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The “Final-Offer” Arbitration Challenge

19/09/16 11:06 am | Comments (0) | Posted By:

The Harvard Business Review recently published an article outlining an interesting strategy which should make negotiations more civil, speedy and fair.

The authors have proposed an approach they call the “final-offer arbitration challenge” for reaching fair agreements efficiently.

It works like this. If the other side’s position is unreasonable, one’s initial reaction is often to be just as unreasonable, believing that the issue will be resolved somewhere in the middle, and thus be reasonable. This may ultimately be the result but often only after investing a lot of time and money to get there. It stands to reason that if the parties come to a negotiation with realistic starting positions, the negotiations that follow should be relatively civil, speedy and fair.

But how can a negotiator who wants to be fair at the outset be sure that his or her counterpart will do the same? This is where the “final-offer arbitration challenge” can help to reach fair agreements efficiently. It works like this: To encourage reasonableness, one side should make their offer demonstrably fair from the outset. Then, if the other side is unreasonable, they should be challenged to take the offers to an arbitrator who must not compromise, but must choose one or the other offer. This approach should result in offers that are more aligned from the beginning. Thus it is to everyone’s benefit if the parties come to the negotiations with reasonable offers in hand.

This is not unlike the way thoughtful parents have resolved disputes between two siblings. Have one cut the last piece of cake in half, and have the other choose first.

 

Are you selling your home? There may be an income tax impact.

31/08/16 4:53 pm | Comments (0) | Posted By:

Selling your home sale could impact your income taxes. You may or may not have to pay income taxes on the gain from the sale of your home.

The gain from the sale of your home may be excluded, either all or in part, from your income tax if you meet the eligibility test. The eligibility test consists of ownership and the use of the home rules. You must have owned and used it as your main home for at least two out of the five years before the date of the sale. Property acquired through a like-kind exchange (1031 exchange) during the 5-year period is not eligible for the exclusion.

The 24 months used as your main home can fall anywhere within the 5-year period and does not need to be consecutive 24 months. Short absences count as time lived at home. Only 12 months of residence will meet the requirement if you are physically or mentally unable to care for yourself. Time spent living in a licensed care facility also counts toward the residency requirement.

Partial exclusion is available if you moved because of work, health or an unforeseeable event. Work-related exception qualifies if your new job is at least 50 miles farther from home than your old work location. Health-related exception qualifies if you moved to obtain, provide, or facilitate diagnosis, cure, mitigation or treatment of disease, illness, or injury for yourself or a family member. Health-related exceptions also include a doctor’s recommendation of a change in residence due to health problems. Giving birth to two or more children from the same pregnancy is one of the situations qualifying as an unforeseeable related exception.

The maximum gain exclusion is $250,000 or ($500,000 if married filing jointly). The eligibility test must be met to qualify for the full or partial exclusion. Check for additional rules and any exceptions that may apply to you. One last note: You must report the sale to claim the exclusion and if you receive a form 1099-S, Proceeds from Real Estate Transactions, even if you have no gain from the sale.

 

Autumn is the time to think about taxes

25/08/16 9:34 am | Comments (0) | Posted By:

It’s hard to believe we are two-thirds of the way through 2016 already. Seems like just yesterday you were gathering all of your tax documents and filing your 2015 return (or maybe you still are if it was extended). I know for a lot of individuals and business owners taxes are the last thing on their mind right now, but if you are willing to spend a little time in September it might save you some heartburn come next tax season.

For most business owners and self-employed individuals, September 15th marks the due date for your third round of 2016 estimated tax payments. Most simply rely on the vouchers printed out with their 2015 tax return. There is nothing wrong with this, but these figures are based on your 2015 income. If you have experienced changes in 2016, whether good or bad, the amount you are planning on paying on September 15 may require some tweaking.

We are far enough in to the year to put together a good picture of where you will be at the end of the year. Doing some quick forecasting now could save you from a big cash hit on January’s estimated payment (if you tax plan at year end) or on April 15th. If you take a look at your books and notice some big changes from 2015 now is a good time to adjust your payment.

Keep in mind that as long as you make the payment amounts on your current vouchers you will have met the withholding requirements and will not be subject to estimated tax penalties, but the consequence of withholding too little or too much hits the pocketbook down the line, and we all know the lifeblood of small business is cash.

