Our Daily Money Management department is focused on working with individuals, families (estates) and small business owners to help them get their finances and estate matters organized and to create a comprehensive financial management and maintenance program for successfully navigating the future.
Tuesday, April 29, 2014
How to handle taxes for household employees
Taxes. They’re just about the last thing parents might think about when they hire someone to watch over their child. Yet a hefty tax bill is a possibility for anyone who pays a nanny, adult care-giver, housekeeper, gardener or other household employee enough in annual wages to trigger a bevy of requirements under tax laws. In 2013, that financial threshold was $1,800, and it makes the person who hired the household employee responsible for paying federal and state payroll taxes on that worker, just like any other business owner. They also must reflect in their own annual tax return that they had a household employee. ‘‘People think if they pay this person in cash, they don’t have to report it, and the recipient doesn’t have to pick it up as income,’’ says Cindy Hockenberry, manager of research for the National Association of Tax Professionals. ‘‘But there are taxes due on that money, and the IRS wants their taxes.’’ Here are six tips on how to make sure you’re not running afoul of the tax man when hiring household help:
Sort out: independent contractor or household employee. Whether you’re on the hook for your nanny, adult caregiver or maid’s payroll taxes, the process begins with determining if he or she meets the IRS’s definition of a household employee, rather than an independent contractor. The IRS defines a household employee as someone hired to do work in or around a home, at the direction and control of the person who lives in the home. Meaning, you tell them what to do, how to do it, when to do it, and perhaps provide the supplies; for instance, if you hire someone to mow your yard and they use your lawn equipment. In the case of a nanny: ‘‘Any parent would have an almost impossible case to make that they don’t have the right to control the schedule and the work that’s being done in their private home with their child, ’’ says Kathleen Webb, president and co-founder of HomeWork Solutions, which provides payroll and tax services to people with household employees. Other examples of household workers include drivers, home-health aides and maids.
Determine which taxes you are expected to pay. Assuming your nanny or other household hire meets the household employee standard, it all comes down to whether you pay the person cash wages of $1,800 or more. If that’s the case, you are required to pay 15.3 percent of their wages in Social Security and Medicare taxes. The employer covers half of those taxes (6.2 percent for Social Security and 1.45 percent for Medicare) and can withhold the other half from the employee’s paycheck. If your household employee is an immediate family member, your spouse, parent, or child under 21, you don’t have to pay any employment taxes. Be aware that you also could be on the hook for federal and state unemployment taxes. If your employee is paid $1,000 or more in any calendar quarter, then you must also pay federal unemployment tax of 6 percent of their annual wages.
Decide early on how you’re going to pay. The IRS gives you the option to withhold your employees’ share of their Medicare and Social Security taxes from their paycheck, or to elect to pay their share yourself. Let’s say you are looking to hire a nanny to come over a couple of nights a week for three hours. At the current federal minimum wage of $7.25 an hour, that’s $43.50. Extend that over a year, and it’s $2,262 — triggering the requirement that you pay the nanny’s payroll taxes. Under that scenario, unless you have been withdrawing payroll taxes over the year, you’ll have to come up with $173.04 to settle the nanny’s portion of the tax, and an equal amount for your obligation as the employer. That’s probably a manageable amount to shell out come tax time. But if you end up needing to hire the nanny to come over more than several times a week, or maybe like so many families today, you've had to hire a caregiver on a regular basis to care for an aging parent or loved one, that tax payment could be much more. In that case, withholding payroll taxes along the way makes more sense. Specialists suggest that household employers begin withholding payroll taxes as soon as it seems likely that they’ll be increasing their employees’ hours, and wages, dramatically. Even if you choose to cover the payment yourself, another option is to set the money aside in a separate bank account, so that you’re not scrambling at tax time.
