Smart Money Strategies for 2018 – Part 1

Smart Money Strategies for 2018 – Part 1

by | Accounting News, News, Tax, Tax Planning - Individual

A new year is upon us, and many individuals use that as an opportunity to start fresh on aspects of their life: their workout routines, eating habits, social calendars and often times their finances. Studies have shown that financial resolutions may pay off more than their fitness counterparts, but having a specific action plan is a vital part to ensuring those resolutions are met.

Below is the beginning of a three part series where we will outline 12 smart money strategies for 2018, one for each month.

JANUARY

To start the year off right, think about saving. January’s strategy is to automate your contributions to savings. Although more and more Americans are contributing to 401(k)’s or IRA’s as auto-enrollment by companies increases, automating deposits to retirement and savings accounts will help you reach goals before retirement.

If you are not already contributing to a retirement fund, start planning for your future and talk to someone in your payroll department about automatic contributions to a 401(k). Or, if that is not offered at your place of work, find a reputable brokerage firm and set up an IRA, using your bank or the broker’s online features for automatic contributions on payday.

If you already have a retirement fund, consider increasing your contributions in the new year, even by just $20 each paycheck. Assuming you start contributing by at least age 35 and receive a 7% return, increasing contributions by $40 each bi-weekly paycheck could land you with an additional $110,218 in your 401(k) by age 65.

While you’re taking the time to look over retirement contributions, consider setting up automated transfers to a savings account for more current goals or dreams, such as a vacation, a house, a new car or just an emergency fund. Setting up automations on payday will help you begin to live without the money and put funds away toward your future rather than hoping there’s enough left at the end of the month to save.

FEBRUARY

Month two is all about budgeting or creating a realistic spending plan for yourself. Studies have shown that only about 35% of workers follow a firm spending plan, while around 44% of workers could be classified as impulsive spenders who often have credit card debt and are living paycheck to paycheck.

A great start is to track your spending for 30 days to see where your money is going, then consider where you can cut down or save more to develop a realistic plan that fits your life. A simple budgeting plan is to allocate 20% of your paycheck to savings, 30% to “entertainment” spending and 50% to necessary spending such as housing and bills. There are also more detailed spending plans, both paper and digital, that help you specifically allocate all of your funds to categories such as utilities, rent/mortgage, groceries, savings, other loans or debt and more. However you decide to budget, having a plan for your money each month can help you have more peace of mind and put you on track to a financially freer life.

MARCH

In March, try tackling your credit card debt. One option is to explore ways to lower your interest rate(s). Some balance-transfer credit cards offer special 0% promotional rates for the first 12-18 months. If you think you can pay off the transferred balance before this promotional period concludes, these are a great option to drastically lower your interest. Another viable option is to consolidate your credit card debt to a personal loan with a lower interest rate.

If you are without credit card debt but do have a card, make sure you are making the most of whatever rewards your card offers. Look for cards that offer rewards that match your spending habits (flight points, cash back, etc.) and make sure you understand exactly how the rewards work so you can take full advantage. And, if you current card has annual fees, consider calling to request those be waived or lowered since a study showed that 82% of individuals who asked had annual fees reduced or waived completely.

APRIL

Since tax day is in April, this month is all about taking advantage of your tax refund if you receive one. According to the IRS, the average income tax refund in 2016 was $2,795, but use whatever money you might receive wisely.

If you do receive a refund, putting that money toward any high interest debt you may have should be the top consideration, whether that’s school loans, credit card debt, a home loan or more. If you are debt free, consider starting an emergency fund, putting that money toward a retirement fund, putting the money into a specific saving fund (house, car, etc.) or investing in a course or seminar that will help you to advance in your career.

If you do get a large refund though, that likely means that you are overpaying on your taxes throughout the year. Although many people enjoy getting a large check from the IRS every spring, having that money available to you during the year allows you to pay down more debt or invest, so consider updating your W-4 withholding information with your employer. With the passage of the new tax laws, there is a chance you may have to update this form anyway so now is an ideal time to ensure you’re not giving the IRS money you could be using throughout the year.

 

Stay tuned for parts 2 and 3 of the Smart Money Series in the coming months.

343,020 Reasons CPAs Should Talk Up Their Tax Expertise Now

by | Accounting News, Audit and Accounting, Bookkeeping, Community, CPA, IRS, News, Tax Consulting, Tax Preparation - Individual

Nearly three years ago, the IRS launched the tax return preparer oversight program and seeds were planted in the landscape of tax return preparation services. Today, those seeds are starting to sprout.

In June, the IRS estimated there are 717,161 PTIN holders, many of which (212,975, or 29.7%) are CPAs, outnumbering Enrolled Agents (42,895) and attorneys (31,189) combined. While CPAs have dominated the regulated tax preparation arena, that landscape is about to change. More and more people are completing the final step to becoming a Registered Tax Return Preparer, or RTRP (they have until 12/31/13 to pass the competency exam). Currently, there are 4,893 RTRPs. That leaves an estimated 338,127 “provisional preparers” who may join the RTRP ranks.

That means more competition is coming and it will influence the public perception of tax return preparers. Unfortunately, the public doesn’t really understand the difference between a CPA and other tax return preparers. We have all seen the advertisements by the big box tax preparation and software chains that inflate the qualifications of their employees. They often compare them to CPAs or perhaps they feature a CPA in the ad, implying that every customer representative will have similar qualifications.

Some believe that RTRPs will leverage their new designation as some form of implied association with or endorsement by the IRS, thus giving them an advantage in the marketplace. While the IRS has put in restrictions on advertising that leverage the RTRP designation (thanks to AICPA advocacy), they cannot possibly enforce them completely. And they can’t police informal or non-commercial promotions. If CPAs wait to counter such marketing efforts, they may find themselves in the same position as a political candidate trying to counteract a negative ad: while the ad may be false, it is hard to change someone’s mind after the fact.

That’s why it is important for CPAs to start telling their stories better, more often and everywhere they can think of. And they need to start now. Clients need to hear messages about the value of a CPA directly from their CPA. They also need to understand how they are more than just a tax return, that their CPA is available year-round and can help them plan for life’s significant milestones such as buying a house, planning for retirement, saving for college and much, much more. If we don’t start tooting our own value horn louder and longer, who will?

When do you need to start building your new value proposition? Yesterday. And how do you do this? Start by developing a value-centric firm culture, then educating your staff on the importance of value based client communications.

The AICPA has developed the Tax Practitioner Toolkit (available free) to help members better define their value and communicate it to current and prospective clients. A Toolkit Implementation Checklist is included, so you can get started right away.

Once your firm masters its story so it is infused in every client contact, networking presentation, or prospective client meeting, it will become part of who you are and what your firm represents for its clients. Once you know your value and live it every day, clients will never have to guess. They’ll automatically know that their CPA is the premier provider of tax services and they would never trust their finances to anyone else.