What Should I Do After Acquiring A Business?

One of my favorite sayings is “the only constant is change.” This saying certainly holds true in the business realm where it seems that the mandate is also “growth and go.”

Experience seems to show that upon the purchase of a business the new owner needs to roll-up his or her sleeves and really get to work.

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The following steps, as noted by Business Daily, help to summarize a recommended agenda for a new business owner to focus on:

1. Do an audit of the existing processes and practices: "Regardless of the entrepreneur's background and the amount of due diligence conducted prior to an acquisition, the entrepreneur will never truly understand the business until he or she starts to operate it," said Michael B. Shaw, chair of Much Shelist law firm's business and finance group. "Every company is unique, and an entrepreneur needs to truly understand that business before deciding what changes to make."
2. Communicate with the existing staff members: Mark Davis, CEO of Puro Clean, said one of the biggest challenges a new owner will face after an acquisition is fear throughout all levels of the organization.
3. Study and understand the company culture: Before you try to improve or alter the company culture, stop and analyze the existing culture to understand the key factors that led to the company's success, Shaw said.  "Rather than starting over with [your] vision for the culture, those key factors should form the foundation for the culture's evolution, which should be an organic process," he added.
4. Plan your changes carefully: Making numerous, significant changes right away isn't always the best approach when you acquire a business. Shaw said that although you may be eager to make an impact, big moves like this shouldn't happen overnight. "An entrepreneur should begin implementing his or her changes in a manner that minimizes disruptions to employees and customers," Shaw said.
5. Be transparent about the changes you're making: Change can be difficult for all parties involved, and people won't always be happy with the decisions you make. The best thing you can do is to be up front and honest about any impending changes and how you arrived at them, said Matt Moss, a franchise owner of Dogtopia.

In conclusion, I think it’s fair to say that the single most important factor a new owner should give attention to is communication. Fear of the unknown can be remedied by working on eliminating things that are unknown, and good communication is a crucial part of that.

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Overlooked Tax Breaks For Individuals

With so many possible deductions and credits available to the individual taxpayer it’s no surprise that the possibilities can get easily lost in the shuffle.

This article identifies some of the tax breaks that frequently get overlooked by the individual taxpayer. The points below will help reduce the confusion of what can and cannot be deducted in your 2016 tax returns.

Kiplinger has identified 23 of the most overlooked tax deductions. Included in these 23 are the following key highlights:

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• Reinvested Dividends: this is the one that former IRS commissioner Fred Goldberg told Kiplinger millions of taxpayers miss, costing them millions in overpaid taxes. If, like most investors, you have mutual fund dividends automatically reinvested to buy extra shares, remember that each new purchase increases your tax basis in the fund. That, in turn, reduces the taxable capital gain (or increases the tax-saving loss) when you redeem shares.
• Out-of-Pocket Charitable Contributions: It's hard to overlook the big charitable gifts you made during the year. But little things add up, too, and you can write off out-of-pocket costs incurred while doing work for a charity.
• Student Loan Interest Paid By Mom and Dad: If parents pay back a child's student loans, the IRS treats the transactions as if the money were given to the child, who then paid the debt. So as long as the child is no longer claimed as a dependent, he or she can deduct up to $2,500 of student-loan interest paid by Mom and Dad each year.
• Estate Tax on Income in Respect of a Decedent: This sounds complicated, but it can save you a lot of money if you inherited an IRA from someone whose estate was big enough to be subject to the federal estate tax. Basically, you get an income-tax deduction for the amount of estate tax paid on the IRA assets you received.
• Refinancing Points: When you buy a house, you get to deduct in one fell swoop the points paid to get your mortgage. When you refinance, though, you have to deduct the points on the new loan over the life of that loan. In the year you pay off the loan—because you sell the house or refinance again—you get to deduct all as-yet-undeducted points. There is an exception to this rule if you refinance a refinanced loan with the same lender.
• American Opportunity Credit: If the credit exceeds your tax, it can trigger a refund.
• Don’t Unnecessarily Report a State Tax Refund: The refund is taxable (reportable) only to the extent that your deduction of state income taxes the previous year actually saved you money.

The bullet points above are some of the frequently over-looked deductions and credits identified by Kiplinger. However, for even more helpful resources, see GoBankingRatesfor a list of “50 Tax Write-Offs You Don’t Know About.”

At this point, you should be asking yourself whether you are getting all the deductions and credits you are entitled to. Of course, this is an analysis that should be done in conjunction with an experienced tax professional otherwise you might be leaving “money on the table.”

