April, 2006
A Big Jump for Small Businesses?
April, 2006
A Big Jump for Small Businesses?
Is it possible for small U.S. businesses to be successful in today's global marketplace? Statistics show that the answer appears to be "Yes." In 2002, almost 70% of all U.S. exporting firms were small firms (companies with fewer than 20 employees). The value of exports from small and medium-sized firms (companies with fewer than 500 employees) that year was almost $160 billion.*
If you've been thinking about "going global," here are some pointers.
A Virtual Leap
Thanks to the Internet, the world is already at your door. A well-designed, multilingual website can allow you to sell products worldwide. Security and privacy issues and maximizing search engine results are key design considerations. Major credit cards and payment processing systems that handle foreign currencies can help smooth out payment snags.
A Physical Presence
If you decide to have a physical presence in a foreign country, you don't have to go abroad and set up shop yourself. You can probably find an experienced distributor to sell your products or services in other countries. or, you might be able to hire knowledgeable representatives in the countries where you'd like to do business.
Either way . . .
Be sure to research the culture of the foreign country you're interested in, as well as its economy. Have a good understanding of - and respect for - a population's social customs and taboos can help you avoid potentially costly mistakes. On the practical side, be sure to use the local system of weights and measures and the appropriate language and currency when describing and pricing your goos and services.
Be Prepared
Exporting will probably put new financial strains on your business. You may need to modify your products land/or packaging, wait longer for payments, arrange additional financing, and obtain special export licenses. Careful analysis and planning are required before making the decision to go global.
* Source: U.S. Department of Commerce, Exporter Database.
It's no secret that obtaining a college education is expensive - and getting more so with each passing year. How bad is it? Here are highlights from the latest surveys* by the College Board:
After years of making mortgage payments and tending to repairs and improvements, you may have a large investment in your residence. Perhaps you're planning to finance your retirement with some of that investment. Before you count the equity you have in your home as part of your retirement savings, however, as yourself a few questions.
How much equity am I likely to have?
Project how much you'll still owe, if anything, on your mortgage and home equity loans when you retire. Then estimate how much your house will be wroth at that time. The difference represents the equity that may be available to you.
Will I be willing to sell my home?
There are basically two ways you can turn home equity into cash for your retirement: sell your home or take a reverse mortgage. In general, your most practical option will be selling, so think about whether you'll be willing to go that route when the time comes.
How much will a new home cost?
You'll need a place to live after you sell your home. Renting is one option. But, if you'd rather own your home, you'll have to think about where you want to live and how much you'll have to pay to buy a home there.
What's the bottom line?
To add anything to your retirement savings, the new home you buy will have to cost less than the amount of equity you unlock when you sell your old home.
Example: The Smiths want to stay in the same general area after they retire to be near family and friends. If they sell their home for $350,000, pay off their $50,000 mortgage, and buy a new, smaller home for 275,000, they'll end up with only $25,000 of "extra" money (less selling expenses) to spend on other things.
Forging a long-term financial plan for retirement is critical. Don't wait too long to get started.
It's April. Your tax return has been filed. So what's next? If you're hoping to pay less tax in the future, your best move may be to go back to the drawing board. Using your 2005 return and what you tell us about your current financial picture as guide, we can help you identify potential tax-reducing strategies for 2006 and beyond. Here are a few ideas to get you started.
Save for Retirement
Making pretax contribution to a 401(k) or 403(b) plan sponsored by your employer reduces the amount of your taxable wages - and the amount of income tax withheld from your paycheck. Your deferrals, along with earnings from investing the deferrals, are not taxable until the money is distributed to you.
As a 401(k) or 403(b) plan participant, you may also have an opportunity to make after-tax "Roth" contributions. Making Roth contributions won't save you taxes upfront. The advantage comes later, after a five year period passes, beginning with the year you made your first Roth contribution. At that point, any Roth money distributed from the plan is tax free, provided you are at least age 59-1/2 or the distribution is made on account of your disability or death. So, qualifying earnings on your Roth contributions are never taxed.
Think Capital Gains and Dividends
Turning to non-retirement account investments, two types of earnings receive favorable tax treatment: long-term capital gains and qualifying dividends. Through 2008, the tax rate on both is capped at 15%. Because your regular tax bracket could be as high was 35%, there may be a substantial tax incentive to earn capital gains and dividends instead of fully taxed short-term gains and interest income. Of course, tax considerations are only one factor to consider in managing your investments.
Find Above-the-Line Deductions
On the expense side of the equation, certain expenses, often referred to as "above-the-line" expenses, are deductible in arriving at your adjusted gross income rather than as itemized deductions. Some examples include: alimony paid, student loan interest, moving expenses, and self-employed health insurance. Limits apply. An above-the-line deduction not only lowers your taxable income, it can help you qualify for various other tax breaks.
