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Don’t Understand Your Financial Reports? Here’s Why

Posted on March 1st, by Janice in Business Wealth 2 Comments

paperwork-1538658-639x426 Have you ever been handed a balance sheet and income statement from your accountant and been told that this is your reporting? When you look at these reports from your accountant, do you scratch your head and wonder what you are suppose to do with these reports? Many business owners and investors get reports that they don’t understand – and it’s not their fault. Most reports are either too technical or are missing information to give the reader the insight they want.

Do you file these reports as quickly as possible, hoping to never see them again?

While reports like your balance sheet and income statement can be helpful, particularly when it comes to tax planning and preparing tax returns, they are not the most useful reports when it comes to providing you with information that will help you grow your business and wealth.

Do the reports you get in your wealth strategy make you cringe?

Now, be honest. Did you cringe at the mere mention of reporting? I’m sure some of you saw the word reporting and immediately began trying to convince yourself you don’t really need it. I find that most people avoid reporting, even though reporting can be a huge resource in their wealth strategy – one that allows them to leverage their time and other resources.

Why would someone avoid something that helps them accelerate their wealth?

There are several reasons I hear:

It’s too difficult to understand
It takes too much time
It’s boring
I don’t know how to set it up
I don’t really know what it means

If your reporting isn’t set up correctly or at all, the above are all true.

What is Reporting?

Reporting is summarizing activity in a clear and concise format. Most importantly, the information in the report makes sense to you. When done correctly, reporting is a valuable resource that helps you make timely business and investing decisions and saves you time while doing so. Reports provide tremendous leverage.

What Reporting Should Be

Reporting should report the activity YOU want. There are no specific rules that must be followed – it is based on facts, figures or data you want to help you make decisions to grow your business and your wealth.

It’s always amazing to me the number of people who think they don’t need reporting in their wealth strategy. Some think they will be so successful that they don’t need a report to tell them that. Others think that reporting is just for their accountant to do their taxes. And others think they aren’t big enough to need reporting.

Whether you have 1 employee or 100, whether you have 1 rental property or 50, whether you invest in options, tax liens, or oil & gas, you need reporting.

Deducting Business Travel When Mixed With Personal Travel

Posted on February 15th, by Janice in Business Taxes 2 Comments

3d illustration: World Tour. The group of buildings and suitcase With the new year here, many people are making plans to travel so it is a great time to do a refresher on the rules for deducting travel so you can legally write-off your vacation and personal travel.

While the tips I share here are specific to the U.S. tax law, the key is to understand the rules in your country and use them to your benefit in your tax strategy.

1. Spend the Time
Spend more than 50% of your time each day on business activities and you can deduct 100% of your travel expenses. Plan your business and other activities so you meet this requirement.

2. Expenses for Spouses and Children
Travel expenses for your spouse and your children are 100% deductible if your spouse and children are involved in your business and spend more than 50% of each day on business activities. Planning is the key here. Plan your business and other activities so your family meets this requirement.

3. Create a Business Reason
Create a great business reason to travel to your desired location. This is my favorite tip because I find when I create a great business reason to travel, my business benefits in a way that it wouldn’t have without the travel.

4. Keep Personal Travel Personal
If your travel is for personal reasons – treat it as personal. If one of your goals for a particular trip is to take a break from business, then treat that trip as personal. Trying to claim that as business travel could draw a lot of scrutiny to your legitimate travel expenses. Or, if your spouse and children don’t participate in the business, treat their portion of the travel expenses as personal – trying to deduct their expenses could jeopardize your portion that is legitimate.

5. Know the Rules Outside the U.S.
Travel outside of the U.S. has a completely different set of rules. Be sure to discuss this with your tax advisor before you travel.

Use Your Travel in Your Tax Strategy
Travel is one of my favorite deductions because it is one of those expenses that most of us already have, and when planned properly, it gives us the opportunity to increase our business’ bottom line while decreasing our tax liability.

2 Obstacles When Forming a Tax Strategy

Posted on February 10th, by Janice in Taxes 2 Comments

chess There are two big obstacles most people run into when forming a tax strategy.

1. Having No Strategy

A strategy is a systematic plan of action intended to accomplish a specific goal or purpose. With a tax strategy, the specific goal or purpose is to permanently reduce your taxes.