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Funding With Small Business Loans

The core problem for every entrepreneur and small business starting out is the same.

They need cash.

That holds true whether it’s a brand new business who needs cash to realize a great idea or a company who just needs to gain a competitive advantage and achieve growth.

Part of it, of course, is acquiring hard assets—equipment, real estate, office space, warehouse space, technology—and soft assets, such as regular, reliable employees and, occasionally, consultants who help guide the direction of the business.

The pressure to acquire all the needed assets to execute a great idea, especially on lone entrepreneurs, can be overwhelming. It’s especially daunting when the entrepreneur or small business sees a significant cash shortage and knows they will have to get help financing their goals.

This is where the Small Business Loan steps in.

Knowing how these loans work is critical, however. Of course, this is something we’ve covered in past articles, but today we will be revisiting those general principles with a slightly different approach on the topic as well as some new information not covered previously.

Here are a few key points to help you better understand this financing alternative:

SBA Programs

Perhaps one of the most well known funding alternatives is the financing available through the Small Business Administration (“SBA”). One of the advantages of the SBA is that it offers products specifically geared toward small businesses.

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This definition from bplans.com zeroes in on the nature of an SBA Loan:

[The loan] is not a direct loan from the SBA itself. Rather, it is a loan that has been made by a commercial lending partner, but that the SBA has guaranteed for these partners and that has been structured according to SBA requirements. This helps to minimize the risk for both partners and borrowers. Only those without reasonable access to other funding sources are eligible for such a loan.

Regular Bank Loans

The best place to get a small business loan is still a bank, says George Cloutier, CEO of American Management Services, a consultant to small businesses. Banks typically offer the lowest interest rates and many have established reputations as trustworthy lenders, though it’s not always a walk in the park for small businesses to get funding from a bank.

As NerdWallet points out:

Small businesses have a tougher time getting approved due to factors including lower sales volume and cash reserves; add to that bad personal credit or no collateral (such as real estate to secure a loan), and many small-business owners come up empty-handed. Getting funded takes longer than other options — typically two to six months — but banks are usually your lowest-APR option.

Small Business Lines of Credit

The primary difference between a line of credit and a regular loan is that with the loan it is drawn against usually once, that is, for the full-approved amount of the loan.

With the line of credit, on the other hand, it is drawn against on an as-needed basis. When the business’s cash position permits a pay-down of the line of credit’s outstanding balance, the borrower is typically permitted to do so.

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The credit line situation is potentially less expensive than the regular loan situation because the outstanding principal amount of the line of credit is only for funds that have been put to immediate productive use, and hence, the associated interest charge is for immediate productive use instead of just sitting in a bank account somewhere. However, the fees (other than the interest cost) for putting a line of credit in place are usually more expensive than a simple loan.

The bottom-line is this: a credit line helps the borrower draw against the line of credit as frequently as needed (subject to outstanding principal limitations), and repayments less than 100 percent of the outstanding principal amount can be made as frequently as it makes good business sense to do so. It is incumbent on the borrower to pay attention to sensible cash management practices because of this flexibility associated with maintaining a line of credit.

BPlan.com says this about the line of credit option:

…for startups, a line of credit can help get your business off the ground, as many new businesses have limited capital needs, and a loan can quickly eat into your profits. For businesses that are already on their feet, a credit line offers a safety net, as well as great flexibility that business owners can use creatively to their advantage.

As this report notes, finding, applying, and getting approved for small business loans can be difficult, but the more prepared you are, the better. Be attentive to the following, as discussed by NerdWallet:

• Pinpoint why you need the money. Ask yourself how this loan will help your business.

• Find the right loan. Choose a type of business loan based on your needs.
• Find the best lender for you. Compare options based on the cost and terms of each loan.
• See if you have what it takes to qualify. Gather information including your credit score and annual revenue.
• Get your documents ready and apply. Know what documents lenders will need from you ahead of time.

In summary, if you keep the principles in this article in mind and look carefully at all of the financing options, you are more likely to get the crucial funds you need that will turn your big idea into a big success.

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What are HSA Accounts?

A Health Savings Account (HAS) is a mechanism for saving money that is specifically earmarked for paying one’s medical expenses.

These accounts work similarly to other savings plans in the sense that pre-tax contributions are made that grow tax-free, and tax-free distributions are eventually made that are spent for qualified medical expenses.

Their availability is limited to individuals who have what are referred to as high deductible health care medical insurance plans. Thus, HAS savings accounts are an integral part of one’s health insurance plan.

