Category: Blog

How a No-Spend January Can Kickstart Your New Year

No-Spend January, how to save after the holidaysHere we go again. The new year is approaching, and those resolutions are staring us in the face – and the most common? Saving money. In fact, according to YouGov, this is the most important resolution for American adults. Now, certainly, you can’t not spend money in January (you have to eat), but the idea is to rid yourself of any unnecessary cash outflow so you can kickstart the year with some solid financial habits.

Limit Trips to the Store

Of course, you’ll need food, toiletries, and general household staples, but here’s your chance to step back and make lists, as opposed to running out to Target or Starbucks for a quick adrenaline rush. Plan your trips out. Buy store brands. Check prices. Use those coupons. Set your sights on the long view of the month, if not the year. This is one way to work toward getting fiscally fit.

Eat Everything in Your Pantry

You probably have cans of soup and pasta sitting on your shelves. Maybe even some canned veggies. Google some simple recipes with the items you have, add some spices, and voila, you’ve got a tasty, no-spend meal. Nothing like this can lead to long-term savings.

Forgo Eating Out

Once more, this tip is related to the first two. Truth is, you’ll want to go out to eat a few times – so go – but within reason. The trick is to find affordable spots with delicious grub. Another money-saving idea: split your entrees. You’ll not only save dollars but also calories.

Reevaluate Your Subscriptions

This is something that might creep up on you during the year. While you’ve been scrolling these past months, you might have seen an irresistible product, and you just had to have it – whether it was special vitamins, a hip magazine, or yet another streaming station with all those binge-worthy shows you can’t stop watching. But you might ask yourself: are these expenditures really improving my life? Once you see how much money you’ll be saving, you’ll most likely feel better (new and improved!) already.

Invest the Money You’re Saving

Now that you’ve cut back, you should have a surplus of cash accumulated over the year. So, what to do? One of the best things to do is tuck it away in a high-yield savings account. Just like with regular (traditional) savings accounts, you can withdraw when you want to. But with a high yield, you’ll most likely have a limit to how often you can take money out, which is usually six times per month without a fee. The main difference between a traditional and high-yield savings account is the interest rate. The current national average interest rate for a traditional savings account is 0.64 percent APY. Comparatively, top high-yield savings accounts pay between 4.25 percent and 5.27 percent. You in? Thought so.

Moral of the story? No-spend January is all about starting some new habits for 2024 – and watching them pay off. This way, during the new year, you’re not just working for your money, but allowing your money to work for you.

 

Sources

https://www.cbsnews.com/news/how-no-spend-january-can-kickstart-solid-financial-habits-for-2024/

 

IRS Plans to Shake Up Leadership

IRS Leadership change 2024The top leadership in the IRS is set to change. IRS Commissioner Daniel Werfel believes the changes are needed for the agency to meet its new goals. He aims to create greater flexibility and efficiency over the agency by streamlining internal processes. The changes also are needed, in his view, to adapt to the evolving landscape around tax administration – which has undergone changes due to new tax laws and technology.

What Are the Changes?

Changes to the organizational structure include reducing the Deputy Commissioner post to a single position (there are currently two); as well as creating four new positions with an IRS chief of taxpayer services, IT, compliance, and operations.

Long Time No Changes

While these changes are set to take place in the beginning of 2024, they are the first changes to take place in a long time for agency leadership. Currently, the highest rungs of the IRS organizational structure dates to the year 2000, over 20 years ago.

The last time changes were made in 2000, the IRS reorganized operations to support taxpayer segments that were the result of the IRS Restructuring and Reorganization Act of 1998.

Single Deputy IRS Commissioner Model

The change over from two at the top to a single deputy IRS commissioner position is modeled after the way the Treasury Department is structured. Doug O’Donnell, current deputy commissioner for Services and Enforcement, will step up to the post.

The Four New Positions

Other key changes in the leadership structure are the creation of four new chief positions, overseeing the areas of taxpayer service, compliance, IT, and operations.

Ken Corbin (currently Wage and Investment Commissioner) is being promoted to Chief, Taxpayer Service. Corbin served in various roles within the IRS since starting his career in 1986 at the Atlanta Service Center. His division will handle taxpayer-centered services, including the toll-free call and taxpayer assistance centers, overseeing tax return processing centers and correspondence with taxpayers.

The Chief, Taxpayer Compliance Officer role will be filled by Heather Maloy. Maloy’s career encompasses both roles within the IRS as well as private practice. Previously, she served as the LB&I Commissioner as well as other roles, including Associate Chief Counsel to a number of IRS divisions. The Chief, Taxpayer Compliance Officer role will oversee compliance work, including operations in the Small Business, Self Employed, Tax Exempt, and Government Entities divisions. She will also be responsible for the Professional Responsibility, Return Preparer, and Whistleblower offices.

The position of Chief Information Officer will be filled by Rajiv Uppal. Uppal’s current role is as the Director of the Office of IT and Chief Information Officer for Medicare and Medicaid Services centers. The Chief IT Officer role will oversee the entire IRS IT division.

