieces x $1 per widget = $50,000

Standard Quantity x Industry Price = 36,000 pieces x $1 per widget = $36,000

Price Variance = $50,000 – $48,000 = $2,000

Quantity Variance = $50,000 – $36,000 = $14,000

When we find the difference between these two amounts, there’s an unfavorable variance of $12,000. Additionally, it’s worth looking at why there were 50,000 pieces used versus the standardized 36,000 pieces. It could be due to defective materials, problematic machinery, etc.

Labor Variance

Real Hours x Real Rate = 8,000 hours x $16 per hour = $128,000

Real Hours x Industry Rate = 8,000 x $14 per hour = $112,000

Standard Hours x Industry Rate = 7,800 x $14 hour = $109,200

Rate Variance = $112,000 – $128,000 = -$16,000

Efficiency Variance = $109,200 – $112,000 = -$2,800

Based on this calculation, there’s a total unfavorable variance of -$18,800. Management should look at why labor costs are higher than the standard and why production took more supplies than the industry standard.

While this is not all-encompassing, it does show the importance of understanding the nuances of calculating variances and how it’s essential to understanding a business’ (in)efficiency.

How to be Your Tax Pro’s Favorite Client this Tax Season

4 min read

How to be a good clientWhy on earth, you may ask yourself, would I care about being a good client to my tax prep professional? I mean, you are a paying client, and aside from treating them with the same decency and respect that you would show any other random person, who cares – right? Wrong!

What’s in it for me?

Honestly, it’s simply in your own best interest to be a good client. Maintaining a positive relationship with your tax professional can benefit you in numerous ways. Your tax preparer bills you in one of three ways: a flat fee (guaranteed); hourly; or a hybrid with a basic flat fee that they’ll only add to if out-of-scope issues/problems come up. Let’s look at each approach in more detail.

First, a scenario where you have a guaranteed flat fee no matter what. In this case, it’s pretty obvious to see that one of a tax preparer’s main incentives is to perform the work correctly and up to professional standards, but as fast as possible; less time equals more money. Here, being a good client means that you give your tax professional more room to be thoughtful about your tax return and even perform some planning/optimizing for the current year or next year. If you can help them prepare your return efficiently, there’s room to spare in providing you with value-added advice.

Second, when you engage a tax pro on a strictly hourly basis, saving them time on the administrative side of the return prep will equate to direct savings in your pocket. When you pay by the hour, you are paying regardless of whether they are calculating or reviewing your return, providing advice, planning, or chasing you down for missing info, open items, questions, etc.

Third, we have the scenario where you have a flat fixed fee unless you add services out of scope or things really go sideways. Here, while most tax preparers will eat a little bit of time, if you cause delays in the preparation process due to incomplete or unorganized information or you are late to respond to questions, there is a good chance you’ll get billed for that time as it wasn’t planned for and was unnecessary.

Finally, making your tax professional’s life easy will simply make you more likable as a client. And we all know that we treat people we like better.

How do I become a great client?

So, at this point, you are asking, how do I become my tax professional’s favorite client? There are a few main areas to consider if you want to establish a good working relationship and make life easier for everyone.

  • Be Organized – The more organized you can be in gathering and submitting your underlying tax documents (W-2, 1099s, etc.) and other necessary information, the better. Many tax preparers will send a tax organizer to help you fill out and organize what you send over. Following this is the best way, but any method that is clear, logical, and complete is best.
  • Submit All Your Information at Once – While it’s not always possible, don’t submit your information until you have everything. Sending over documents piecemeal is a surefire way to cause confusion and delays and makes the process rife for errors. In fact, many CPAs won’t even start a return until they have everything. Again, this isn’t always possible because sometimes a K-1, for example, is not yet available – but that should be an exception to the rule.
  • Be Responsive – To the degree that you can be responsive to follow-up questions from your tax preparer or their staff. This will ensure your return keeps moving, saving time (and therefore billable hours) that stopping and starting creates.

Conclusion

Following these tips will not only help you develop a great relationship with your tax preparer for years to come, but it also will ensure the most accurate and efficient preparation of your return possible.