Verify an employee’s legal status. The government doesn’t look favorably upon employers who hire people who can’t legally work in the United States. So the IRS requires that employers and their hires complete an employment eligibility verification form, dubbed I-9, before the end of the employee’s first day of work. The form requires that non-US citizens provide information backing up their legal employment status and that the employer examine the information against a list of acceptable identification documents. Once it’s filled out, employers must simply hang on to the form. It can be downloaded at http://www.uscis.gov/files/form/i-9.pdf.
Keep solid records. It's important to keep accurate records of all wages and federal and state taxes you pay or withhold on behalf of your employee. The record-keeping will come in handy when it comes time to file several forms with the IRS. They include Schedule H, on which employers report household employment taxes paid, and Form W-2, which outlines your employee’s annual wages, taxes paid by you and other details.
Get help. Instead of dealing with the intricacies of the U.S. tax code, you can pay an accountant or consider hiring a professional daily money manager (DMM) to assist you in getting things set up with one of the many on-line companies who cater to handling payroll and tax concerns for domestic employers. The DMM can also help you set up your record keeping system so that at tax time you have everything in order. To locate a professional daily money manager (DMM) you can contact the American Association of Daily Money Managers (AADMM). This organization will provide referrals to DMMs in your area. You can visit their website at www.aadmm.com.
Tuesday, April 15, 2014
Why families don't talk about money or estate planning decisions.
I've been working with senior clients for the past 31 years, first as an insurance and financial services agent, and for the past 20 years as a financial planner and daily money manager (DMM). The one common denominator that I have seen among families is a lack of communication about finances and estate settlement decisions between senior parents and their adult children.
As we, or our parents reach retirement age and become seniors, why is it so difficult to talk openly about finances and estate settlement wishes with the family? Seniors think about the possibility of becoming dependent upon family members, or worse, ending up in an assisted living facility. Adult children are keenly aware that if something happens to their senior parent(s) someone would need to step in and manage the finances or settle the estate. Here's where it gets tricky. My professional experience has been that Mom and/or Dad are not taking the lead and proactively communicating their personal information and wishes with the kids - they just don't want to think or talk about it. I've also been told countless times by adult children that none of the kids want to be the first to bring the topic up for discussion for fear of being seen as "a little too interested in what their inheritance may be." Now throw blended families into the mix, and of course a little (or a lot of) dysfunction and believe me, nobody wants to bring up the issues that everybody knows really need to be discussed.
So how do families overcome these communication issues? Sometimes getting outside help can make all the difference. I've found as a professional daily money manager that my senior clients have no problem disclosing all of their confidential information to me; in fact, they like the fact that someone other than themselves has a complete record of everything. For many clients their greatest fear is that the kids will fight over financial decisions or the estate settlement wishes. Having someone outside the family to assist their loved ones in managing the estate and carrying out their estate settlement wishes gives them peace of mind.
My best advice is to bring all family members together to proactively discuss the financial and estate settlement details long before any issues come up. Decide as a family how you will proceed going forward and who will play what role. Discuss whether or not you want professionals to be involved to provide services or if you will try to handle everything inside the family. If family members are going to provide services, what should their compensation be for providing such services? What checks and balance process will be used to assure finances are being managed appropriately? More often than not providing oversight and care will fall on one person rather than being divided evenly among all of the siblings. Get everything worked out in advance. Maintain an open line of communication and review the game plan periodically to keep things current.
As we, or our parents reach retirement age and become seniors, why is it so difficult to talk openly about finances and estate settlement wishes with the family? Seniors think about the possibility of becoming dependent upon family members, or worse, ending up in an assisted living facility. Adult children are keenly aware that if something happens to their senior parent(s) someone would need to step in and manage the finances or settle the estate. Here's where it gets tricky. My professional experience has been that Mom and/or Dad are not taking the lead and proactively communicating their personal information and wishes with the kids - they just don't want to think or talk about it. I've also been told countless times by adult children that none of the kids want to be the first to bring the topic up for discussion for fear of being seen as "a little too interested in what their inheritance may be." Now throw blended families into the mix, and of course a little (or a lot of) dysfunction and believe me, nobody wants to bring up the issues that everybody knows really need to be discussed.