HAS accounts are receiving notoriety as an element of President Trump’s proposed new health care plan, as noted by this report:

A health savings account is a way to save money for health costs that go above and beyond insurance coverage. This can be a very useful way to cover copayments, deductibles, and other non-covered expenses. HSAs are used in conjunction with a high-deductible health plan (HDHP) where the HSA helps patients cover the large deductible when they need expensive care.

In an interview with the site Your Health Care Simplified, Brent Ulreich, the senior financial planner at Hefren-Tillotson Inc. in Pittsburgh, Penn. said this:

“One of the major benefits of the HSA is the tax-deferred growth and tax-free distributions if proceeds are used for qualified medical expenses. Even after you leave employment, funds left in your HSA can be used to pay for medical expenses throughout retirement.”

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As reported in Market Watch, HSAs have long been favored by Republicans, in part because such plans are said to encourage smarter consumer behavior. Rather than almost all costs being covered by your insurer, you have those upfront costs to pay before the deductible kicks in. The thinking, at least in part, is that it will encourage consumers to shop around. (Though some studies suggest it encourages people to refrain from seeking care at all.)

There are many advantages to having a Health Savings Account, including, as noted by Investopedia:

• Others can contribute to your HSA. Contributions can come from various sources, including you, your employer, a relative and anyone else who wants to add to your HSA.

• Pre-tax contributions. Contributions made through payroll deposits (through your employer) are typically made with pre-tax dollars, which means they are not subject to federal income taxes. In most states, contributions are not subject to state income taxes either. Your employer can also make contributions on your behalf, and the contribution is not included in your gross income.
• Tax-deductible contributions. Contributions made with after-tax dollars can be deducted from your gross income on your tax return, which means you may owe less tax at the end of the year.
• Tax-free withdrawals. Withdrawals from your HSA are not subject to federal (or in most cases, state) income taxes if they are used for qualified medical expenses.
• Earnings are tax-fee. Any interest or other earnings on the assets in the account are tax free.
• Funds roll over. If you have money left in your HSA at the end of the year, it rolls over to the next year.
• Portable. The money in your HSA remains available for future qualified medical expenses even if you change health insurance plans, change employers or retire. Funds left in your account continue to grow tax fee.
• Convenient. Most HSAs issue a debit card, so you can pay for your prescription medication and other expenses right away. If you wait for a bill to come in the mail, you can call the billing center and make a payment over the phone using your debit card. And, you can use the card at an ATM to access cash.

HSAs also have a few disadvantages, including:

• High deductible requirement. Even though you are paying less in premiums each month, it can be difficult – even with money in an HSA – to come up with the cash to meet a high deductible.
• Unexpected healthcare costs. Your healthcare costs could exceed what you had planned for, and you may not have enough money saved in your HSA to cover expenses.
• Pressure to save. You may be reluctant to seek healthcare when you need it because you don't want to use the money in your HSA account.
• Taxes and penalties. If you withdraw funds for non-qualified expenses before you turn 65, you'll owe taxes on the money plus a 20% penalty. After age 65, you'll owe taxes but not the penalty.
• Record-keeping. You have to keep your receipts to prove that withdrawals were used for qualified health expenses.

Hundreds of health expenses qualify for payment from an HSA. They are explained in detail in IRS Publication 502, Medical and Dental Expenses.

In conclusion, when it comes to going the HSA route, it’s highly advisable to carefully consider your options. An option that satisfies the needs of one person may not necessarily be the right choice for another person.

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Money Management Tips For Couples

Having to manage personal finances is one of the stressful realities that makes up a part of normal daily living. As a single person managing his or her finances, he or she doesn’t have to be concerned with coordinating financial management efforts with anyone else. However, if the scenario involves a couple, such as a husband and wife, an entirely new dynamic is introduced. In theory, at least, there should be some sense of coordination between both members of the couple. What affects one member of the couple affects the other member of the couple, right?

If you and your partner are like most couples, chances are, you fight about money. Numerous studies have shown that money is the No. 1 reason why couples argue — and many of the recently divorced say those battles were the main reason why they untied the knot.

We’ll begin with the following quick points, as noted by Key, that address a number of financial mistakes that partners can make that create serious angst in their relationship:

1 - Merging The Finances

The Wrong Approach: United we stand, divided we bank (i.e. separate bank accounts).

The Right Approach: It's yours, mine and ours (i.e. share the bank account).

2 - Dealing With Debt

The Wrong Approach: Your debt will ruin us; you must find a way to pay it off.