Of course, most people are all for permanently reducing their taxes. What is typically missing in their quest to do that is the strategy piece. And it’s the strategy piece that produces the maximum results. The strategy piece helps focus our actions and thoughts every single day on permanently reducing taxes. It doesn’t have to take hours every day to get maximum results from your tax strategy. Instead, your strategy becomes a part of your daily routine. Every transaction can have an impact on your taxes. Your tax strategy helps you think about your daily transactions in a way that gets you to your goal of permanently reducing your taxes.

2. Getting Started
Think about planning a vacation. Let’s say you are going to Hawaii. When you go to book your ticket, you need to know where you are departing from, right? This is your starting point. It is impossible for you to get to Hawaii unless you know where you are starting. The same applies to a tax strategy. You must know where you are starting. In your tax strategy, this means you must know your current financial position.

Current Financial Position
Your current financial position includes your current balance sheet. Your current balance sheet tells you your current net worth. It’s calculated as follows:
Your Assets (what you own) – Your Liabilities (what you owe) = Your Net Worth

When you know your current net worth, you know the exact resources available to use in your tax strategy. Your specific assets and liabilities help create the best path for you in your tax strategy.

Your Current Statement of Cash Flows
Your current statement of cash flows tells you your net cash flow. It’s calculated as follows:
Your Income – Your Expenses = Your Net Cash Flow

Identifying your sources of income is the starting point of identifying how to reduce the tax on that income. Identifying your expenses is the starting point of maximizing your deductions.

Get Started
The starting point to reducing your taxes and forming a tax strategy is understanding your current financial position. If you haven’t created your tax strategy yet, start by updating your balance sheet and statement of cash flows. If you already have your tax strategy in place, review your current financial position regularly to identify new opportunities for your tax strategy.

Your Tax Strategy and Your Wealth Strategy
If you are like most, the single biggest expense draining your cash flow is your taxes. When you reduce your taxes, you immediately increase your cash flow. Increased cash flow can be used to create wealth. Your taxes are a powerful way to feed your wealth strategy!

Did Your Business Name Get Terminated?

Posted on February 1st, by Janice in Business 2 Comments

hello-my-name-is-1244204-639x456 Did you forget to renew your business registration? When your business began it had registered with the State of Michigan, probably a while back, however, the annual registration renewal was not done. After several years of non-renewal, along came your competitor who called to see if you would like to buy your business NAME back at a considerable cost. What a surprise! This created problems for your Business, because it could no longer do business under its original name in the State of Michigan. Your competitor registered its company with your NAME and now they had a legal right to use your NAME while doing business in Michigan.

Today we are discussing the topic of Michigan business registration renewal. Michigan businesses are required to renew their registration with the State of Michigan annually. Your renewal papers are mailed only once a year right around December or January. Unfortunately, after the initial mailing, there are no other reminders to renew your business registration. Filling out the paperwork isn’t a long process, but it is necessary if your business wants to continue operating under the same name in the future. Registration renewal fees are $20 and up and can be completed easily with our expertise. Michigan does offer a new online payment feature for those who like online payments.

Registration renewals are vital to your Company! If not completed for three consecutive years your business name can be taken by another business just like in the story above. This can occur with no warning from the State or from the requesting business. If a business realizes it hasn’t renewed for three or more years it can bring that renewal current, but there are penalties and fees in order to do so, assuming no other business has registered that name.

The process of renewal isn’t difficult, but it is important and a little bit of time needs to be spent to complete this important function. If you don’t feel comfortable filling out the paperwork, Vanderbilt CPA Group is happy to help you complete the process.

Janice S. Vanderbilt, Vanderbilt CPA Group

3 Ways to Use Leverage to Build Wealth

Posted on October 12th, by Janice in Business Wealth 3 Comments

Think about how much time you spend earning your money. Now, think about how much time you spend investing that earned money. This is a challenge many people face. Most people spend at least 40 hours per week – each and every week – earning their money and maybe an hour per month on investing that earned money. This allocation of time won’t get them to their goal of passive income any time soon.

A Wealth Strategy Doesn’t Have to be a Full-Time Job
A wealth strategy doesn’t have to be a full-time job if it is done properly. This is why I say you must build a business around your wealth. A business is one of the best forms of leverage. When wealth building is treated like a business, it is possible to see results in just a few hours each week.

What exactly does it mean to build a business around your wealth?
In any business, leverage comes in many forms, all of which contribute to spending less time “in” the business and more time “on” the business. This is key in a wealth strategy – it’s what enables someone to be successful in their wealth strategy in just a few hours each week.