Finally, the fourth new position, that of Chief Operating Officer, will be held by Melanie Krause. Krause began working at the IRS in 2021 and currently serves as the Chief Data and analytics Officer. Prior to this, she was the Acting Deputy Commissioner for Services and Enforcement.

Conclusion

Logistically, the changes should occur on the proposed timeline as reorganization changes that do not require a budgetary appropriation amendment. In layman’s terms, the IRS isn’t looking to Congress for any more money, so Congressional approval isn’t needed. As such, the changes are all but certain to take place in early 2024. The result aims to help the organization adapt to recent tax law changes and evolving technology while simultaneously streamlining the organization and making it both more efficient and effective.

Considerations For Paying Off a Mortgage Early

Paying Off a Mortgage EarlyFor many, buying a home is the biggest asset they will ever own. However, you aren’t able to fully benefit from that asset until you pay off the mortgage; until then, it is technically a liability. The most common length of a mortgage loan is 30 years, but most people either sell their home, refinance their mortgage – or even pay it off before the end of that term.

What are the pros and cons of paying off a mortgage early? Obviously, you no longer have to make monthly payments, so money can be directed elsewhere. It is advisable to pay off your mortgage before you retire when most people live on a lower, fixed income. By having the mortgage paid off, that money can be redirected to other household expenses and/or provide higher discretionary income.

It should be noted that paying off your mortgage doesn’t provide relief from other routine, high-ticket home expenses such as property taxes, homeowners’ insurance, or regular maintenance. However, owning your home outright means it can’t be foreclosed on and taken from you. It also provides a large financial asset from which you can tap the equity or sell for a windfall.

While paying off your mortgage can provide security and peace of mind, you should consider all the factors before going down this path. For example, you may not have enough discretionary income to devote to making extra payments to your mortgage loan principal.

Usually, in the first 10 to 20 years of homeownership, buyers are juggling a multitude of financial obligations – raising a family, building an emergency fund, saving for college, taking annual vacations, and investing for retirement. That doesn’t always leave a lot of money left over for your mortgage.

There are, however, different strategies you can use to pay off a mortgage early:

  • Pay an extra amount toward your principal along with your regular payment every month.
  • Pay an extra amount each year, such as from a work bonus or other annual windfall.
  • If you continue working after retirement age, you may want to allocate the required minimum distributions (RMDs) from a retirement account toward your mortgage.
  • Make large payments each year from an inherited IRA transferred from a deceased parent’s retirement account. Non-spouse heirs generally have 10 years to use up these funds. By withdrawing only a portion of the funds each year, the inherited IRA may continue to grow over the full 10-year period.
  • Pay off fully or a significant portion of the mortgage using other inherited funds from a deceased parent.

Not only does paying off the mortgage early shorten the life of the loan, but it also can save you tens of thousands of dollars in interest payments.

For some people, paying off a mortgage early may not be their best strategy. After all, if they have locked in a low, fixed interest rate on the loan for the entire term, their excess income may be better deployed to an investment portfolio. Over a 15-, 20- or 30-year period, regular contributions to an investment portfolio can earn even more than the equity built up in a home.

If you’re locked into a high-interest-rate mortgage, you may want to consider refinancing when rates are adjusted downward. This can help you allocate more money toward your principal. However, don’t be quick to refinance to a lower rate if you already have a low rate, as mortgages are structured to pay a higher percentage of interest on the front end of the loan. When possible, it’s best to refinance or pay extra principal in the early years of the loan rather than the later years – because refinancing could cause you to pay more interest in another front-loaded loan for another long term. Also, be aware that some mortgages have an early payoff penalty, generally during the early years of a refinance, so check before you pay it off early.

Another consideration is that mortgage interest is tax deductible, which may be a key tax saver for those in a high tax bracket.

It’s a good idea to pay off any high-interest debt you may owe, such as credit cards, auto, or student loans, before paying down your mortgage early. These debts may be costing you more money than you can save by paying off a low-interest mortgage. Once you’re debt-free, you can redeploy those payments toward your mortgage principal.

The decision to pay off a mortgage early depends on your situation and your priorities. Specifically, if you still need to build an emergency reserve fund, catch up on retirement savings, or pay down high-interest debt, you might be better off allocating money elsewhere. By the same token, if the investment markets are enjoying an upward trend and you have a low-interest mortgage, you may want to just let your money “ride” in the market so you have more available later – perhaps then you can pay off your mortgage before you retire.

Relaxing Small Business Accountability and Supporting Veteran Homelessness and Substance Abuse Disorders

SJ Res 32, HR 3581, HR 3848, HR 4531A joint resolution providing for Congressional disapproval under Chapter 8 of Title 5, United States Code, of the rule submitted by the Bureau of Consumer Financial Protection relating to Small Business Lending Under the Equal Credit Opportunity Act (SJ Res 32) – This resolution was introduced on June 13 by Sen. John Kennedy (R-LA). It nullifies a rule issued by the Consumer Financial Protection Bureau (CFPB) that requires financial institutions to collect and report credit application data for small businesses to the CFPB. The bill passed in the House and the Senate on Dec. 1, but President Biden has threatened to veto the resolution because he believes it would reduce transparency and accountability in small business lending.

