Just Married? Financial and Legal To-dos for Newlyweds

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Wedding season is upon us. September and October are typically the most popular months to tie the knot. And despite the pandemic still raging in many parts of the country, the wedding industry is forecasting a temporary boost in revenue, with the number of fall weddings scheduled already close to pre-pandemic levels for now.

Many engaged couples and their families are remaining hopeful and cautiously planning for their big day. Whether you’re preparing for a wedding celebration now or later, it’s important to remember the administrative tasks to address when you say, “I do.”

 Housekeeping chores for name changes

The majority of pre-marital tasks relate to taking your spouse’s name or vice versa. If your name is changing, here’s the protocol after you’re legally wed:

  • Visit your local SSA office. Notify the Social Security Administration (SSA) after you’re married to protect Social Security benefits and credit ratings. To get a new Social Security card, you need to complete an application and provide proof of identification with your old and new names, such as a driver’s license and a marriage certificate. If you were born outside the United States, you’ll also need proof that you’re a citizen or legally in the country. Keep in mind, the SSA doesn’t accept photocopies, notarized copies or your old Social Security card as evidence of identity.
  • Update IRS records. The SSA informs the IRS about name changes, and the tax agency’s records are generally updated 10 days later. If you don’t notify the SSA and file a tax return with your new married name, IRS computers won’t be able to match the new name with the Social Security number.
  • Spread the word. Once your name is officially changed with the SSA, share the good news with everyone else. To avoid confusion, also be sure to update your driver’s license, passport, tax records, voter registration, vehicle registration, utility records, retirement plans and more.

When you get back to work, consult your company’s HR department to evaluate how your change in marital status affects your benefits options. For example, you might save money by eliminating duplicate healthcare or life insurance coverage.

Joining your finances

Are you combining your savings, checking and credit card accounts into one? Even if you decide to maintain separate accounts, it may be helpful to have at least one joint account to pay for shared expenses, such as rent, mortgage costs, household expenses or childcare.

A joint account can also help avoid trouble in certain situations. When a spouse or common law partner dies and there are separate accounts, the survivor will be excluded from the separate account if the estate goes into probate. That could take months. CPAs often help newlyweds establish joint financial goals, including annual budgets and contingency plans in case a spouse passes away, becomes disabled or gets laid off.

Managing legal matters

From a legal perspective, you’ll need to update deeds, wills and power of attorney documents. Your attorney can also discuss the full array of estate planning tools, such as various trusts, that might be relevant now that you’re married.

People who have been previously married bring additional financial issues to the table, especially if there are children, alimony payments and child support involved.

  • Do you have business debts or obligations with your former spouse?
  • Are you required to keep a former spouse on your insurance?
  • Does a former spouse have a claim on your employer-sponsored retirement account?
  • If you’re entitled to assets from a former spouse (for example, an inheritance or other financial interest) will your remarriage end that entitlement?

Marriage is a celebration — but it also involves a lot of paperwork. Don’t let administrative chores prevent you from living happily ever after. Contact the CPAs at Magone & Company at (973) 301-2300 to help tackle the critical tasks head on.

Overhead Expenses Starting to Accumulate? Manage Them Now Before They Get Out of Hand

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It’s not uncommon for overhead expenses to increase over time. In fact, it’s part of doing business.

But when overhead begins to mushroom out of control, it’s critical to confront the situation in a timely manner to avoid bigger problems down the road. Here are a few tips to help you manage runaway overhead costs:

Oversight is essential. Always be aware of your overhead expenses. Set time aside regularly to review them. Being conscious of what you are spending alerts you to changes that must be made.

Conduct an overhead review. The goal of your overhead review should not be only to reduce costs, but also to make certain those reductions allow you to deliver anticipated service levels to customers and clients. To that end, you must be aware of what your clientele expects from you. Involve employees in making a list of what your customers most value about your services and what they think might be improved. Awareness of customer satisfaction levels gives you a head start in determining what overhead cuts might be detrimental to your business.

Calculating overhead expenses. Use this simple equation to decide if you need to conduct an overhead review:

(Overhead ÷ monthly sales) x 100 = Overhead percentage

Recommended overhead ratios vary by industry. However, an overhead percentage that is no higher than 35 percent of total sales is considered positive.

Classify overhead activity. Overhead activity can be categorized into three areas: core, support and diversionary. Core activities such as sales add direct value to the company. Support activities such as record keeping do not add direct value, but they support the core activity. Diversionary activity such as time spent on correcting errors adds no value to the business. Since diversionary activities can account for as much as 20-40% of total overhead activity, special attention must be given to this category in determining overhead reductions.