Here are 3 forms of leverage commonly found in a business that I think every wealth strategy should have:

Leverage #1: A Clearly Written Strategy
It’s common for a business to have a clear written strategy, but it’s not common for a person to have a clear written strategy for their investing. Without a clear written strategy, a business (or wealth strategy) often changes directions many times, and with each change, time and money is lost.

A clear written strategy helps reduce the amount of time a person spends in their wealth strategy because there is a clear focus. The strategy can be shared with team members so they are more efficient and focus only on those things that support the strategy.

Leverage #2: Systems
Systems are the greatest form of leverage in a business. The systems run the business. This enables the owner to spend his or her time managing the systems instead of managing the people. Managing systems is not only more efficient than managing people, it also takes less time and effort and produces greater profit. Systems should identify the who, what, where, why and how for operating a business. Systems can (and should) touch every aspect of a wealth strategy.

For example, a wealth strategy should have systems for:

– Identifying and selecting investments.

– Funding the investments. If there is a loan process, there is a system for that.

– Managing the investments.

– Reporting for the investments.

Creating the systems can take some time, but once they are in place, it becomes very efficient to run a wealth strategy. The systems help reduce the amount of time required to manage a wealth strategy. The systems also provide better information so decisions can be made proactively and not reactively – this is also a huge time and money saver.

Leverage #3: Team of Advisors
The 3 most expensive words in the English language are “do it yourself.” Having a team brings leverage and velocity to investing which leads to better and faster results. This is what businesses do. They build a team with their employees, vendors, customers, advisors, partners and so on. This same principle applies to a wealth strategy. The right wealth team can bring the greatest value to a wealth strategy.

Using Business Leverage in Your Wealth Strategy
If you are an investor and don’t think of yourself as a business owner, think again. Those who are most successful in their wealth strategies are those who have built a business around their wealth and treat their investing activities like a business.

The above are just 3 examples of how leverage commonly found in a business can be used in a wealth strategy. Start taking the steps today to work towards building a business around your wealth.

The Hidden Value in Your Tax Return

Posted on June 1st, by Janice in Taxes 3 Comments

Tax returns are never given enough credit. Most people dread having to deal with them. And, they are often viewed as a commodity – by taxpayers and tax preparers alike. I see tax returns as a tremendous tool because this is what “seals the deal” on tax savings that have been identified as part of a tax strategy.

For the average taxpayer, their tax return is something they focus on only once a year. In order to leverage the benefits of a tax return, it needs to be a part of your everyday activities. Here are just a few ways to integrate your tax return into your everyday activities.

Business and Investment Activities:

Remember that what you do in your business and investing always impacts your tax return
Think about the recent business or investment activities you’ve had.

Have you bought anything?
Have you received any money?
Have you entered any agreements?
Have you sold anything?

All of these activities are routine activities in business or investing, and every single one has an impact on your taxes – particularly how your tax return will be filed. Make it a point to work with your tax advisor to gain a basic understanding of how these activities will be reported on your tax return.

Discuss your specific activities with your tax advisor to come up with a plan to ensure your activities work with your tax strategy to minimize your taxes. For example, if you learned, prior to having your tax return prepared, how to change your activities slightly that resulted in a better tax result, this would be valuable information to apply during the time you are engaging in the activities.

Keep Documentation Updated

Nothing good comes from scrambling to get tax return information together in order to file a tax return. When information is gathered in this manner, it is often incomplete and inaccurate. Once you understand how your activities impact your taxes and your tax return, you can then develop systems to keep the documentation you will need for your tax return. With this approach, you can leverage the benefits of your tax return into your everyday activities.

Keeping your documentation up to date is one of the most effective ways to monitor your tax strategy. It makes the tax preparation process much smoother and more accurate. Plus, you can easily review your documentation regularly to make sure your tax strategy is on track and if it’s not, you have time to make changes before it’s time to report it on your tax return.

Always Know Where You Stand

You’ve probably heard some tax preparation firms brag about how many of their customers receive refunds, or the average size of their customers’ refunds. Isn’t this great news? Well, I’m not sure. A refund can seem like great news, especially if it isn’t expected, but it usually indicates a lack of strategy.

With proper planning, that refund can be received a whole lot earlier. While most people don’t want to owe tax when they file their return, they also don’t like to part with their money any earlier than they have to and that is exactly what a refund reflects.

Where do you stand – are you going to owe with your tax return or are you going to get a refund? This is important information to know throughout the year.

