The 6 Do’s And Don’ts For Your Next Bonus

Most top companies provide some type of bonus as part of their compensation package. In fact, 75% of companies gave a year-end holiday bonus in 2016; many of those same companies also provide performance based quarterly and semi-annual bonuses. If you’re one of the lucky ones, then you are faced with a problem that most people would love to have. What to do with all that cash? Your fun friend tells you that you’ve worked hard, and deserve to treat yourself with that brand new boat (this is the same person who tells you sake shots at lunch are a great idea and that you won’t regret that tattoo). The responsible friend will tell you to put 100% away in a market index fund, and not to touch it for 40 years. Well, you should kind of listen to both (but really, you and I both know that you should rarely take advice from your fun friend – you know who I’m talking about).

Most financial professionals will agree on the top priorities to address first: debt, emergency fund and retirement. The most important first step is to make a plan, and allocate accordingly. If you have high credit card debt, perhaps allocate 80% to that, 10% to savings and 10% to fun. If you have no credit card debt but only a few months of emergency funds, you could allocate 50% to emergency fund, 30% to retirement and 20% to fun. There’s no right or wrong; do what’s best for you. While there are many smart ways to use your bonus, there are just as many pitfalls to watch out for. This goes for not just bonuses, but inheritances, jackpots and any other windfalls you may receive.

The DOs:

  • Have a plan. The minute you know the amount of your bonus, determine exactly where it’s going. Very important to do this before it hits your checking account! There’s nothing worse than wondering a month later “where did all that money go?”.
  • Set aside whatever is needed for monthly bills and expenses. Bonuses are often an important part of an employee’s total income and needed for living expenses, so you may need to keep some in your checking account.
  • Reward yourself.  Use 10-20% of your bonus on something fun. You deserve it and it keeps you motivated. Listen to your fun friend just this once.
  • Use your bonus as a motivation. IF you get your bonus, THEN you can go on that vacation or upgrade your car. If you don’t get a bonus, then you don’t get the reward.
  • See a financial planner to get a wholistic assessment of your finances and clarify your priorities and goals.
  • If you have money left after allocating towards debt, emergency fund and retirement, other smart options include:
    • Purchase insurance if needed. SelectQuoteis a great resource to find term insurance.
    • College savings. Vanguardprovides details and comparisons of different types of plans.
    • Mortgage prepayment.
    • Save for goals or big purchases: home, vacation, second home or a new car.

The DON’Ts:

  • Count your chickens before they hatch. Let us not forget the valuable lesson learned from Clark Grizwaldduring one sad Christmas. Don’t put down an advance on the backyard pool yet…your ‘big bonus’ may just be a subscription to the jelly of the month club.
  • Let it sit in your checking account. I promise you will spend it on meaningless things, then wake up in three months and realize your entire bonus was spent on take-out, shoes and parking.
  • Make any extravagant purchases before you have created a game plan. Once you’ve allocated the appropriate money to the most important financial priorities, then you can have fun.
  • Depend on it – it’s not guaranteed income.
  • Keep it in a low interest account. For example, if setting part of your bonus aside for a liquid emergency fund that you don’t want to invest, you can still put it in a bank with a high interest savings account. The Simple Dollarand Bankrate provide several options.
  • Treat it like extra play money. This is real money and part of your income.

How to Keep Your QuickBooks Data Safe

You work hard to make sure your QuickBooks data is accurate. Make sure it’s safe, too.

Your QuickBooks company file contains some of the most sensitive information on your computer. You may have customers’ credit card numbers and employees’ Social Security numbers. An intruder who captured all that data could create tremendous problems for you and a lot of other people.

That’s probably the worst-case scenario. But other situations could also spell disaster for your business, which involves losing your company data through fraud, hacking, or simple technical failures.

We can’t overstate the vital importance of protecting your QuickBooks company file, especially your customer and payroll information. Whether someone steals it or it’s inaccessible for another reason, it’s gone. Keeping your business going after such a loss would be very difficult – maybe even impossible.

Here’s what we suggest to prevent that.

Internal Safeguards

No business owner wants to believe that his or her employees could use their QuickBooks access to commit fraud. But it happens. Your company file contains credit card and checking account data that could be used for nefarious purposes. As we discussed last spring, you can restrict user access to specific areas and actions of QuickBooks.

You can limit your employees who have QuickBooks access to certain areas and activities.

To get started, open the Company menu and select Set Up Users and Passwords | Set Up Users. The User List window opens. It should have at least one entry there, for you (Admin). Click Add User and enter the employee’s name and password in the next window that opens, then click Next.

Tip: Your QuickBooks license limits you to a specified number of users. If you’re not sure how many you’re allowed, click F2 to open the Product Information page. The number of user licenses you’ve paid for appears in the upper left.