Ideas for reducing overhead. These are some of the key areas you should look at in deciding overhead reductions:

  • Renegotiate your lease. The US Chamber of Commerce recommends that you make sure you know how much of a reduction to ask for based on market conditions and your business’s financial projections.
  • Evaluate your utility usage. Determine the levels of service your business actually requires. Odds are that you’ll find you’re spending much more than you need to, especially with the advent of competing utility services.
  • Rethink Insurance. Keeping certain that you remain adequately covered, review your policies to see what might safely be cut. Failing that, don’t auto-renew when your policy comes due annually. Ask your broker to shop around, as rates can vary widely.
  • Rent equipment instead of buying. This eliminates many upfront and maintenance costs. Leasing is not only less expensive, it also helps you keep your technology current.
  • Review your contracts. Cancel contracts you may no longer need, and renegotiate the necessary ones.

Benefits of an overhead review

According to the Managers-Net Archive, a properly executed overhead review can result in at least a 20% reduction in overhead costs, usually within a 10- to 14-week period.  But it also can benefit your company in other ways. The changes you make can result in improved services critical to your customers. It can make you aware of costly diversionary activity and present the opportunity to minimize it. And it can help provide your management team with a better understanding of the current state of the business, resulting in commitment to your proposals for improvement.

Why Preserving a Healthy Cash Flow is Key to Your Company’s Survival

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Cash flow is the lifeblood of a business. It’s what keeps the lights on and the doors open. And lack of it is one of the biggest reasons businesses fail. In fact, 82% of small businesses fold due to cash flow mismanagement.

If you’re spending more on bills, payroll, inventory and interest than your company is bringing in, you have negative cash flow — a key indicator that your business’s financial health is suffering. In that case, it’s time to make some serious changes, as the future of your business depends on it.

Having just enough won’t cut it

Not only do you need adequate funds for day-to-day business expenses, but you need enough cash to pay suppliers, creditors and your employees before you actually generate a profit. Understanding how cash flows in and out of your business gives you the power to plan strategically for the future, improve vendor relationships and increase the likelihood that you never run out of cash.

The sooner you learn how to manage your cash flow, the better your chances of success. Here are some tried and true strategies for improvement:

  • Control inventory. Holding too much inventory ties up cash, but not having enough can lead to a loss in sales and unhappy customers. Through consistent analysis, you can ensure that you’re on top of your needs.
  • Collect receivables. Establish a formal collections schedule and follow up on non-payers. Consider charging interest to penalize late payers or end unprofitable relationships entirely.
  • Control access to bank accounts. Keep the number of people who can access your accounts to a minimum, and be sure to update passwords as needed.
  • Outsource when it’s cost-effective. For certain areas of your business — like accounting, marketing, payroll and HR — it might make more financial sense to subcontract to a firm that specializes in those functions.
  • Consider leasing vs. buying — or vice versa. If you’ve been leasing, your costs are likely predictable. But purchasing equipment can substantially alter your cash flow. Reevaluate your costs and your needs to see what works best.
  • Run monthly cash flow reports. Whether you use Excel (not recommended!) or software such as enterprise cloud versions depending on your needs (Great Plains, NetSuite or Intaact), take time for a weekly overview of cash received and cash paid out to show your business’s cash position.

Understanding the financial environment of your business

According to Inc., “If you haven’t considered cash management an important issue, then you’re probably undermining your business’s short-term stability and its long-term survival.”

There are few things more important to your business than cash flow — especially if you’re striving for growth. That’s why Magone & Company offers business advisory services that look ahead in real time rather than relying on typical rear-facing accounting services.

Reach out to see how we can help get your cash flow on track for the long term.

Lucky Day at the Casino? Don’t Forget About the IRS

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Whether you’re a regular at the racetrack, an online sports betting enthusiast or spending your first time at the slots, hitting a jackpot can be exciting. But keep in mind, as you celebrate your big win, the IRS will be waiting with its hand out.

Even winners can be losers if they don’t pay their taxes. Consider the consequences of your good fortune and follow the tips below:

  • Ask about a W-2G. Any money you win gambling may be considered taxable income and should be reported on a W-2G form. If you try to fudge the numbers or not report the win, you’ll quickly find yourself on the wrong end of a tax bill. If you win a substantial amount, ask the casino how and when tax forms will be issued.
  • Understand withholding. According to the IRS, you must withhold federal income tax from the winnings if they (minus your wager) exceed $5,000. So before you spend it all, you might want to hold some in reserve. If you’re concerned about having the money to pay taxes due, see if the casino will do the withholding for you. Not all casinos offer this, but it never hurts to inquire.
  • Track your losses. You may be able to write off some of the money you lost in pursuit of a jackpot — but only if you can back up those numbers with hard data. If you carry a casino loyalty card, request a report showing how much you spent and how much you won, while your card was in use. It’s not the perfect solution, but it can be a good first step if you plan to write off your losses in hopes of reducing your final tax bill.
  • Research your state laws. In addition to federal taxes, you may also owe state taxes on your winnings. Each state has its own rules and formulas — some charging a flat percentage, while others basing tax on the total amount won. Knowing what your state requires can help you better plan for tax time.