The Right Approach: It's our debt: Let's decide how to pay it off together.

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3 - Keeping Spending In Check

The Wrong Approach: I'm a saver and you're a spender. That's the problem.

The Right Approach: We both spend, but on different things. Let's budget.

4 - Investing Wisely

The Wrong Approach: You're a risk-taker, I'm risk-averse. Hands off our retirement savings.

The Right Approach: Let's think in time frames and take as much risk as our goals allow.

5 - Keeping Money Secrets

The Wrong Approach: What my spouse doesn't know will never hurt him/her.

The Right Approach: Big financial secrets can ruin a marriage.

6 - Emergency Planning

The Wrong Approach: We're fine. We don't need to worry about money.

The Right Approach: Anything could happen. Let's plan for emergencies.

Examples of Financial Fights All Couples Have

In a piece by CNBC on the topic, the following examples of conflicts provide more insight about problems to avoid:

1 - Risk Taker vs Risk Avoider

One of you is more comfortable with the ups and downs of the stock market. If your spouse is intent on taking more risk than you're comfortable with - by putting more money into stocks, or investing in start-ups or buying Bitcoin - agree on a small percentage of your money that can be used in that way (no more than 5 to 10 percent) and a similar amount that you can save or invest as you wish. Then stick to your plan with the rest.

2 - Lending or Giving Money to Family and Friends

Forget about loaning money to friends and family in the majority of cases. If you can't afford to do it as a gift, don't do it at all - it won't end well. If you've already done it and you want to preserve the relationship, tell the recipient you're forgiving the debt, but that you don't want to be asked for more in the future.

In conclusion, the above points make it clear that good communication and teamwork is the real key to conflict-free financial partnership in marriage. A health dose of humility, patience, and selflessness will go a long way too because, after all, no one is perfect.

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Common Tax Time Mistakes to Avoid

“And they’re off!” If you’ve ever been to a horse race, the phrase should sound familiar. Those words apply now: the rush to file a complete and accurate tax return on time has begun.

But, as The Muse warns, the more you rush, tax pros say, the more you’re likely to make mistakes that can cost you in the form of penalties, a delay in getting your refund, and even a higher risk of an audit. Avoiding the following seven mistakes will contribute to keeping your return error free.

1. Math Miscalculations

As BankRate notes, the most common error on tax returns, year after year, is bad math. Mistakes in arithmetic or in transferring figures from one schedule to another will get you an immediate correction notice. Math mistakes also can reduce your tax refund or result in you owing more than you thought.

Using a tax-software program to file your return can help reduce math errors. But you still have to make sure your initial numbers are correct.

In addition, The Muse notes the following three points about overlooking income, forgetting to double-check information, and failing to itemize deductions.

2. Overlooking Income

The IRS requires you to claim all income, regardless of whether or not you received a W-2 or 1099 from an employer. Failing to disclose income is a common issue for last-minute filers—and an oversight the IRS is keen to uncover. And once the IRS realizes you owe more, you’ll be on the hook for the extra tax, plus penalties and interest. So even if you only worked a side job for a day, the income you received is still taxable, and you must claim it on your return.

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3. Forgetting to Double-Check Numbers and Signatures

One of the most common tax mistakes, according to the IRS, is an incorrect Social Security number, so make it a point to check that you haven’t accidentally transposed the digits. And if you’ve opted for a direct deposit refund, you should also make sure that your bank account information is accurate.

4. Failing to Itemize Deductions

Taking the standard deduction may seem like the simplest and easiest route when doing taxes, especially if they’re pressed for time. But itemizing your deductions can sometimes save you a bundle.

5. Inaccurate Account Numbers

As this expert notes, you should always double-check your bank account and routing numbers if you want your refund direct deposited or if you’re making an electronic tax payment. Entering incorrect information can delay your refund or result in penalties and interest on late payments.

6. Changes in Your Filing Status

In addition, as Accounting Today observes, If the taxpayer was married or divorced or their household situation otherwise changed, it may need to be reflected in their official filing status.

7. Tax Deductible Charitable Contributions

The taxpayer may be able to deduct the value of their contributions when itemizing their return. Make sure to list all charitable contributions and check the math to see if the overall value is correct.

According to The Muse's interview with Koreen Jervis, an enrolled tax agent with Korjé Tax Professionals in New York City, when in doubt, “find a good preparer.” Ask for an extension, and then seek assistance from a skilled tax preparer because there are situations in which even the best tax software will not help.