Never Underestimate the Value of a Tax Return

Your tax return is a huge part of the success of your tax strategy. It is the final step of making the tax savings a reality.

Investing in Rental Property Through Your IRA? Think Again!!

Posted on April 6th, by Janice in Taxes 3 Comments

Never ever put a tax shelter investment inside another tax shelter.

What many people don’t realize is that this is exactly what they are doing when they invest in rental real estate through their retirement plan (like an IRA).

I’ll use the IRA – a popular retirement plan in the U.S. – as an example here, but the approach and concept can be applied to retirement plans in other countries as well.

An IRA is a tax shelter. Tax on the income is either deferred (Traditional IRA) or eliminated (Roth IRA).

Rental real estate is an example of a type of real estate investment that can be a tax shelter on its own. Rental real estate often generates losses for tax purposes even when there is positive cash flow. This is because of the depreciation deduction that can be taken on the investment.

When properly executed, rental losses can be used to offset other income which effectively shelters that other income from income tax. This can result in significant tax savings.

If an IRA has rental losses, the IRA is generally not paying tax so there is no tax to shelter.

If an individual has rental losses, there is an opportunity to shelter other income, including W-2 or business income, from income tax. This results in not paying tax on that other income and those tax savings mean cash in your pocket.

Run the Numbers
As with many wealth and tax questions, the answer can be found by running the numbers. Are there more tax benefits available to you if you invest in rental real estate inside or outside of your retirement plan? Run the numbers based on your long term wealth strategy.

In the analysis I’ve done with clients and for myself, the tax results are better when a tax shelter (rental real estate) is not put inside another tax shelter (a retirement plan). The tax benefits lost are too significant.

A Simple System for Documenting Travel Expenses

Posted on March 15th, by Janice in Business Taxes 20 Comments

I love traveling for business. It’s a great (and legal) tax deduction and it takes me all over.

When it comes to business travel, documentation – particularly your receipts – is extremely important. Travel is one of those areas that is heavily scrutinized during an audit. Your best defense is a good offense. In this case, that means solid documentation.

What happens to many of us when we travel is we get home and find receipts in various places over the next several days (or even weeks). There are some in our wallets, others in our computer bags, more in our coat pockets, some in our cars and with all of these, there are still probably some missing.

This is why I developed a simple system for my documentation – there are two rules I follow.

Rule #1: Leverage the Convenience of Email
When my airfare is booked, the airline sends me an email automatically that has all the information I need for my receipt. I forward that email to my bookkeeper immediately upon receipt. That takes care of the airfare receipt.

When I check out from my hotel, I request to have a copy of my bill emailed to me. I forward that email to my bookkeeper immediately upon receipt. That takes care of my hotel receipt.

With my airfare and hotel receipt, I have the receipts for the majority of my actual expenses. But, most of the receipts from my travel come from the other expenses, like meals, cab fare and tips, many of which are often paid by cash. I tackle those with Rule #2.

Rule #2: Pack an Envelope
Part of my packing for a business trip includes packing an envelope in my carry-on bag. Any time I get a receipt, I write notes on it as to what it was for and then it goes in the envelope. After my trip, I give the envelope to my assistant who scans the receipts.

My assistant scans the receipts based on how I paid for the expense. If I paid with my business credit card, my assistant scans those receipts together and emails them to my bookkeeper. My bookkeeper then has everything needed to properly account for those expenses.

If I paid with cash, my assistant scans those receipts together for me and includes them in my monthly expense reimbursement report that I submit to my company at the end of each month.

Even though it’s my own company, I still submit an expense report.

This is a really important step because when my company reimburses me, I get my cash back and the expenses get properly recorded in my company. In other words, it puts the proper documentation in place.

A Simple System
This is such a simple system, but it works. The key is using it consistently. Now you can enjoy those business trips without the dread of dealing with the receipts afterwards.

Maximizing the Benefits of Accelerated Depreciation

Posted on February 28th, by Janice in Business Taxes Wealth No Comments

Depreciation can seem like magic. When done properly, it can take rental real estate with positive cash flow and turn it into a loss for tax purposes.

It is common to break out land and building in a rental property for depreciation purposes, but there are many more components to consider. These additional components may include appliances, parking structures, landscaping, furniture, fixtures, and much more. Most importantly, these additional components can be depreciated much faster than land and building.

The result is accelerated depreciation which means more depreciation can be taken sooner.

Keep this in mind: Accelerated depreciation is a long-term strategy.