On the next page of this wizard, click the button in front of Selected Areas of QuickBooks. The following screens will let you define that employee’s access permissions in areas like Sales and Accounts Receivable, Inventory, and Payroll and Employees. When you’ve clicked through every screen and reviewed the summary displayed, click Finish. Your user will now be able to sign in and access the areas you specified.

You can—and should—take numerous other steps to keep your QuickBooks data safe. If your company is big enough to have a dedicated IT expert, he or she will handle most of this. But there’s a lot you can do on your own to prevent data loss and theft.

Keep Your Operating System and Applications Updated

Don’t ignore this dialog box.

Software companies’ occasional updates offer more than just adding new features and fixing bugs. They sometimes refresh your software to ensure greater security based on new threats. Don’t forget about those all-important antivirus and anti-malware applications, as well as QuickBooks itself.

Keep Your Networks Safe

Just as a cold virus spreads around your office, so, too, can unwanted intrusions like computer viruses. Don’t allow an electronic epidemic to get started; take steps ahead of time to prevent it:

  • Discourage employees from excessive web browsing. This can be a hard rule to enforce, as some employees probably need internet access for research, timecard entry, and other work-related tasks. Create a firm policy legislating what workers can and can’t do on company-issued equipment (including tablets and smartphones) or any personal devices that use your wireless network.
  • Ask employees to refrain from using public networks on work equipment. Enforce the rules vigorously, and make compliance an element of performance evaluations.
  • Minimize app installations on business smartphones. Employees should ask for approval. Viruses and malware get in that way, as well as through some websites and email attachments.
  • Use monitoring software. If you can’t afford to pay for “managed IT” (a la carte, third-party IT services), install an application that alerts you to problems.

Use Common Sense

You can fight data loss and theft by being cautious. Be diligent about backups, and if you create them on a local, portable device, don’t leave them in the office. Cloud-based solutions are better. Shred papers that have sensitive information on them. Log out of QuickBooks when you’re not using it or when you leave your office. Be aware of who may be around you, looking over your shoulder.

We take data security very seriously in our own office, and we strongly encourage you to do the same. Contact us if you’re at all concerned with your own data safety, and we’ll come up with a plan together.

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Concerned about the safety of your QuickBooks data? We can help you take security measures.

Lose your QuickBooks data, and you’ll face serious consequences. Make sure you keep backups in a safe place.

Do you issue smartphones to employees? Make sure they’re not used on public networks.

Even if you don’t have an IT specialist, you can protect your QuickBooks data from viruses and malware. Ask us how.

Want To Make More Money Investing? Try Maximizing Your After-Tax Return

Benjamin Franklin famously said, ‘A Penny Saved is a Penny Earned’ and I couldn’t agree more. Investors are always looking for ways to grow their account balances and reducing their tax bill might be the simplest way. Here are a few ways to get more out of your investments by paying less in taxes:

    1. Long-Term Capital Gains – Hold investments a year or longer and gains are given favorable tax treatment over short-term gains (less than 1 year) which are taxed as ordinary income.
    2. Qualified Dividends – Many investors like to hold dividend paying stocks or mutual funds, but pay close attention to what type of income your investment generates.  Qualified dividends are taxed at a lower rate than ordinary dividends.  For example, many REITs and partnerships pay ordinary dividends which are taxed at your marginal (highest) tax bracket.
    3. Asset Location – Consider buying high dividend/high yield investments in a retirement account where the tax is deferred each year.  On the other hand, be very careful what you buy in non-retirement accounts because the interest, dividends and capital gains can make their way onto your tax return.
    4. Municipal Bonds – Consider investing in bonds that pay tax-free interest.
    5. Index Funds and/or Exchange Traded Funds (ETFs) – Many index funds and ETFs have low turnover.  As a result they typically don’t pass on as many capital gains distributions to shareholders as actively managed mutual funds.
    6. Look Ahead at Your Income for Tax Bracket Changes – Low income years may be good for intentionally taking on more income (would you pay 15% now to avoid a 25% tax later?) and high income years should be planned around by taking losses, deductions or deferring income to other years.
    7. Use Roth IRAs – You don’t get a tax deduction on the small amounts going into these accounts, but typically, whatever large amounts they may grow to can be withdrawn tax-free.

Learn to pay attention to what you will pay in taxes so you can keep more of what you earn!

Finally, the health insurance rules that apply to small businesses make more sense and allow some benefits.

Beginning January 1, 2017, you can install a new qualified small employer health reimbursement arrangement (QSEHRA) and start helping your employees pay for their health insurance and other medical costs, without worrying about the per-employee $100-a-day penalty ($36,500 per employee per year).

What the New Plan Can Do

With this new plan, your eligible small business can reimburse individually purchased health insurance and other deductible medical costs of up to $4,950 for an individual and up to $10,000 for a family.

As you would expect, lawmakers created some rules that you need to follow to make this new health reimbursement plan happen. But the rules are straightforward, and I can help you set up the plan.