So how do families overcome these communication issues? Sometimes getting outside help can make all the difference. I've found as a professional daily money manager that my senior clients have no problem disclosing all of their confidential information to me; in fact, they like the fact that someone other than themselves has a complete record of everything. For many clients their greatest fear is that the kids will fight over financial decisions or the estate settlement wishes. Having someone outside the family to assist their loved ones in managing the estate and carrying out their estate settlement wishes gives them peace of mind.
My best advice is to bring all family members together to proactively discuss the financial and estate settlement details long before any issues come up. Decide as a family how you will proceed going forward and who will play what role. Discuss whether or not you want professionals to be involved to provide services or if you will try to handle everything inside the family. If family members are going to provide services, what should their compensation be for providing such services? What checks and balance process will be used to assure finances are being managed appropriately? More often than not providing oversight and care will fall on one person rather than being divided evenly among all of the siblings. Get everything worked out in advance. Maintain an open line of communication and review the game plan periodically to keep things current.
Friday, April 4, 2014
Three Money Management Tips For Small Business CEO’s
Running a successful business takes more than a good idea.
Entrepreneurs must also have good money management skills in order to make
their business a true success.
Understand your relationship with money
I advise you to analyze your behavior and unique characteristics to understand what your strengths and weaknesses are when it comes to managing money. I once read that many rich people remain rich by behaving like the poor, while many poor people remain poor by behaving like the rich, and I think there is a lot of truth in that statement. When it comes to managing money as an entrepreneur you have to separate your personal finances from you’re business finances, and run your business as a completely separate pocketbook. Understanding how to capitalize on your own strengths and manage your weaknesses when it comes to daily money management will be critical to your business success.Have a daily target and an action plan
You probably wouldn’t get in your car, start it up, and just start driving without a predetermined destination in mind. Golf wouldn’t be much of a game without the hole to shoot for. Even a driving range has yardage markers to provide a reference point. So why is it then that most small business owners show up at their business each day with no real measurable financial objective for the day? Every day that you start out with no clear goals to work toward is a day that you are getting into your car and taking a trip to nowhere. The most successful entrepreneurs establish simple, clear and measurable goals, and manage company activities to those goals. Developing a financially healthy business does not happen by accident. The two most fundamental financial bench marks for a small business CEO to target and manage to is a break-even point and a pre-targeted profit goal. You might be taking in money each day, but are you really making money?Run a financially healthy company
I’ve read plenty of articles and books that advise people to pay themselves first as a mean of getting ahead financially. When it comes to the daily money management of a small business, that advice doesn’t hold true. The #1 reason that the failure rate of small businesses is so high is because most entrepreneurs are under capitalized and they take too much money out of their businesses too quickly. Constantly taking all the money out of the company will sooner or later take you down. If you want to run a healthy company, know your break-even point, set daily, weekly and monthly profit goals and manage company activity toward achieving those goals. Once you start having financial success remember to keep your eye on the target and your nose to the grind stone. Remember, rich people remain rich by behaving like the poor. Build company reserves and then gradually start rewarding yourself for the hard work you’ve done by taking more and more profits out of the company while maintaining a healthy reserve.Monday, March 24, 2014
The Growing Need For Seniors To Protect Themselves Against Elder Fraud
America is aging. Between 2011 and 2050, the United States
is projected to experience rapid growth in it’s senior population. The
78-million member baby boom generation (born between 1946 and 1964) began
turning 65 in 2011. Over the next 10
years the older American segment is projected to grow 23%. By 2020, this market
segment should be nearly 119 million people and represent 35% of the total
population.
The number one fear expressed by many seniors regarding
their retirement years, is the fear of outliving their money. Managing
financial resources wisely for this generation has become more important than
ever before. A rising concern for many seniors and their family members is the
issue of elder fraud.
Seniors tend to be trusting and charitable to strangers
making them more likely to fall prey to a solicitation for money. They often
live alone, isolated from family and friends who could otherwise advise them.
