Category: Blog

‘Master’ The Augusta Rule and Save Money on Your Taxes

3 min read

Augusta Tax Rule, short term rental taxesAnyone who lives in a highly seasonal tourist destination knows you can make money on short-term rentals during events and festivities in your city or town. Think high concentration, short-term, tourist-driven events such as horse racing season in Saratoga Springs, N.Y., or The Masters Tournament in Augusta, Ga.

As a result, it is common for locals to get out of dodge and rent out their place during these highly lucrative periods. Typically, this is just for a very brief period while they are on vacation somewhere else themselves, for instance.

Given these circumstances, Congress realized it does not make sense to tax rental income for very short-term periods the same way that long-term rentals are taxed. In response, the government passed the Section 280A exclusion, often called the Augusta Rule in reference to the famous Masters golf tournament.

For the remainder of this article, we will look at the Augusta Rule in more detail and provide practical considerations for taxpayers.

The Augusta Rule, aka the Section 280A Exclusion

At its core, the Augusta Rule creates an exclusion to the concept that real estate rental income is always taxable. Per Section 280A, renting out your residence for 14 days or less, you are exempt from reporting the rental income. This also means no deduction for rental expenses. So, it is like it never happened from a tax perspective. As soon as you rent out that residence for 15 days or more, this exception no longer applies.

Note, it does not matter why you rented out your residence. There is no need for it to be related to an event or any special occasion.

Technical Workings of the Augusta Rule

While the basic rule itself is quite simple, there are details you need to meet in order to qualify for the exclusion – in addition to the 14-day time limit.

  • The property must be a home or similar. This means the property must be a “dwelling unit” per IRS definitions, meaning houses, apartments, condos, etc. (although houseboats do qualify).
  • The rental price must be reasonable. Look at comparable rents in the area to get an idea of what to charge. Luckily, this is easy today with Airbnb, VRBO, etc.

Practical Considerations

First, the above rules only apply to federal income taxation. State and local tax regulations may differ, so make sure you are up to snuff on these for your area.

Second, just because the IRS does not consider this kind of rental activity a real estate business does not mean you are exempt from local, state, or other business licensing or permit needs.

Conclusion

Qualifying under the Augusta Rule can be a wonderful way to save taxes. It can be especially beneficial to those who live in or around major events that occur for only a brief period and bring in massive amounts of tourists, creating high demand and soaring prices as a result. Moreover, it can be a terrific way to make some tax-exempt income while you are enjoying a personal vacation.

In the end, you must pay attention to the timing – and, most importantly, keep excellent records.

Factors to Consider when Choosing Customer Relationship Management Tools

4 min read

CRM, what is CRMCustomer relationship management (CRM) plays an important role in documenting, tracking, and managing relationships and interactions with existing and potential customers. It allows businesses to develop stronger customer connections, improve retention, boost sales, enhance customer satisfaction, and drive long-term profitability and growth. Luckily, technological advances have made it possible to have CRM tools that automate these processes. With numerous options available in the market, it’s crucial to carefully evaluate the factors influencing the selection of the right CRM tool.

8 Factors You Should Consider When Choosing a CRM Tool

CRM tools are built differently, and it is important to evaluate your business needs before making a decision. Below are some crucial factors to consider:

  1. Integration capabilities – Integration with existing software is a critical factor. A good CRM solution should offer robust integration capabilities with third-party applications, such as email marketing software, accounting systems, e-commerce platforms, and productivity tools. Seamless integration allows for smooth data flow, enhancing efficiency and accuracy.
  2. Customization and scalability – Every business has its unique requirements and workflows. Therefore, a CRM tool must offer customization options to meet the specific needs of a business. Additionally, the CRM should be scalable to accommodate future business growth. A good CRM tool should handle increasing data volumes and support adding new users, contacts, leads, and customers without major disruptions.
  3. Data security and compliance – Businesses deal with sensitive data that belongs to their customers, making data security and compliance crucial. A good CRM tool should offer robust security features like encryption, role-based access controls, and regular data backups. Additionally, CRM tools must adhere to relevant data protection regulations, such as the General Data Protection Regulation (GDPR) and other requirements, depending on geographical area and industry. Customers are concerned about the privacy and security of their data. Selecting a CRM tool with strong data security measures builds trust and confidence among your clients.
  4. Reporting and analytics capabilities – Effective reporting and analytics help a business monitor its performance and make data-driven decisions. In this case, a CRM tool should provide comprehensive reporting features and customizable dashboards. It should allow easy tracking of key metrics such as campaign effectiveness, customer acquisition costs, customer lifetime value, and revenue trends. Other tools that have advanced analytics capabilities include predictive analytics and machine learning algorithms that provide valuable insights into customer behavior and help identify opportunities for growth.
  5. User-friendliness – The ease of use of a CRM tool is crucial for user adoption. A good CRM tool should have a simple-to-use interface, easy navigation, and a short learning curve. A well-designed interface also enhances user experience, increases productivity, and encourages user adoption across all departments.
  6. Availability of training resources – Introducing a new CRM system can be challenging, especially if users are accustomed to legacy systems or manual processes. Therefore, it is crucial to choose a CRM vendor that provides comprehensive training resources, tutorials, documentation, and ongoing support to help users effectively onboard and utilize the CRM tool. It also helps to consider the availability of customer support options, such as email support, phone support, live chat or dedicated account managers, to address any technical issues or inquiries promptly.
  7. Mobile accessibility – As remote working has become more common, mobile accessibility has become a critical feature of CRM tools. A suitable CRM solution should offer dedicated mobile applications or responsive web interfaces, allowing access to essential CRM functionalities on the go. Mobile accessibility enables real-time collaboration, enhances productivity, and ensures crucial customer information is always available.
  8. Cost and ROI – Last but not least, consider the cost and expected return on investment (ROI) when evaluating CRM options. A CRM might appear to have good pricing, but it is crucial to look beyond the initial upfront costs and assess the long-term value proposition each CRM solution offers. At this point, it is advisable to evaluate factors such as subscription fees, implementation costs, customization expenses, and potential savings in time and resources.

Conclusion

Choosing the right CRM tool enhances customer relationship management and drives business growth. It is also good to stay updated with the latest advancements in CRM technology and keep an eye on emerging trends. For instance, the integration of new technologies such as blockchain into CRM is expected to offer new challenges and opportunities in managing customer relationships.

April is Financial Literacy Month: How Much Do You Know?

4 min read

Financial LiteracyWhat started as Youth Financial Literacy Day some years ago is now a monthlong event: Financial Literacy Month. It all started in 2003 when some U.S. legislators got together and decided that we needed more days dedicated to this topic. So, what does that mean for us? Plenty. It’s one month out of the entire year you can dedicate to getting your financial ducks in a row by engaging in fiscally savvy activities, absorbing all the knowledge, and then sharing your learnings with family, friends, and the world.

Prepare the Kids

Unless you went to a school (K-12) that included business/money classes, chances are you didn’t learn basic finance until you were older.That’s why starting kids early in their understanding of how to make deposits, withdrawals and balance their checkbooks is key. Here’s a resource for downloadable PDFs that you can use to help kids understand the basics of banking. You can even read a children’s book on personal finance to your grands or nieces and nephews, something like The Berenstain Bears’ Trouble with Money.

Both of these resources give kiddos a strong foundation for digesting more complex financial products, like Non-Fungible Tokens (NFT) and cryptocurrency. (You can save those for when they’re older.) When children master everyday money tasks, they’re better equipped to navigate life when they leave the nest.