Step 1. Notice of the Plan

You need to give your employees written notice of the qualified small employer health reimbursement arrangement as follows:

• Before March 12, 2017, for a 2017 calendar year plan
• Ninety days before the beginning of a plan year (for calendar years 2018 and later)
• In the case of an employee who is not eligible to participate in the arrangement as of the beginning of a plan year, the date on which such employee is first eligible

The written notice to the eligible employees needs to state

• the amount of the employee’s permitted benefit for the year,
• that the employee should provide the information about the permitted benefit to any health insurance exchange to which the employee applies for advance payment of the premium assistance tax credit, and
• a warning that if the employee is not covered under minimum essential coverage for any month, the employee may be subject to tax under section 5000A for such month and reimbursements under the arrangement may be includable in gross income.

I can help you create this notice.

Step 2. Request for Reimbursement

The new law states that after the employee provides proof of minimum essential coverage, the employer may pay or reimburse the eligible employee for medical expenses defined in IRC Section 213(d) that were or are incurred by the eligible employee and, in the case of a family plan, his or her family members.

To protect yourself and meet the letter of the law, you can use a reimbursement form that requires the employee to provide proof of minimum essential coverage and attestation with respect to requests for any Section 213(d) reimbursements or payments.

I can help you create this request for reimbursement.

Only for Small Employers

You are an “eligible employer” for the small business HRA if you

• are an employer with fewer than 50 full-time employees during the preceding year, and
• do not offer a group health plan to any of your employees.

Summary

To put your 2017 small business HRA in place, you need to

• Provide notice of the plan.
• Have employees complete the reimbursement request form.

LLC

You probably know of several businesses whose formal names end with the acronym LLC. And you probably also know that LLC stands for limited liability company. Here are ten things you may not know.

  1. An LLC generally protects its owners from personal liability for business obligations in much the same way a corporation does, but an LLC is not a corporate entity.*
  2. Like a corporation, an LLC can do business in multiple states, although an LLC must be organized in a specific state.
  3. The owners of an LLC are called “members.” There is no limit on the number of members an LLC can have, and members don’t necessarily have to be individuals. Members’ management roles are typically spelled out in an operating agreement.
  4. Upon formation of an LLC, the members contribute cash, property, or services to the LLC in exchange for LLC shares or units.
  5. An LLC may borrow money in its own name and is responsible for repayment of the debt.
  6. An LLC is usually treated as a partnership for federal income-tax purposes. (The remaining four points assume partnership treatment.)
  7. Like partners, LLC members are not considered employees of the company. However, an LLC can have non-member employees.
  8. LLC members are taxed directly on company income. The LLC itself doesn’t pay federal income taxes.
  9. If an LLC has a loss, its members generally can deduct their share of the loss on their own tax returns.
  10. For tax purposes, an LLC’s income and losses are divided among its members according to the terms of their agreement. Tax allocations must correspond to economic allocations of profit and loss.

An LLC is but one structure you might consider using for a business venture. We can help you determine which type of arrangement will best meet your objectives.

Whether you need individual or business tax advice, give us a call. We’ve got the answers you’re looking for, so don’t wait. Call us today.

* Each state has its own laws governing LLCs. Consult with an attorney before establishing an LLC.

Need a Loan? Follow these Steps First


Is it time to put your expansion plan on the front burner? Have you outgrown your current location? Do you need to replace some equipment? There are many reasons small business owners might be in the market for a loan. If you’ll be shopping soon, here are some pointers.

Check Your Credit

When you apply for a loan, the lender will look at your personal and your business credit histories. Before you start the application process, check to make sure both are accurate and up to date. If there are errors, clear them up ahead of time.

Polish Your Plan

Prospective lenders will want to know as much as possible about your business. Prepare a comprehensive, up-to-date business plan that provides information about your company (a description and an executive summary) and yourself (educational background and relevant experience). Since your plan may be pivotal in convincing potential lenders to approve your loan, consider including an overview of your management team and key personnel along with some market analysis and a marketing plan.

You should also be prepared to provide financial statements and cash flow projections. Lenders may request personal financial statements for you and other owners as well.

Check Your Equity

Before you put in a loan application, make sure you have enough equity in the business. Although requirements can vary, lenders generally want a company’s total liabilities to be less than four times equity. A lender may require you to put some additional money into your business before approving you for a loan.

Identify Collateral

Lenders generally require collateral, an alternate repayment source that can be used in case your business isn’t generating enough cash to make payments on your loan. Either business or personal assets can be used. If you don’t have anything you can use as collateral, perhaps you can find someone who does who will cosign the loan.

Look for a Good Match

If you already have a good working relationship with a bank that lends to small businesses, it makes sense to start there. If you don’t, or if your bank isn’t a good match, do your homework. Look for lenders that do business with companies similar in size to your own. Finding a lender that’s familiar with your industry is an added bonus.

For more tips on how to keep business best practices front and center for your company, give us a call today. We can’t wait to hear from you.