A Few Tax Scams to Be Aware Of

The IRS posts a list of tax scams each year that you should be aware of:

Phishing: This is when fake emails are sent claiming to be from the IRS, however, the IRS never initiates contact with taxpayers via email about a bill or tax refund. You’ll see more of these during tax season.

Phone scams: I have even received some of these calls on my cell phone. Criminals, many times calling from overseas, will state that they are from the IRS and then threaten that you will be arrested, deported, etc. if you do not immediately pay a tax balance. By the way, the IRS will not do this, and they especially will not ask you to purchase gift cards from CVS or to wire them money to take care of your balance.

Identity theft: You usually find this out when your tax return gets rejected because it has been filed already. This is because your identity was stolen and criminals filed a return using your social security number to obtain a fraudulent refund. Always try to protect your personal data when you can to help to minimize this risk.

Fake charities: The IRS says that fake charities may even have similar names as national organizations. Make sure the charity is legitimate, and you can even check out the status of a charity at the IRS website. By the way, when I first started my practice years ago, I came across someone who started a fake charity and solicited donations to help people after 9-11. Supposedly, they used the money to pay for expensive vacations instead. Know your charities.

Abusive tax shelters: These are schemes that are promoted to avoid paying taxes that are illegal. If it sounds too good to be true, then it probably isn’t true.

Other scams include: return preparer fraud, inflated refund claims, excessive claims for business credits, falsely padding deductions, falsifying income to claim credits, frivolous tax arguments, and offshore tax avoidance.

Most of these scams can be avoided just by using a competent and trusted tax preparer.

 

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Where Are all of the Young CPA’s and Why Should You Care?

I was at another continuing professional education seminar recently, which is very often as CPA’s are required to have 120 hours of continuing education every three years. One of the observations that I make each and every time is that I am one of the youngest CPA’s in the entire room. This is true now and was true 10 plus years ago when I became a CPA. Unfortunately, I have been jumped past the young man status, so it has nothing to do with being a “young” CPA. Why does this matter and why should you care?

Some details: When looking around the room this time and every time, It appears that approximately 5% of the CPA’s are younger than 50 years old, with the majority being older than 60. Could it be that older CPA’s attend the seminars that I happen to attend or is this true throughout the profession. When digging deeper, I found out that according to the AICPA, approximately 75% of CPA’s are expected to retire in the next 15 years, so my observation applies throughout the entire profession, and not just Bergen County.

More accountants, less CPA’s and CPA firms: Studies are showing that although there are more accounting graduates, less are becoming CPA’s. There are numerous reasons why including greater education requirements, time requirements, and the expense of taking and studying for the exam. Also, although I do not have a statistic on the age of CPA’s that own small firms, I do not know, even casually, one CPA firm owner that is younger than me. Just to reiterate, I am not a spring chicken anymore.

Negative impact on clients: CPA’s are the main business and tax advisors to small business owners and many individuals, so who will fill this void? I can only make several guesses to the alternatives, which are not very good for clients. Alternatives include: using non-CPA business advisors and preparers (whom generally lack the education, expertise, and training of CPA’s), using larger firms (along with much higher prices and less attention to the “little” guys), and doing everything yourself (ie. QuickBooks, however you need to be an accountant to actually get the numbers correct, along with not receiving guidance that saves business owners more than they actually pay their CPA). Another negative aspect is that there will be less CPA’s to collaborate with as peers. As a side note, the CPA’s that I know have been the most generous, helpful, and supportive people to me professionally.

General trends: There has been a generally trend for less people to start their own businesses, which has been the case for decades, according to a 2017 report by the Kauffman Foundation, titled, “The Entrepreneurship Deficit.” Several reasons are cited, including demographic changes, technology, and geographic changes. It appears that the CPA profession is not immune to these general trends, and as a result there are less small CPA firm owners.

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IRS and NJ Taxation Highlights

 

Yesterday I attended a continuing professional education seminar with speakers from both the IRS and the State of New Jersey. Here are some highlights after all of the recent Federal changes and also many New Jersey changes that most people are not aware of:

Your paycheck may be under withheld: After the new Federal tax law changes, many people have seen an increase in their take home pay due to the tax cuts, but it is quite possible that too little has been withheld. If you want to be safe then ask your employer to increase your withholdings, and you can also use the withholding calculator at irs.gov. Beware that it is really meant for simpler tax situations versus being self-employed, having rental income, and investments. If you are one of our business clients that we already prepare a year-end tax projection for, then we will take care of this for you.