Subscribe to a Blog or Podcast

You can choose personal finances, investing, or whatever you like. Educating yourself about how to make the best use of your money will pay off – and we’re not talking about just cash. You’ll also discover a variety of strategic directions about how to handle future financial issues. A few blogs to check out are Think Save Retire and The Penny Hoarder. Here are a few more. In terms of podcasts, check out Millennial Investing and Ditch the Suits. After you’ve digested some helpful nuggets, share them with your family and friends.

Learn More with Jumpstart Coalition

Jumpstart Coalition is a non-profit organization out of Washington, D.C., that houses a world of info about all things money – a curated database of financial education resources. From tax tips to credit unions, it’s a one-stop shop. Just spend a little time looking around, and you’ll finish smarter than when you started.

Attend Your State’s Financial Literacy Events

While this varies from state to state, be on the lookout in April for an announcement signed by your governor or your state representative. Typically, these are held in your capitol and are free. For example, the Idaho Financial Literacy Coalition holds a piggy bank beauty contest for elementary kids. All you have to do is search (Google, Bing, your choice!) “[State] April literacy month events,” and a list will come up. After you’ve attended, you might even think of creating a seminar of your own.

Go Over Your Monthly Budget

So, after you’ve filled your noggin with all your new money knowledge, you might want to review your finances for the month to see where you can tweak. Money is a fluid situation, as you well know, and applying new tricks and tips can help exponentially.

At the end of the day, and of course, the month, taking time to dive into improving your financial literacy – and spreading the news­ – is well worth it. When you’re fiscally fit, everything else in life seems to fall into place.

Financial Literacy Month 2024: Financial Literacy Activities to Start With | EVERFI

April is National Financial Literacy Month (moneyfit.org)

Part 1: Pre-Retirement Planning Guide

4 min read

Pre-Retirement Planning GuideOne of the more insightful quotes of baseball great Yogi Berra was, “If you don’t know where you’re going, you’ll end up someplace else.”

When you’re young, first starting out in life and career, the path to professional success and personal fulfillment isn’t always clear. Most people start out on a track and then adjust as they go along — based on what they learn, who they meet, and cultivate their choices given their opportunities.

Fortunately, the path to retirement need not be so nebulous. By the time you start thinking about retirement, most people have quite a few certainties in their life, such as career, family and assets they hold like their home and investment portfolio. Clearly, this is a great foundation for retirement planning. But it is only the beginning.

There are a lot of factors to be considered before entering this new phase of life. The following is Part 1 of a two-part series on the steps to take in pre-retirement planning.

1. Budget

Most people live on a budget, whether they mean to or not. That’s because, barring excessive spending on credit, most people can only spend as much as they earn. Once you retire and are no longer earning income, spending is generally reduced to match your new income sources, such as Social Security, a pension, investment interest, and dividends, etc. For most retirees, that means they need to spend less than they did before, at least in terms of regular monthly expenses.

Therefore, the first step in planning for retirement is to identify what your income sources will be, how much they will provide each month, and compare that to how much you will need. It is generally advisable to keep working until you have paid off major debts such as your mortgage(s), car payment(s), and any significant balances on credit cards, home equity or personal loans. The ideal plan is to retire when your annual household expenses match or are less than your long-term retirement income sources.

2. Goals

Just as you did as a young adult, you should establish goals for your retirement years. You may have already accomplished buying a house, having a family, and working a fulfilling career — but life doesn’t end at retirement, and neither should goal setting. Otherwise, days can turn into months and years, and you’ll wonder why you never landscaped the backyard the way you wanted or took that trip to Europe. Setting goals and funding sources before retirement gives you these projects to look forward to.

3. Finances

Up until now, your finances may be all over the place. You may have one or more 401(k) plans still managed by former employer custodians. You may have investment accounts in various places, having been persuaded to open new accounts by different brokers, college savings plans, and health savings accounts. If you’re married to someone with lifelong income and investments, double that scenario.

