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Maximize Your FSA

With the end of the year approaching, review your health care flexible spending account (FSA) to ensure you get the most out of it.

ROLLING OVER

Check to see if it allows money in your account to be rolled over and used in 2023. Some plans may allow a limited amount, usually no more than $500, to roll over. In comparison, some allow a short grace period of a month or two to use any unspent funds. But some plans have a “use it by December 31 or lose it” clause.

If you’re unsure, ask your human resources department because any money remaining in your account at the end of the designated period is forfeited to your employer.

QUALIFICATIONS

FSA funds can be used for a variety of qualified medical expenses. This includes over-the-counter medication and first-aid supplies. Dental procedures and eye exams are also covered. But remember that you can’t use FSA money for cosmetic procedures, health clubs fees, or prepayment for medical services you’ll receive next year.

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Small Business Loans

Take the guesswork out of securing a business loan. Whether it’s to fund expansion or purchase equipment, being prepared can speed up the process.

CHECK YOUR SCORES

Unless you own an established company, lenders will check your personal credit score when making business lending decisions. An individual score greater than 700 increases the odds that you will be approved. Business credit scores generally range from 0 to 100. So, the higher, the better.

HAVE A PLAN

Prepare a business plan because lenders will ask what you will do with the loan proceeds to increase your company’s profits. Explain your business strategy and include current and historical financial statements that contain a balance sheet and cash flow statement.

OFFERING SECURITY

Depending on the size of the loan you’re seeking, the lender may ask for collateral or a personal guarantee. The collateral could be equipment, receivables, real estate, or other businesses you own. And the personal guarantee states that you will pay the loan if the company doesn’t.

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October 2022 Client Profile

Katherine’s parents are 80 years old, and she’s taking on more and more caretaking duties for them. Besides looking after their physical well-being, she’s becoming more involved in managing their financial affairs. What are some things she should pay attention to?

If her parents do not yet have an estate plan, or at minimum a will and powers of attorney (financial and healthcare), Katherine needs to help them get this done. Assuming they designate Katherine as power of attorney, she’ll then be able make decisions on their behalf should they become incapacitated.

Katherine should also ask them to list their financial information and contacts. The list should include all accounts and account numbers, the usernames, passwords, and the location of all important documents, including tax filings. Don’t forget to include their Medicare, Social Security, and driver’s license numbers. Also, she needs to know how insurance premiums and other bills are paid.

Client Profile is based on a hypothetical situation. The solutions discussed may or may not be appropriate for you.

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Maintaining Profits During a Bear Market

How we prepare our businesses for another potential bear market can mean the difference between thriving or struggling. Let’s revisit some keys to maintaining a financially viable company when the economy is slowing.

SAFEGUARD CASH RESERVE

Have a contingency plan to maintain cash reserves. You may aim to save 10% of your business cash in a high-yield savings account for unforeseen cash crunches. This way, you can avoid relying on lines of credit from your bank with high interest rates.

BACKUP PLANS

Have backup plans in case a critical supplier goes offline, faces unexpected delays, or increases prices excessively, which would impact your profits. Securing secondary options for critical supply chain components is playing it smart.

EXPANSION LIMITS

Although you may have plans to expand your product or service offerings or increase your geographic market reach, consider whether the return on investment will warrant the capital needed to make the growth a success. It may make sense to move forward or to wait out the economic slowdown. Moving too fast right now could over-extend your operation and unforeseen circumstances may catch you off guard. Keep your eye on outside factors that are out of your control (inflation, unforeseen lockdowns, shipping delays, unexpected rising costs, cooling market sentiment, etc.).

RAISE PRICES

It might sound counter-intuitive to raise your prices in a slowing economy, but you’ll need to fight inflation and cover the increasing costs of goods sold that are shrinking your gross margins.

Consider bundling products together to help justify a price increase in your customers’ eyes. Optimizing your average order value will raise transaction amounts.

CUT BACK

Be sure to cut excess expenses. That might mean targeting your marketing to your top-performing channels and tabling the rest for the foreseeable future.

Perhaps you’ll need to manage your business with fewer of the employee perks, like free lunches and keep tabs on travel, meetings, etc.

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Year-End Bonuses and Retirement Accounts

As the fourth quarter of 2022 is upon us, you may consider providing annual bonus payouts to your employees. It’s a great way to thank them for their hard work.

Once you settle on the bonus amounts, consider notifying each employee before you make the payments to provide them with a choice as to how they prefer to receive the funds. They could choose to take it as regular income or invest it in their retirement account.

If your company already has a 401(k) plan, depositing their year-end bonus will function like any other payroll deductions you make on their behalf.