If you have any questions or would like a qualified professional to take a quick look at your numbers to make sure you aren’t going to be forking out extraordinary amounts of cash come spring, give your CPA a call. It may be well worth it.

 

Tax Planning Tips for the Dog Days of Summer

11/08/16 12:22 pm | Comments (0) | Posted By:

As we approach the last month of summer, many of us are still trying to gather documents to finalize the 2015 tax returns due in the next few months. But these are the prime months to begin the planning procedures to reduce your taxes in 2016. With the passing of the PATH Act of 2015 last year, the looming issues of expiring tax deductions have been delayed, or extended permanently. For the first time in several years, we know before December what our tax break limitations will be. Here are a few planning options to look into:

Are you in need of new equipment?

This is the best time of year to review your P & L from the first half of the year to project your net income at year’s end. If you have excess income and are looking to reduce the tax burden, it may be the perfect opportunity to purchase new vehicles or equipment and utilize Section 179 or Bonus Depreciation.

Review your withholding or estimate payments for adjustments.

Have you had any life changes, such as getting married, having children, etc.? Or has your business produced more income than you expected when your estimates were prepared? You should review your withholding now to make sure you are not surprised with a substantial bill at tax time, or alternatively, that the IRS is not holding excess funds for the rest of the year that you could be utilizing.

Are you on track to max out your 401K contributions?

You may have an opportunity mid-year to adjust your contributions to make sure you are maximizing your limits. Retirement contributions are a fantastic way to reduce your AGI if you are being hit with Net Investment Income Tax, high tax rates, or limited deductions.

Convert a Traditional IRA into a Roth IRA.

If income is projected to be lower than expected this year, it may be the ideal time to convert your Traditional IRA to a Roth. If you anticipate that this will be the lowest tax bracket that you may be in for the foreseeable future, converting a Traditional to a Roth IRA and taking advantage of the lower tax rates may be ideal. You will have to pay taxes on the converted value of the IRA, but your converted funds will be able to grow and be withdrawn tax free in the future.

Stay Organized.

The best tax advantage for your small business may just be getting every deduction that you deserve. Being organized and maintaining good records throughout the year will help ensure that all of your expenses get properly recorded. This includes maintaining mileage logs, which are much tougher to recreate months later.

And last, but certainly not least, contact your accountant now if you plan to make any large financial moves.

If your accountant is informed about your financial plans before the transaction is made, strategies to mitigate taxes can be discussed. After the transaction is completed, it cannot always be readily reversed and can lead to huge tax implications if done incorrectly.

So enjoy the remaining warm days of summer, but get into the habit of planning for taxes now, and you can reap the benefits of your hard work for years to come.

 

 

Accumulate or Spend?

27/07/16 2:05 pm | Comments (0) | Posted By:

When is it time to retire? Is it some set age such as when social security or medicare benefits are available? It’s different for everyone. And people are continuing to work later in life. Why? Maybe because they need to (haven’t saved enough – the recession hit them hard) or maybe because they want to (enjoy what they are doing).

The toughest decision to make for many is “when do I have enough?” “When can I stop accumulating and be okay with spending?” It’s a difficult mindset to get around. During our careers we are constantly accumulating. It’s tough for some to flip that switch and say “ok, I’ll be okay. I’ll be able to continue living in the lifestyle I want.”

Lisa Du, in her article “Golden Years Redefined as Older Americans Buck Trend and Work“, provides some real life examples of why people are continuing to work:

  1. Using dollars for discretionary spending, i.e. vacations.
  2. Wanting to maintain their lifestyle.
  3. Worried their lifespan will outpace their wealth.

There are other reasons for continuing to work other than just financial. Some want to keep their mental skills sharp and working is an opportunity to do this. They want to feel they are contributing and have a purpose. This is especially true for owners when they sell their business. They have worked long and hard and kicking back in the rocking chair doesn’t appeal to them.

I recommend that you think through what you want to do during your “retirement” years. Determine what you need to accomplish that. Evaluate what you have. Develop a timeline that fits. Be flexible. You may move it. This is your life plan. Make it happen.

There are many financial planning tools and advisors that can assist you. Utilize them. We have assisted clients with determining if it is “ok” to flip that switch. Feel free to give us a call.

 

 

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