Monthly Archives: October 2014

Don’t forget digital assets in your estate planning

An important step in estate planning is creating an inventory of your assets. Your executor — the person you designate in your will to carry out your last wishes — uses the inventory to make sure all of your property passes to your heirs.

These days, some of your assets may exist in digital form. Documenting your “digital assets” along with more traditional effects can help ensure your final wishes are honored and your estate is administered correctly.

Here are things to keep in mind as you compile a list of your digital assets.

  • Passwords. In order to review financial accounts with banks, brokerages, or other businesses, your executor will need your current password. If you protect passwords with an encrypted program, include the master access key.

    Most importantly, keep your list updated when you change passwords.

  • Be comprehensive. Add web addresses, user names, and passwords for nonfinancial accounts such as your e-mail and online storage sites to your inventory. Why? These accounts can be essential for retrieving invoices, statements, and other paperwork for which you’ve chosen electronic-only delivery.
  • Remember the non-digital. The physical assets you use to access your digital data include your phone, tablet, and computer. Information your executor will need: passwords and file names. Also list the location and encryption information for off-site or standalone storage devices such as flash or other external drives.

When it comes to planning, keeping track of your online financial activity can be vital. Please give your Chattanooga CPA, Carl Heinemann, a call if you need more information.

Time is limited for claiming a tax refund

So you overpaid your federal income taxes, life got busy, and you forgot to file a return to claim your refund. You’ll get around to it — but will you get around to it in time to get your money back?

The time limit for claiming your refund is called the statute of limitations. The general rule for your federal income tax return is that you have either two or three years to file a refund claim. Specifically, you have to file the claim within three years from the time you filed the tax return or within two years from the time you paid the tax, whichever period expires later.

Worse, there’s a wrinkle you may not expect: When you haven’t filed a return, the two-year period applies.

And more bad news: Even if you file your claim within the proper two-year time period, your refund could be limited further by a “lookback rule.” This rule says you can only get a refund for the tax actually paid during those two years. The outcome? Estimated taxes or withheld federal income taxes may fall outside the time period. That means those amounts might not be recoverable.

Be aware that other time limits apply in certain circumstances, such as when your overpayment is due to a bad debt.

Give your Chattanooga CPA a call at 423-894-3577 if you have any questions. We’ll help you sort out the rules.

Should you consider a health savings account?

Will you be deciding whether to sign up for health insurance or change your current plan when open enrollment for 2015 begins in November? If so, you may want to consider a health savings account (HSA).

These accounts, which combine a savings account and a high-deductible insurance policy, pre-date the health care laws. But the rules are still in effect and you can still benefit.

Here’s an overview.

  • The basics. An HSA has two parts: a high-deductible health insurance policy and a medical savings account.

    To qualify as a high-deductible policy for 2014, the minimum deductible must be $1,250 ($2,500 for family coverage) with a $6,350 cap on out-of-pocket expenses ($12,700 for family coverage).

    Once you purchase a qualifying health insurance policy, you can open a savings account with a bank or brokerage firm and begin making contributions. You use the money in your account to pay medical costs.

  • The income tax benefits. Contributions to your HSA are deductible on your federal income tax return, even if you don’t itemize. For 2014, you can put as much as $3,300 ($6,550 for family coverage) into your account. If you’re age 55 or older, you can make additional annual catch-up contributions of up to $1,000.

    Earnings on the balance in your account such as interest or dividends grow tax deferred — and can be tax-free when withdrawals are used for qualified medical expenses.

Give your Chattanooga CPA, Carl Heinemann, a call at 423-894-3577 if you’re interested in learning more about HSAs. We’ll help you evaluate the costs and benefits.

myRA — a new retirement account option

Are all your employees eligible to participate in your retirement plan? If some fail to meet your plan’s eligibility requirements, a new account can offer an alternative way to save for retirement.

The new account is a “myRA,” an acronym for “my Retirement Account.”

What’s a myRA? Basically, it’s a Roth IRA for employees who are not eligible to participate in employer-sponsored retirement plans. The difference between a myRA and a regular Roth is that money deposited in a myRA is invested in a U.S. Treasury retirement savings bond. The account balance earns interest and is guaranteed to retain its value.

MyRAs are subject to the same income and contribution limits as regular Roth accounts. That means single employees who earn less than $129,000 during 2014 ($191,000 for married filing jointly) will qualify to make a full or partial contribution. The maximum contribution to a myRA for 2014 is $5,500 ($6,500 for employees over age 50).