As always, consult your financial professional if you find yourself on the winning side of a wager. This information is provided for educational purposes only and should not be considered tax or financial advice.

When Uncertainty’s the Norm, Plan for the What ifs

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Uncontrollable factors can have a profound effect on business operations. Circumstances can change overnight, directly impacting your employees, your customers and your business decisions. When unforeseeable events occur — COVID-19, anyone? — what can you do to keep your business afloat financially and practically?

Risk or uncertainty: What’s the difference?
Business risk is when the odds of future events can be measured and factored into your plans. When you don’t know the probability that something may happen, you’re dealing with business uncertainty.

Unlike calculated risk, business uncertainly cannot be controlled, making it even harder to prepare for. For example, if a competitor sets up shop a few blocks away, do you have a strategy in place to retain your sales? If there’s another mass shutdown, can your business model adapt and carry on?

An astounding three out of every 10 U.S. small businesses report they likely won’t survive 2021 without additional government assistance — that’s nine million small businesses at risk of closing for good as a result of the pandemic. The past year has demonstrated the need for a flexible business plan that confronts all the what ifs. Forward-thinking businesses have a greater chance of growing and thriving in even the most uncertain environments.

What causes uncertainty — and what can you do about it?
Business disruptions can arise from anywhere, but they’re commonly attributed to the following:

  • Whether it’s the stomach bug making its rounds around the office or a global pandemic shutting the entire office down, unexpected illness can shake up your workforce productivity, deadlines, inventory and more.
  • Economic conditions. Sudden shifts in economic activity (good or bad) can have a huge effect on your sales, inventory and cash flow.
  • Consumer behavior. Anything that changes a customer’s needs or how they go about filling those needs can alter the way you do business.
  • From taxes to minimum wage to employee rights, the government can play a key role in who you hire, who you fire and everything in between.

While you can’t plan for everything, you can take steps to safeguard your business:

  • Strategize for various possibilities. Acknowledge the unknowns and be flexible. Think about how your business model would adapt if XYZ were to happen.
  • Develop worst-case scenarios. Face your biggest fears. How would your business work through them to come out on the other side?
  • Educate yourself on the state of the economy. The more you know about how your business can be adversely affected, the better you can brainstorm the potential risks and solutions.
  • Reevaluate your resources. Are you confident in your team, vendors and suppliers? Can your cash reserves carry you through an emergency? Build a strong defense before you actually need one.
  • Remain guided by your vision. Remember why you went into business in the first place. Ensure that your whole team’s goals and efforts are aligned to bring your organization success.

Start planning for tomorrow, today
Uncertainty affects businesses of all types and sizes. That’s why you need solid contingency plans to adapt to the changing variables. NJ CPA firm Magone & Company’s advisory services can help position your business ahead of the challenges to come. Contact us today at (973) 301-2300 to learn more.

Self-employed? Showing Proof of Income is Easier Than You Think

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You’ve found the home of your dreams. Your credit is excellent, and you’ve saved enough for a generous down payment. But when the loan application asks for proof of income, you start to panic. Fortunately, qualifying for a mortgage doesn’t require a nine to five or a weekly paycheck.

For the 57 million freelance workers in the United States, proving an income can be challenging. But with some extra effort and preparation, you’ll be able to demonstrate a stable financial history — and get that mortgage, apartment lease or car loan approval even without a W-2 form or biweekly pay statements. These strategies can help:

  • Use an online payment service. To document income, an online payment service like com records and tracks who pays you, how much money is disbursed and where the money is coming from, so the information is easily accessible when you need it.
  • Ask your bank for an ACH report. An Automated Clearing House (ACH) report can serve the same purpose as a ledger from an online payment service. The ACH report will show when payments were made, along with the amount of each payment for easy tracking.
  • Hold on to your past tax returns. Once your taxes have been filed, keep copies of your returns for at least three years (preferably 7-10). This will help ensure that your income is reported accurately year in and year out.
  • Save your 1099 forms. You may have dozens of clients over the course of a year. To make your life easier, set up a filing system for all those 1099 forms. Take it a step further and scan each form as it’s received, keeping electronic versions on file as well.
  • Average your monthly income. It’s not uncommon for freelancers to have peaks and valleys in income. Over time, you may detect an earning pattern despite the variations. If you hope to qualify for a loan, track your monthly income carefully, averaging out the numbers to reflect your true annual earnings.

Freelance work offers a unique freedom and flexibility, while still affording you the opportunity to make a comfortable living. And if you check all the boxes of meeting a loan’s requirements, proving your self-employment income doesn’t have to be a daunting process. The expert CPAs at Magone & Company assist self-employed workers with our extensive tax and business knowledge. Contact us today (973) 301-2300 for more information.