Private debt collectors: The IRS uses private debt collectors, and the State of New Jersey has already been doing this for years through Pioneer Credit Recovery. This can cause concern especially with all of the fraud that is taking place nowadays. By the way, the IRS will not ask you to drop off cash somewhere, send a money order, or purchase gift cards to settle your debts.

New Jersey tax amnesty: There are many unknowns to all of the changes that NJ has made, including the start date of a tax amnesty program. The program will likely start on November 15th of this year and end on January 15, 2019, and allows a reduction of interest charged and elimination of penalties for old tax debts from February 1,  2009 through September 1, 2017. You should receive a notification on this program if you have old debts, but you can file and pay your old debts even if you do not receive a notice from the State.

New Jersey property tax deduction increase : The property tax deduction on your New Jersey tax return has been raised to $15,000 from $10,000.

Penalties for not having health insurance in New Jersey: New Jersey now requires residents to have health insurance or they have to pay a tax penalty. New Jersey has taken the opposite approach of the Federal government.

Increased pension exclusions in New Jersey: This will be phased in over the next several years, however, there is an income limitation of $100,000, which has not increased.

There are many, many more changes related to New Jersey, including reinstatement of Urban Enterprise Zones, increased tax rates on income over $5,000,000, taxes on ride sharing, taxes on liquid nicotine, and changes to payments plans.

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How to Resolve Conflicts with Less Stress

Conflicts are inevitable and happen in all aspects of your life, including disputes with your customers, disputes as a customer, with family, neighbors, and in any situation. However, there are ways of minimizing conflicts and to also resolve them fairly and quickly. Here’s how:

Resolve at the lowest level: A perfect example is when a customer at the grocery store is not satisfied for some reason and they immediately ask to speak to the store manager. Quite often, the easiest way to have resolved the issue would be to let the cashier know the issue first, then customer service if still not resolved, then finally with the store manager.

Don’t make threats or take drastic action: As soon as you say that you are going to contact your attorney, then you just escalated your issue to a whole level higher, and the relationship will most likely be damaged forever. Ironically, I think that this threat has been overused anyway and nobody really cares all that much. Another example is to demand a raise from your employer and if not given one, then threaten that you will leave. Why not either ask for a raise, if you deserve it, or ask your boss what you can do differently to receive a raise?

Avoiding conflicts: Avoiding conflicts does not mean trying to make everyone happy because that is not possible, and you will make yourself unhappy and exhausted in the process. Do not avoid conflicts just to avoid conflicts or just to be nice as sometimes the truth hurts, although you should make sure that you say it in a charitable way. A good practice is to always strive to determine how to conflict proof your decisions.  For example, if you know that you are going to make a change to your business practices, then let people know ahead of time, when possible. This can involve alerting customers to price increases, billing methods, payment methods, and timing of providing a service. The key is to communicate with people in a smart, proactive, truthful, and thoughtful way.

Put it in perspective: Is the conflict really that important or even worth pursuing? Weigh the pros, cons, and the actual cost of entering a battle.

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Does Money Really Matter? 3 Different Views

People tend to fall into 3 different categories of how they view money, which ultimately impacts how they manage it. How important should it be to you?

Love of money/materialism: Thus is the most extreme view whereas you practically worship money. Earning more and obtaining more just to earn more and have more. It can be a trap that creates a lack of satisfaction. Although it may at first seem hard to digest, poor people can worship money and wealthy people may not because it is not about the amount that you have.

Don’t care: Another extreme view is not to care at all about money, although this doesn’t seem as common. This can cause problems because you may not use your money wisely and will probably be rather reckless.

Balanced approach: Thus is where you view money for what it is; a resource that has been given to us to use wisely. But what exactly is the wise use of money? It is taking care of your family, the poor, investing and saving wisely, spending within your means, and not being too emotionally wrapped up with money. It may mean owning a 5,000 square foot house or it may mean renting a small apartment; shopping at Wal-Mart or Neiman Marcus. Confusing, isn’t it?

Just realize what the purpose of money is and don’t let anyone tell you how much or how little you need. Learn, seek advice, and try not to get stressed out over it.