When you start thinking seriously about retirement, consider consolidation. It’s time to roll over old accounts into a Roth or traditional IRA. It’s time to think about whether it’s more efficient to pay taxes on tax-deferred money now or after you retire, depending on your current and future income tax brackets. It’s also time to buckle down and max out your current investment options, such as a 401(k) and IRAs. In 2024:

  • Each spouse over age 55 may contribute up to $23,000 to an employer retirement plan (e.g., 401(k), 403(b), 457(b), or Thrift Savings Plan), plus an additional $7,500 in catch-up contributions, for a total of $30,500 on the year (up to $61,000 for a working couple).
  • Each spouse over age 55 may contribute up to $7,000 to a traditional or Roth IRA (or combined between the two), plus an additional $1,000 catch-up for a total of $8,000 (up to $16,000 for a working couple).

For a two-income household behind on retirement savings, these opportunities alone offer the ability to save $77,000 a year until retirement. But you may ask: How can you afford to save that much and still maintain household expenses? Check out next month’s Part II: Pre-Retirement Planning Guide for additional steps on how to design a comfortable and secure retirement.

Defining Burn Rate, Gross Burn and Net Burn

3 min read

What is Burn Rate, Defining Burn Rate, Gross Burn and Net BurnWhen it comes to any business, but especially for a start-up, it’s essential to determine how long a company can survive before it must declare bankruptcy and/or close its doors. The biggest metric, especially for a start-up, is to determine how much money a company has to keep its lights on.

The term “burn rate” is defined as how much money a company spends monthly to maintain its operations. It is essential for a company to know how long it can operate before it begins to generate income and hopefully becomes cash flow positive.

It is important to look at two differences between the two sub-meanings of this term: the first is “gross burn” and the other is “net burn.” When it comes to “gross burn,” we are talking about how much a business uses in monthly operating costs. The following formula shows a business how long they have in months to operate.

For example, if a business has $2.5 million available for overhead and it spends $200,000 in monthly overhead costs, it would last 12.5 months. Expressed as a formula:

Available financial resources ($2,500,000)/monthly overhead($200,000) = 12.5 (months)

This assumes the company makes no revenue, which will be accounted for in the next example. However, this is where “net burn” comes into consideration. Net burn looks at how much money a business loses every month, but the difference with this calculation is that it looks at if it can be lowered by any incoming revenue.

If a company spends $10,000 on rent/office space, $20,000 on IT expenses, and $25,000 on employee wages, the gross burn rate would be: $55,000. However, if the company is generating sales at $17,500 per month, for example, and the cost of goods sold (COGS) is $5,000, the following calculation would determine its “net burn rate:”

Net Burn Rate = [Monthly Revenue – Cost of Goods Sold (COGS)] – Gross Burn Rate

Net Burn Rate = ($17,500 – $5,000) – $55,000

Net Burn Rate = (12,500) – 55,000 = -$42,500 Gross Burn Rate

The difference between the net burn rate and the gross burn rate may seem obvious or intuitive, but depending on how much money the start-up has available, and factoring in how much the revenue brings in and offsets the COGS, it can make a stark difference for the business’ prospects.

Once a business has determined what its “gross burn rate” and/or “net burn rate” is, the next step is to look at how to reduce costs and/or increase revenue to keep working toward positive cash flow. 

Two considerations for the company include what the business can do and what it must do to make more revenue and increase profit margins. For example, companies could look at the cost-benefit analysis of incorporating AI to see if it would have an overall positive impact on labor costs. They also could look at how to create effective marketing campaigns that cost less (using backlinks instead of paid search engine marketing, for example).

Another consideration is that if the company has enough time and is able to re-strategize its model, this can have a material impact on the business receiving a cash injection from outside investors.  

Determining these timeframes and figures are one way a company can reduce costs and/or pivot to more profitable products and/or services. These two calculations can provide avenues to re-invigorate a business in hopes of providing a path to profitability.