The decision to accelerate depreciation should be part of a long-term tax strategy. While the tax benefits can come immediately, there needs to be a focus on the future to truly maximize the benefits.

Accelerated depreciation often results in more gain when the property is sold.

On top of that, the depreciation taken may be recaptured when the property is sold, which means a portion of the gain (the portion attributable to the depreciation) may be taxed at ordinary tax rates.

So how is any of this good news for accelerated depreciation?

Here’s how. The worst case scenario with accelerated depreciation is that the tax is deferred to a later year. You take the bigger deductions now, enjoy the tax savings now and then pay tax on it later in the form of more gain.

If you’ve heard me speak, then you probably know deferral is my least favorite type of tax planning, so you may be wondering why I think accelerated depreciation is so important in a tax strategy.

The reason is that deferral is the worst case outcome, and as far as tax planning goes, while deferral isn’t my favorite, it can still help minimize taxes. So even the worst case scenario is still good for tax planning.

But even better, there are other possible outcomes that can reduce or eliminate the future tax impact of accelerated depreciation.

A long-term strategy is the solution to minimizing or eliminating the future tax impact of accelerated depreciation. Here are a few examples.

Strategy #1 – Depreciation Recapture
Not all depreciation recapture is taxed as ordinary income. Some depreciation recapture has a lower tax rate. This means you take the deduction at a higher rate and report the income at a lower rate – this results in permanent tax savings.

The key is making sure you are in the right tax brackets now and in the future.

Strategy #2 – Like-Kind Exchanges
Another example is using like-kind exchanges in your long term tax strategy. With like-kind exchanges, it is possible to avoid depreciation recapture entirely.

Strategy #3 – Hold Property to Pass to Heirs
If your long-term strategy is to hold the property and pass it to your heirs, then that can work to avoid depreciation recapture.

Strategy #4 – Rental Property
A plan to regularly buy rental property can provide a steady source of accelerated depreciation and compensate for lower depreciation on properties entering the older stages of their depreciable lives.

While there can be many traps with accelerated depreciation, these strategies are some ways to plan around them with a long-term strategy.

Think You Don’t Need an Estate Plan? Think Again!

Posted on February 15th, by Janice in Taxes Wealth No Comments

A key part of a wealth strategy is to protect the wealth you build. Estate planning plays an important role in protecting your wealth by making sure your wealth is distributed in the way you want after your death. What better way to protect your wealth than to be in control of it – even after you are no longer living.

Even with all these great benefits of estate planning, it often gets pushed to the back burner. This happens most often due to bad information.

That bad information is this:
I do not need to do estate planning right now because my estate is not taxable.

Many countries have an estate tax that is levied against the value of your assets after your death. Most countries have a threshold that if an estate falls under that threshold, it is not subject to estate tax. Many people think they don’t need to do estate planning if their estate is under that threshold.

This is not true! While it’s true their estate may not be in urgent need of estate tax planning (although estate tax planning is best done when the value of your estate is low), there is still a need for basic estate planning.

Estate planning is not just about the estate tax. In fact, some of the most important reasons to do estate planning have nothing to do with estate tax. Here are just a few reasons why estate planning applies to just about everyone – regardless of their income, wealth or age.

Protect Your Wealth
As I mentioned, estate planning is an absolute necessity in order for you to dictate how your wealth is distributed after your death. Without this in place, the law will make that decision for you. This is a powerful way to protect the wealth you build.

Protect Your Health
Proper estate planning is not just about what happens after your death, it also addresses what happens in the event you are unable to make your own decisions – this includes medical decisions.

Addressing what medical treatments you do or don’t want while you are able to make and communicate these decisions is crucial. Part of proper estate planning includes discussing your decisions with your physician and your family.

Protect Your Family
As I mentioned above, a big part of the basics of estate planning is addressing what happens if you become incapacitated.

Think about this: If you became incapacitated tomorrow:
Would your mortgage be paid on time?
Would your bills be paid on time?
Would your family be able to maintain the lifestyle they are accustomed to during your incapacitation?

Proper estate planning addresses not only what happens with your wealth after your death, but also how your wealth is managed during any period of incapacitation. Planning for this in advance as part of your basic estate plan is a wonderful way to take care of your family. It’s also an effective way to protect your wealth.

No Estate Tax Doesn’t Mean No Estate Plan
Remember, just because you don’t have an estate tax issue doesn’t mean you don’t need estate planning now. Some of the most important reasons to do estate planning have nothing to do with estate tax.