Caregiver Outreach and Program Enhancement (COPE) Act (HR 3581) – This bill supports various Veterans Administration initiatives: 1. Authorizes funding for the implementation, coordination, and enhancement of mental health counseling and treatment for participants (family caregivers of veterans) in the VA family caregiver program; 2. Authorizes the VA to contribute to local authorities to mitigate flooding risks on properties adjacent to VA medical facilities; 3. Requires an annual survey of police chiefs, facility emergency management leaders, facility directors, etc., for data regarding VA facility security; 4. Extends certain VA home loan fee rates through March 12, 2032. The legislation was introduced by Rep. Jennifer Kiggans (R-VA) on May 22. It passed in the House on Dec. 4 and is now in the Senate for review.

Housing our Military Veterans Effectively Act of 2023 (HR 3848) – This Act is designed to address issues related to homeless veterans. It increases the maximum per diem payments to authorized entities that provide transitional housing and services to homeless veterans. It also authorizes a maximum of 200 percent of the rate for veterans who live in rural areas, areas with high veteran suicide rates, and high rates of veteran homelessness. Furthermore, the bill authorizes the VA, through fiscal year 2024, to use certain funds to provide additional assistance to homeless veterans participating in the HUD-VA Supportive Housing program and to manage the use of VA land for homeless veterans to live and sleep. The legislation was introduced on June 6 by Rep. Lori Chavez-DeRemer (R-OR) and passed in the House on Dec. 5. Its fate currently rests with the Senate.

Support for Patients and Communities Reauthorization Act (HR 4531) – This bipartisan legislation reauthorizes (through the fiscal year 2028) grants, programs, and activities that address substance use. The provisions address data collection, education, and surveillance activities; support for substance use disorder (SUD) prevention, treatment, recovery, and trauma experienced by families of SUD patients; and student loan repayment and other resources for the SUD workforce. The legislation also modifies certain drug schedules of controlled substances and permanently requires that Medicaid cover medication-assisted treatment for eligible SUD patients. This bill was introduced by Rep. Brett Guthrie (R-KY) on July 11 and is co-sponsored by 37 Republicans and 27 Democrats. It passed in the House on Dec. 12 and is currently under consideration in the Senate.

Defining Materiality in Accounting

Materiality in AccountingIn the world of accounting and auditing, there is a concept called materiality. The term materiality essentially means an amount that, if erroneously omitted or included, impacts the financials of a company to the point where they don’t tell the truth. One very basic example would be if a $1 million revenue small business made a mistake recording their accounts payable, and as a result, the business has $100,000 of expenses missing from their results. This would be material. If the same exact mistake happened in a multi-billion multinational company, it would not.

When it comes to materiality in accounting, there are many nuances that need to be considered when evaluating and determining what’s material and what’s not. One way to look at materiality from an accountant’s perspective is to determine how much a particular transaction (such as a purchase) or event (such as a lawsuit) will have on a company’s financial performance. Whether it’s an omission or a mistake in calculating and reporting such an event, the way an accountant evaluates and decides how to proceed with reporting the information (or not) can make a big difference in whether or not such information is material or immaterial.

Another way to look at whether information is material or immaterial is to determine if omitting (or through an accounting mistake) such information would mislead or change a person’s actions regarding the company (investing in, providing a loan to the company, etc.). If omitting the information would influence an outside party’s decision, it would be material. If including the mistake would not change an outside party’s decision regarding the company, it would be immaterial.

One consideration is the benchmark a company uses to determine if a transaction or event would trigger a materiality classification. For example, net profit, operating income, total assets/shareholder’s equity, gross profit, or gross revenue are commonly used. However, it’s important to keep in mind that operating income might not be the best metric if the business loses money, breaks even, or is modestly profitable.

When it comes to looking at net income and a loss, what matters is how big of a percentage the loss represents against the net income. If there’s a $10,000 loss of inventory (for example, due to a termite infestation of a special type of wood) at a furniture manufacturer that has annual sales of $100 million, it would be immaterial and not necessary to report it on the income statement. However, if this occurred at a start-up furniture factory with a net income of $50,000, it would be a 20 percent loss and would certainly make a material impact to investors, lenders, etc.

Documenting Decisions

The next step is for accountants to document their judgments and the reasons why they made each type of documentation. It’s a way for the internal financial managers or the auditor to determine what was done and why. One example looks at whether or not to depreciate or expense an item – for which the materiality depends on the item’s cost.

If an office desk costs $125, depreciating the office desk seems impractical and would likely be classified as a business expense during a company’s tax year. However, depending on the size of a business’ net income, a start-up may consider it material, but an established, publicly traded consumer staple corporation buying the same item would likely consider it immaterial.

Determining (im)materiality is often a judgment call by the financial experts within a company and the auditors who evaluate companies’ financial statements. With a consistent approach, businesses can make measured decisions for their internal and external audiences.