Con artists, unethical repairman and contractors are aware
of the possible effects that age has on memory, and a seniors’ potential lack
of financial savvy. These individuals realize that seniors are often poor
witnesses. Being victimized or taken advantage of can also make seniors so
embarrassed that they are reluctant to come forward or even tell family
members.
Seniors are often dependent upon family members and
caregivers, making them susceptible to being taken advantage of by these very
same people. Children and grandchildren often approach their loved one
for a loan. Too often these loans go unpaid creating a financial hardship
for the senior later in life when they need that money to provide supplemental
income or to pay for long-term care expenses.
One solution that many seniors and their caregiving family members are turning to is to hire the services of a professional daily money manager (DMM) to pay bills, reconcile accounts, maintain records, prepare monthly or quarterly financial statements, and more.
Studies have shown that DMM services can help seniors to maintain their independence and remain in their homes longer avoiding costly nursing home care. DMMs also provide adult caregivers relief from some or all daily money management tasks while at the same time providing outside financial controls which can reduce or eliminate claims of caregiver fraud.
The best way to start your search to locate a DMM is through referrals from trusted friend, family members, and community organizations. You may also wish to contact the American Association of Daily Money Managers (AADMM). This organization will provide referrals to DMMs in your area. You can visit their website at www.aadmm.com.
Thursday, March 20, 2014
Preparing a Personal Balance Sheet
Taking control of your financial future is a process. And, as with any process, it is important to monitor your progress. One of the best ways for you to measure financial progress is to periodically prepare a personal balance sheet to determine your net worth.
Calculating your personal net worth
is also the best way to know exactly what your starting point is as you begin to develop a financial
plan and set goals for yourself. A balance sheet calculates your net worth by comparing your
financial assets (what you own) with your financial liabilities (what you owe).
The difference between the two is your personal net worth. Don’t be discouraged
if your net worth is negative, keep in mind that this should be an accurate
depiction of your financial situation. Setting goals is much easier once you
know what your current net worth is.
Before you get started, pull
together all of the information that you have available. You’ll need your
latest bank statements, as well as the principal balance of any loans you have.
Once you have all of that information available, start developing your balance
sheet by listing all of your assets (financial and tangible assets) with the
values.
- Cash (in the bank, money market accounts, or CDs)
- All investments (mutual funds, college savings accounts, individual securities)
- Home value (the resale value of your home)
- Automobile value (the resale value of your car)
- Personal Property Value (resale value of jewelry, household items, etc)
- Other assets
The sum of all of those values is
the total value of your assets. Your goal should be to continually increase
your assets.
Next, you can look at your
liabilities, which should be everything you owe. Here are some common liability
categories:
- Remaining mortgage balance
- Car loans
- Student loans
- Any other personal loans
- Credit card balances
The sum of all of the money you owe
is your liabilities. As you start to pay down your debt, your total liabilities
will decrease. The difference between your assets and your
liabilities is your net worth. You can start to increase your net worth by
decreasing your liabilities, increasing your assets, or by doing both! For many people developing a debt reduction plan is the best place to begin taking control of their personal finances and growing their net worth. Remember, a dollar saved is a dollar earned, and reducing debt and interest payments can eventually lead to financial freedom. Make
sure you continuously update your personal balance sheet (I recommend quarterly) to
ensure that you are tracking the progress toward reaching your financial goals.
Tuesday, April 16, 2013
3 Components to Small Business Success
I was recently asked what one thing separates the entrepreneurs who succeed from those who ultimately fail. I thought for a moment and answered with a single word - adaptability. Since that conversation, I've given considerable thought to the question.
I've actually identified three major components to small business success. The first is passion. If you have a strong enough belief in a product, service or business concept that you are willing to step out from the crowd and publicly stake your claim and begin chasing down your dream, you've got passion. Passion is energy! It's attitude and belief. Passion is fuel for the entrepreneurial spirit. If you lose your passion, your out of gas.