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Ten Things You Need to Know About Passport Restrictions on Delinquent Taxpayers

Since 2015, when the Fixing American’s Surface Transportation Act was passed by Congress, world travelers who owe the IRS money have found that it’s no fun to owe a tax debt. In fact, it can ground any and all international travel plans indefinitely.

As noted by Jim Buttonow of Accounting Today:

…FAST Act is Section 7345 of the Internal Revenue Code, which requires the IRS to provide information to the U.S. State Department about people who owe “seriously delinquent tax debt.” Then, the State Department can deny, revoke or limit the ability of these individuals to use their passports – until they are back in good standing with the IRS.

The following 10 Q & A points about the FAST Act, also from Buttonow’s report linked above, are quoted and summarized in a more abbreviated form so that you can quickly digest the main points of how the FAST Act could affect you if you owe taxes:

1. What is the new passport-restriction program (IRC Section 7345)?

IRC Section 7345 requires the IRS to identify and “certify” individuals who have “seriously delinquent tax debt,” and provide this certification to the State Department. In turn, the State Department can essentially limit or completely stop the individual’s travel plans outside the US until the would-be traveler gets into good standing with the IRS.

2. Why did Congress create passport restrictions?

In 2011, the Government Accountability Office issued a report that examined the potential for using passports to increase tax-debt collection. The report found that 224,000 people who owed collectively more $5.8 billion in unpaid federal taxes received passports in 2008.

The report recommended that Congress enable a more coordinated effort between the IRS and State Department to go after these unpaid taxes, using passports as leverage. The report received a lot of national press, and the link between federal tax debt collection and passports became law in 2015.

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3. Who is Affected?

The passport restriction will affect people who travel internationally and owe seriously delinquent tax debt. This includes people with passports and those applying for or renewing passports.

Who is an individual with seriously delinquent tax debt? Section 7345 defines this person as owing a legally enforceable tax liability of more than $50,000 (unpaid taxes, penalties and interest combined), with:

• A lien filed, and all administrative remedies for lien relief have lapsed or been denied;
• or, a levy issued.

There are certain exceptions. The IRS won’t consider people in the following situations to be individuals with seriously delinquent tax debt, because these people are in good standing with the IRS:

• People who are in an IRS installment agreement to pay their taxes.
• People who have settled their debt through an offer in compromise or Justice Department agreement. 
• People who appeal a levy through an IRS collection due process hearing. 
• People who request innocent spouse relief (Form 8857). 

Based on this list of exceptions, the way to avoid being certified by the IRS as an individual with seriously delinquent tax debt is to get into an agreement with the IRS to pay the balance.

4. What will happen to the person who owes seriously delinquent tax debt?

Before the State Department revokes a passport, the State Department may limit the passport so that the individual can only travel back to the United States. It’s unclear how the State Department will use its discretion on limiting and revoking passports.

5. How can taxpayers get their passport restrictions lifted?

To get out of the passport restriction, individuals must get back into good standing with the IRS. For most taxpayers, that will mean paying the entire tax bill or, more likely, setting up an installment agreement with the IRS.

6. Can taxpayers just pay the balance to under $50,000 to remove the certification and passport restrictions?

The short answer from the IRS is no. Just reducing the amount under $50,000 will not decertify the taxpayer. 

7. Can taxpayers appeal their seriously delinquent tax debt certification?

Under Section 7345(e), taxpayers can appeal their status in federal district court or U.S. Tax Court. But the taxpayers’ passports will remain restricted while they appeal. For taxpayers who are surprised by their passport restrictions when they try to travel, the best way to expedite travel is to obtain a quick installment agreement.

8. What if taxpayers don’t think they owe the tax?

To get immediate relief, the only quick option is for taxpayers to pay the balance, or more likely, set up an installment agreement, and contest the tax later with the IRS.

9. Is there an expedited process to remove passport restrictions?

Right now, there’s no provision to expedite removal of passport restrictions after a taxpayer gets in good standing with the IRS. As the law is implemented, look for the IRS and the State Department to develop expedited procedures to relieve taxpayer burden.

10. What can a seriously delinquent tax debtor do to avoid passport restrictions?

Basically, taxpayers can avoid passport restrictions by meeting an exception outlined above – all of which mean getting into good standing with the IRS.

As Buttonow makes clear in his report: don’t assume it’s safe to make travel plans if you owe taxes. There are problematic ramifications of not being in good standing with the IRS when you intend to use your passport to travel outside the country.

For this reason, we highly recommend you meet with your CPA as part of your pre-trip planning process to put in place payment arrangements with the IRS sufficiently in advance of taking your trip.

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