What do you need to do so your employees can take advantage of myRAs? Share information about the accounts and make direct deposits from employees’ paychecks to accounts your employees have established. You’re not required to pay any fees, match contributions, oversee the myRA, or file tax or other returns for the plans.

Your employees set up individual myRA accounts online and decide how much they’ll contribute. Employees with multiple jobs can make contributions from each.

If you’re interested in making myRAs available to your employees, please give your Chattanooga CPA a call at 423-894-3577.

Should you rent or buy a house?

For many folks, the lyrics of a 1960s rock song summarize the American dream: “Our house is a very, very, very fine house.” According to U.S. Census figures, about two thirds of American families are homeowners.

But buying a house or condo may not be the best choice for every family in every situation. Renting offers the following advantages:

  • Greater flexibility. When renting a house, apartment, or condo, you have the option of moving at the end of the lease term. No need to contact a realtor, no hassle with buying or selling. For those who want to keep their options open, especially in terms of job location or dwelling size, renting may prove the better choice.
  • Opportunities to invest elsewhere. Instead of plowing your savings into a home, you might get a better return by contributing to mutual funds or other investments. Depending on the housing market in your city, the annual increase in your home’s value may barely outpace inflation.
  • Lower cost. Apartments are often smaller than homes, so heating and cooling expenses tend to be lower. If you don’t have a lawn, you won’t incur the cost of water to keep it green. Roof leaking? Appliances on the blink? Call the landlord. Home repair and maintenance aren’t your responsibilities.

Of course, as many realtors and financial analysts rightly point out, homeowners also enjoy significant advantages:

  • Greater flexibility. Ironically, homeowners enjoy certain freedoms denied to renters. If a homeowner wants to paint a wall or hang a picture, he or she doesn’t answer to a landlord. Installing a doggy door isn’t a problem. Hiring a remodel contractor to tear out a wall is perfectly acceptable. Don’t try this if you’re a renter.
  • Increasing equity. Of course, one of the greatest advantages to buying a home is the likelihood of increased equity over time. As long as your mortgage is being whittled down by monthly payments, you’re building equity—even if your property value remains stable.
  • Lower taxes. The ability to deduct mortgage interest and property taxes (if you itemize) can significantly lower your end-of-year tax bill. Renters must forgo this benefit.

Clearly, the choice to rent or buy a home depends on individual circumstances and tastes. If you’d like help with this important decision, give your Chattanooga CPA, Carl Heinemann, a call at 423-894-3577.

What to ask before you buy a franchise

Starting a business from scratch is a daunting proposition. For almost any new company, the entrepreneur must find a suitable location, hire skilled employees, create a product or service that fills an untapped niche, set up a reliable accounting system, amass substantial working capital, and so on. Such start-up challenges are why franchises are often a popular alternative to “going it alone.” The established brand and proven sales record of a successful franchisor can help budding companies survive those crucial start-up years.

But before investing your hard-earned savings into a franchise business, step back and ask the following five questions. If you need more information, contact your Chattanooga CPA, Carl Heinemann at 423-894-3577.

  • What are my biggest strengths and weaknesses? If a particular franchise requires sales expertise, ask yourself whether you’re comfortable in that role. Some people are better at managing employees and greeting customers; others love to develop products in the back room or track sales at the computer. If the business requires technical know-how (such as home decorating or auto mechanic expertise), make sure you’re ready to bring that specific skill set to the business. If you can’t stand the smell of coffee, don’t expect to thrive in a gourmet coffee franchise.
  • What help can I expect? Some franchisors offer support through location research, initial training, marketing and management advice, and ongoing workshops. Others throw you in the water and expect you to swim — or sink.
  • How much will it cost? An initial franchise fee can run from several thousand to several hundred thousand dollars. In addition, you may need to cover rent, inventory, operating licenses, insurance and other upfront costs. As the business ramps up, you may be required to pay royalties as well, often based on a percentage of your weekly or monthly income.
  • What are the restrictions? Before you sign that contract, make sure you understand the company’s operational requirements. Hours, signage, employee uniforms, advertising, accounting systems, pricing, suppliers — all may be dictated by the franchisor. Don’t wait until the business is up and running to discover such stipulations.
  • Why do I want to purchase this franchise? This is a fundamental question and one you’ll need to explore deeply, perhaps with the help of a disinterested third party. A business that’s fulfilling and lucrative for one person may lead to disaster for someone else. Conducting a thorough evaluation of the industry, the franchisor, the products, and your own interests will be time well spent.