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Why Everyone Should Start and Run a Business Even if it’s Just Part-Time and Temporary

Why should everyone start a business? Because it will completely change the way you see the world, view people, money, and everything else. Not to mention that it will humble you.

Just to be clear, not everyone should be a business owner full-time or for the long-haul. However, by starting a part-time business or even operating it full-time it will change the following:

Appreciation: You will appreciate the skills of business owners that you know, including friends, family, local restaurants and other business owners, or even your own boss/owner if you work for a small company. There are many, many skills that are required to run a successful business that can only be appreciated if you actually are a small business owner.

Humbling: Nobody likes rejection that I know of, but it is very common in business. A small business owner is usually the head salesman and must learn how to sell their products or services. As with any sales position, you’ll quickly realize that not everyone wants to buy what you’re selling, even if you believe that it is better than chocolate fudge brownies, if that is possible. Even if you are selling your products on the Internet and do not have to sell face to face, you may wonder why nobody is visiting your website or buying your products on Amazon. Don’t take it personally. You will also experience the ups and downs of a business vs. a steady paycheck from an employer.

Direct relationship between results and income: Unless you work as a commission-based sales person, there generally is not a short-term relationship between your income and your results. For a business owner, great results equal greater income. As an employee, compensation increases tend to happen over time and you are highly dependent upon your direct boss and the company’s performance.

Complaining: You will probably laugh when a friend complains how much they have to pay towards their health insurance, retirement benefits, and their company’s paid time-off policies. Guess who fully pays for these benefits when you own your own business?

Commitment: Having a small business means being committed. As with any endeavor that you seek to achieve positive results, a strong commitment will dramatically increase your chance of success. If you can commit to a business then you can commit to other important items.

 

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Don’t Use Your Employees and Employees Don’t Use Your Employers

When I was a kid, sometimes a friend would say, “Don’t be friends with so and so because they are users.” I have to admit that I really did not know what that meant back then, but since I now have the Internet nowadays, I was able to look it up. According to urbandictionary.com, a user is someone who takes advantage of another’s kindness or generosity. They pretend to be a friend but are only in it for what they can get out of it. A user takes and takes, rarely gives. When it comes to employers and employees it can easily happen, but here are 4 ways to avoid using each other:

Be honest: When an employee takes a job there should be honesty on both ends. First, the employer should set expectations about the responsibilities, compensation, work environment, hours, advancement opportunities, etc. Employees should be honest with their employers about their experience, their ability to perform their job functions, their availability, and their own expectations. If you do not tell your employer that you plan on moving out of state in 6 months, especially after your employer has spent time and money on your training, then that is lying by omission. The same holds true for an employer that plans on moving their location in the near future without informing a new employee. Be upfront and honest.

Don’t dawdle or overload: A business makes money when employees are productive and loses money when they dawdle. Keep this in mind as an employee. Alternatively, if an employer overloads their employees then this can lead to burnout.

Give, don’t just take: Employees should not focus solely on their own paychecks, but on the overall success of the business. Think about what you can give to make your job better and for the business that you work for to succeed. Most likely, unless you work for a user, you will be compensated for high achievement. Employers should compensate their employees fairly and reward them when they are helping the business to be more profitable.

Do a good job: Do an excellent job and take pride in what you are doing whether you are an employee or an employer.

Don’t be a user!

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Does it Matter How You Dress?

A man preparing to go to work

I dress up rather formally for work with a tie, dress shoes, and dress shirt, although I don’t usually wear a suit jacket. When I look around, no matter where I go, including the office, dinner, schools, or even at Church, dressing more formally seems to be the exception. But does this really matter?

In the book, “Influence: The Psychology of Persuasion,” by Robert Cialdini, he elaborates that clothing does have an effect on the likelihood of people to be influenced. To summarize, a person’s clothing has a lot to do with the expectations and authority that is perceived by others. He notes that it is important to dress at a level that matches one’s expertise and credentials. I have noticed that when going to a restaurant, if I am dressed more formally, the servers seem to be more attentive towards my guest and I, and also tend to focus more attention on the person who is dressed more formally (which means that the bill is usually given to me, so maybe I should take off my tie).