If your employee has already maxed out their 401(k) contributions for the year, you may be able to send their bonus to their IRA.

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Save Taxes on Retirement Plan Withdrawals

Tapping your retirement accounts before age 59½ usually comes with a 10% early distribution penalty, in addition to any income tax that’s due. But if you must make an early withdrawal, the IRS allows a few exceptions from the penalty.

MEDICAL EXPENSES

If you have large medical expenses that your health insurance doesn’t cover, you can withdraw money from a 401(k) plan or traditional IRA to pay these bills. However, these medical costs must be greater than 10% of your adjusted gross income to avoid the 10% penalty.

Also, you can take withdrawals from a traditional IRA to cover health insurance premiums paid while unemployed. There are several conditions that need to be met to avoid the 10% penalty in this situation, so speak with your tax professional beforehand.

DISABILITY

Becoming disabled and unable to work means you may be able to tap your tax-deferred retirement accounts without the 10% penalty to provide income that supplements your Social Security Disability or Supplemental Security Income benefits. You’ll need your physician to document and substantiate your disability to avoid the penalty.

HOMEBUYERS

If you are buying or building your first home, you can withdraw up to $10,000 — if you’re single, or $20,000 — if you’re married and both have a traditional IRA, without paying the 10% penalty.

HIGHER EDUCATION

Pulling contributions out of a Roth IRA to pay for higher education expenses for you or your dependents is always penalty-free. But withdrawal of Roth IRA earnings will be subject to the penalty if you don’t meet the exception requirements.

AVOID WITHDRAWALS

Being fully prepared for retirement requires financial planning and leveraging tax savings and the time value of money. Consider other cash sources like taxable brokerage accounts.

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October 2022 Client Line Newsletter

Save Taxes on Retirement Plan Withdrawals – if you must make an early withdrawal, the IRS allows a few exceptions from the early withdrawal penalty.

Year-End Bonuses and Retirement Accounts – you may consider providing annual bonus payouts to your employees; it’s a great way to thank them for their hard work.

Maintaining Profits During a Bear Market – how we prepare our businesses for another potential bear market can mean the difference between thriving or struggling.

October 2022 Client Profile

Small Business Loans – take the guesswork out of securing a business loan.

Maximize Your FSA – with the end of the year approaching, review your health care flexible spending account to ensure you get the most out of it.

A Bear Market, a Bull Market – look at the differences between a bear market and bull market and how long they typically last.

October 2022 Questions and Answers

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Protect Yourself From Financial Scams

No matter your age, it’s good to know how to protect your financial accounts. Here are a few proactive habits that can help safeguard your finances.

BE A MONITOR

Review your bank and credit card accounts regularly to catch anything that looks unusual. Most of these companies let you set up notifications that alert you if a transaction exceeds a predetermined dollar amount or an unusual purchase based on your past buying history.

CALLER BEWARE

If someone claiming to be your bank calls or emails you to ask you for a money order or credit card number to clear a debt or to confirm transaction details, chances are it’s a scam. Instead, contact your bank using the phone number on your bank statement or the back of your credit card to verify that the inquiry was legit.

MIND YOUR TRASH

Throwing away whole bills or credit offers is an invitation for identity theft. Shred anything that has account numbers or financial information. Consider requesting paperless billing to cut down on the actual mail you get. And if you travel, put a stop on your mail or have someone you trust pick it up for you.

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Simple vs Compound Interest

Understanding the difference between simple and compound interest is not hard.

COMPOUND INTEREST

Compound interest is the rate of interest paid on the principal and on the interest previously earned. This can help you to build wealth over time because the interest compounds on top of interest, in addition to the principal.

SIMPLE INTEREST

Simple interest is the rate of interest that you would pay on the principal only. As a borrower, simple interest is better because you’re not paying interest on interest. It’s easier to repay debt with simple interest.

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What is Intellectual Property?

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Often referred to as IP, intellectual property represents the ownership and rights to creative work.

PROTECTED PROPERTY

In general terms, intellectual property is any product created by your mind that the law protects from unauthorized use by others. Businesses can own these intangible assets in the form of patents, trademarks, copyrights, and trade secrets.

Intellectual property can be used for various reasons, such as branding and marketing, and to protect assets that give a competitive advantage. Intellectual property can be bought and sold just like tangible assets.

WHAT’S THE PRICE?

Unlike other property types such as buildings, equipment, and vehicles, internally developed intellectual property doesn’t appear on a company’s balance sheet. These costs are expensed as research and development expenses as they’re incurred.

When a business plans to sell its intellectual property, a valuation expert is hired to help determine a reasonable selling price. This calculation may be based on the income, market, or cost method to develop the IP, depending on your company’s industry, the economy, and the demand for the asset.