The second component is Vision. You have to be able to look into the future and know where you want to take your company and what it will look and feel like once you get there. Visualizing a future checkpoint is only half of the equation though. The big miss for many would-be entrepreneurs is also to have a vision of the hard work, the challenges and the climb to the summit. If the passion remains strong, then the vision becomes clearer, and the day-to-day climb becomes enjoyable.
The third and final component is determination. As a small business owner, your commitment to your passion and your vision will be tested regularly. Randy Pausch, in his last lecture titled Achieving Your Childhood Dreams said this, "The brick walls are not there to keep us out. The brick walls are there to give us a chance to show how badly we want something. The brick walls are there to stop the people who don't want it badly enough."
Being determined enough to run into the wall harder and harder isn't always the answer. Sometimes you need to figure out how to get over or around the wall, and that brings us back to adaptability. Determination and adaptability work together a lot like a teeter-totter. It's the ups and downs that make it a game and keep it interesting.
In summary, it's passion that fuels the engine, vision that provides navigation and steering along the way, and your determination to stay on the road until you reach your destination that makes you successful in business.
The second component is Vision. You have to be able to look into the future and know where you want to take your company and what it will look and feel like once you get there. Visualizing a future checkpoint is only half of the equation though. The big miss for many would-be entrepreneurs is also to have a vision of the hard work, the challenges and the climb to the summit. If the passion remains strong, then the vision becomes clearer, and the day-to-day climb becomes enjoyable.
The third and final component is determination. As a small business owner, your commitment to your passion and your vision will be tested regularly. Randy Pausch, in his last lecture titled Achieving Your Childhood Dreams said this, "The brick walls are not there to keep us out. The brick walls are there to give us a chance to show how badly we want something. The brick walls are there to stop the people who don't want it badly enough."
Being determined enough to run into the wall harder and harder isn't always the answer. Sometimes you need to figure out how to get over or around the wall, and that brings us back to adaptability. Determination and adaptability work together a lot like a teeter-totter. It's the ups and downs that make it a game and keep it interesting.
In summary, it's passion that fuels the engine, vision that provides navigation and steering along the way, and your determination to stay on the road until you reach your destination that makes you successful in business.
Thursday, April 11, 2013
Using Your Business Plan as a Management Tool
I've had many small business owners tell me that business plans are for large companies or for businesses who are approaching a bank to borrow money. My response to that line of thinking is this: All companies, regardless of size, should have a written plan. For small companies particularly, having and using an SBP as a management tool can ultimately make the difference between success and failure. An effective business plan can save you time and money by helping you prioritize and focus your business activities. An SBP can give you control over your personnel management, marketing activities, finances and day-to-day operations.
Packaging your business in document form and telling the story of your company in print almost forces you to view your business objectively. Your plan should clearly present your current position, your vision for the future, including specific measurable goals, and your detailed action plans for realizing those goals and your vision.
As a business consultant, one of the benefits I bring to my clients is that I ask a lot of questions. By asking questions like why do you ...?, how do you...?, or why not...?, it forces them to not only explain the reasoning behind their process, it challenges them to consider other alternatives. As a small business CEO, you should constantly be looking at your strategic business plan and asking questions of yourself, and your entire team, as though an outside consultant were asking those questions.
Your written SBP provides a valuable management tool that you can use to clarify and improve every moving part of your company. It also forces you to measure actual results against written objectives, which, believe it or not, is all too often a key missing link for measuring the financial health of most small businesses.
My challenge to you is to make the commitment to develop or update your SBP over the next ninety days. I am confident that you will find that the value of getting your entire business operation broken down on paper is well worth the time and energy it takes to do it. If you decide to tackle the planning process yourself, a good resource is a book by Rhonda Abrams, titled Business Plan in a Day. This book provides a good frame-work for most small businesses to start from. Don't be fooled by the title though, you can expect to spend far more than 8 hours developing your plan.
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