A review of your 2006 tax situation may reveal additional opportunities to save taxes. When you're ready to think taxes, think of us. We'll be glad to help.
What would happen if you lost your biggest client or customer? if the mere thought makes you break out in a cold sweat, it's probably time to make some changes.
Problem: Time
If you rely on one Big client, even if you have several smaller ones, most of your efforts probably go to servicing Big's account. So finding and developing new prospects is difficult. If you suddenly lose Big's business, you'll have time to go looking for new clients . . . but you may not have the cash flow to survive until you land them.
Solution: Refocus
Realizing the importance of diversifying your client base is an important first step. Get back in the habit of keeping your eyes and ears open for - and your sales force revved up to find - new opportunities.
Problem: Direction
Devoting most of your efforts to your big account may have affected how your business has developed. Perhaps you've adapted your business plan or added services of products that are more in line with jBig's needs than your own goals. These are signs that your focus may be too narrow.
Solution: Reinvent
Step back and look objectively at your business. Are you in a good position to pick up new clients? If not, set new goals based on attracting a wider client base. What changes are needed to accomplish your new goals? Even if your big relationship continues, expanding your client roster is something to consider seriously.
Mutual funds usually pay their operating expenses out of the assets of the fund. Operating expenses can include fees for managing the fund's investment portfolio and for marketing and selling fund shares, among others. When you invest in funds, you'll want to consider the effect that charges like these can have on your return.
As an example, suppose you invest $10,000 in a stock fund and earn $800 (8%) on your investment the first year, before subtracting expenses. If the expenses reduce the value of your investment by $108, your return has been reduced by 13.5% ($108 ÷ $800). Over time, expense charges can take a significant bite out of returns.
You can find a fund's operating expenses listed in its prospectus. Any shareholder expenses association with investing in a fund (a sales charge on purchases, for example) are also noted in the prospectus.
Do American homeowners recoup the money they spend on remodeling projects when they sell their homes? A 2005 report from the national Association of Realtors offers some interesting statistics. On average, midrange bathroom remodeling projects returned 102.2% of the money invested in them. Homeowners who remodeled their kitchens didn't fare as well - the payback on a midrange major remodeling project averaged 91% of cost.
The IRS is warning taxpayers to be wary of an e-mail scan designed to trick recipients into revealing personal identifying and financial information. The e-mail claims to be from the IRS and tells recipients that they are eligible for a tax refund. Recipients are told to click on a link that asks them for their information.
The average lump-sum distribution taken from retirement plans was $30,072 in 2003, says the Employee Benefit Research Institute in a recent study. The median (midpoint) amount was $8,118. About 47% of those who received a lump sum rolled at least some of the distribution into an individual retirement account or other tax-favored plan.
Martina received a tidy sum of money when her great aunt's estate was settled. Although they have never owned rental property, Martina and her husband Juan are thinking of buying a small apartment building with the inheritance.
Managing rental property is a time consuming task with many responsibilities. Before the couple signs a purchase contract, they need to answer a lot of questions. Is the property in good shape or are renovations or improvements needed? How long do the current tenants plan to stay? Who will be responsible for maintaining the property and collecting rents? if Juan and Martina already have full-time jobs, they may need to pay someone to help them manage the property, which will cut into their investment return. Would it still be worthwhile?
Step one is to have a qualified building inspector verify the soundness of the structure. The couple should also find out why the owner is selling the building, what the renal rates are for comparable properties, and what the vacancy rates are in the area.
Once they have gathered all this information, Martina and Juan can realistically evaluate the seller's asking price. And they'll be able to see if the expected rental income will cover the mortgage payment, real estate taxes, and other projected operating expenses.
If you're considering investing in real estate, we can help you analyze the financial and tax aspects of your potential purchase. Please don't hesitate to call for assistance.
Question: Our company is reviewing the amounts we are paying for various insurance, including workers' compensation. We're wondering what effect an "experience modification factor" of 1.25 has on our premium.
Answer: The experience modification factor directly affects the calculation of your premium. It is a figure derived from comparing your company's loss record, which includes the number of work-related accidents and their total cost, to the loss records of others in your industry. A factor of 1.25 means your company is charged 25% more in premiums than businesses assigned a factor of 1 (which essentially indicates an "average loss record" for a given industry.)
Question: My brother is willing to pay me $10,000 for my baseball card collection. I have $15,000 invested in the cards. Can I deduct the $5,000 loss?
Answer: Unfortunately, you can't deduct a loss on the sale of property to a relative. However, if your brother buys the collection from you for $10,000 and sells it for $18,000 to someone who isn't a relative, he can reduce his taxable gain of $8,000 by the $5,000 loss you couldn't deduct.