As for the study, it seems as though expectations play a large role in how others perceive you. For example, you expect a police officer to be in a police uniform, a doctor to wear a white coat, an attorney to wear a suit, and a fast food worker to wear the same embroidered shirt as all of the other workers they are with. There are numerous other studies about how you dress that you can read in psychology journals, but if the studies have too many variables or not enough participants, then the studies will carry less weight.

A big thought to ponder is how your clothing makes you feel, your attitude and expectations for yourself, and your performance. For example, a school uniform signals to yourself that now is the time to be a student and focus on studies. Work attire means that it is now time to be productive and get to work. Pajamas mean that it is time to relax and go to sleep.

The way you dress is just one factor with how you are perceived, your performance, and how you feel about yourself. It seems as though you are a maverick if you dress up nowadays vs. the trend of dressing more and more casual.  Experiment and see if it changes your life.

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How and Why to Strengthen Your Personal Finances to Increase Profits

Most people view their business to be a completely separate entity from their personal finances, and rightly so. This is generally true from a legal, tax, and accounting standpoint, whereas your business operations and finances should be separated from you personally. However, most small business owners are completely dependent upon their business to support them, as they feed off each other. So how and why should you strengthen your personal finances to increase your profits?

Why:

The business won’t starve: By withdrawing every single penny of profit from your business, it will make it much harder to invest in technology, equipment and capital improvements, and people. One of the main reasons that businesses fail is due to a lack of capital.

Increased profitability: If you have a large personal expense that is coming due, such as your mortgage, then you are more likely to take on less profitable customers, jobs, or may even sell your products at a discount due to desperation.

Better business decisions: It’s no secret that people make better business decisions when they are not feeling stressed or anxious. A common example of a bad decision is to cut expenses that support the main operations of a business to save a few pennies, but it ends up costing you dollars of revenues.

How:

Decrease your personal spending: There are numerous ways to decrease your spending, including groceries, dining, entertainment, taxes, auto, clothing, and virtually every category of spending. Some of my other posts will give you ideas regarding cutting expenses, but a few tips including: using cash more, cash budgeting (aka the envelope system because almost no one actually prepares a real budget), reviewing all of your “necessary” expenses, and delaying expenditures/gratification.

Increase cash reserves: Most people are poor at this (no pun intended), including those who save well for retirement. Savings should be allocated for short-term needs, such as emergencies, mid-term needs, such as for a house, and long-term, such as retirement. The easiest way to start saving is to allocate a very small percentage of every deposit that you make in your personal account towards a separate savings account. You can even start with 1%, just to get used to doing this and you’ll quickly realize that it is not that difficult. Over time you can increase your savings rate as you increase your business profits.

Reduce debts: Similar to increasing your cash reserves, you can start with applying a small percentage of every personal deposit towards your debt balances. The big question is which debts should be paid down first. Since finances are very behaviorally driven, then one technique is to start with the smallest debts first while ignoring the interest rate. The reason for this method is because it creates a sense of accomplishment once a debt is paid off, and will motivate you to continue moving forward.

 

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What is the Best Type of Business to Own?

What’s the best type of business to own? One that makes money of course, but let’s dig a little deeper . . .

Simple: The more complex a business is then the harder it is to operate. For example, if your business requires the talents of very technical people, then this complicates the delivery of your products and services. Unfortunately, it also requires more time and expertise of the owner. Such businesses include engineering, law, healthcare, IT consulting, accounting, and other technical fields.

Low capital requirements: If you need to invest heavily in equipment, real estate, or large amounts of inventory, then this can create a drain on your cash. Supposedly, lack of capital is one of the main reasons for business failures.

Repeat business: A perfect example of a business that receives repeat, recurring sales is a subscription based software company. An example of the opposite type of business is a general contractor. There is a wonderful book called, “The Automatic Customer” by John Warrillow that outlines the value of a having a business with predictable, steady, recurring sales. He gives numerous examples on how this can be applied to many businesses, and not just software companies. I’m a big advocate of businesses trying to maximize their recurring sales.

Easily duplicated: Any business that can easily replicate the tasks that the owner performs is a plus. Did you ever notice that many of the chain restaurants do not serve overly complex dishes? If they did, then it would complicate the way the run their business.

If you are thinking of starting a new business, an additional business, or even a side business, then you should strongly consider a business with these traits.

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