Taking a Closer Look at Trial Balances

3 min read

What are Trial Balances? What is a Trial Balance?A trial balance is an accounting tool that helps businesses determine if the double entry accounting system has any mathematical errors. Once the trial balance is worked through, and the total debits and total credits equal each other, we know there are no mathematical errors – but that doesn’t mean it is error free. It is important to determine how it is constructed and the considerations for each step in the process.

Raw Trial Balance

The first is the unadjusted trial balance. This looks at all the double entry bookkeeping journal entries, which records the business’ day-to-day transactions. When beginning to prepare for the adjusted trial balance, the eventual adjusted trial balance will have three column headers: 1. Account 2. Debit 3. Credit.

It should list all sub-ledger account balance totals, the account description and number, along with the final debit/credit balance. It also should document the accounting period, including the starting and final dates.

The next step is to address balancing for each sub-ledger. Sub-ledgers, such as Cash, Accounts Payable and Accounts Receivable, are balanced from the sub-ledgers’ “T” account; the resulting credit or debit balance must be noted. Depending on the resulting credit or debit balance, it must be put in the right “Debit” or “Credit” column. If there is a mathematical error, it means the previous steps in the accounting cycle might have errors in them.

Adjusted Trial Balance

Along with the trial balance having the credits and debits entered from each respective sub-ledger, the first thing to check is if the credit and debit balances line up. Then, the next step is to determine if other mistakes may exist. Examples of non-mathematical mistakes include:

  • Original entry errors or double entry transactions that contain mistakes on both ends.
  • Omission errors or errors that result from not being put into the accounting ledger.
  • An error of reversal is an error with double-entry transactions that has the correct numbers but transposes credits and debits.
  • A principal error is a transaction that correctly records the transaction, the figures, the right side (debit v. credit), but attributes it to the incorrect account.

Along with these potential mistakes, a business can identify and take corrective action when reviewing its transactions on specific accounts and when aggregating sub-ledgers into their trial balance. Examples of corrective action include tax adjustments, such as ensuring any tax deductions that were missed are then added.

If business transactions were made on a personal credit card, they need to be adjusted accordingly. When it comes to accrual considerations, if a payment is owed but not made during an accounting period, it must be adjusted to reflect the correct accounting period. Another consideration is for payments received, which is often referred to as a deferral. Past due payments that are applied to a later accounting period but were for a previous accounting period must be adjusted accordingly.

Conclusion

The last step is to prepare the post-closing trial balance. Once the closing entries have been finished, it can help a company use it as a starting point when they need to do it again for the next accounting cycle.

While trial balances are only a part of the bookkeeping and accounting process, taking steps to reduce errors can make the accounting process a more insightful business function.

Funding the Government, Protecting Americans from Misuse of Data, Expanding Internet Access and Improving Recycling

4 min read

HR 4366, HR 7521, HR 7520, HR 1752, HR 6276, HR 1046Consolidated Appropriations Act, 2024 (HR 4366) – On March 9, the president signed the latest appropriations bill passed in time to halt a government shutdown. While this bill does authorize funding through the end of the fiscal year (Sept. 30), it only addresses six of the 12 bills necessary to fully fund the government. The recent legislation covers Military Construction, Veterans Affairs, Agriculture, Rural Development, the Food and Drug Administration, the Commerce, Justice and Science-related departments, the Energy Department, the Department of the Interior and the Environment, and Transportation, Housing and Urban Development. On March 23, the president signed the Further Consolidated Appropriations Act, 2024 (HR 2882) in the nick of time to prevent a government shutdown. This subsequent budget legislation includes the remaining spending bills to fully fund the federal government through the end of the fiscal year (Sept. 30).

Protecting Americans from Foreign Adversary ControlledApplications Act (HR 7521) – Congress is currently considering a bill designed to force the sale of the social media app Tik Tok, which is currently owned by ByteDance Ltd. This Chinese firm is subject to the laws of China, which has the right to seize all data procured by the app as well as influence content for political purposes – which is considered a threat to U.S. national security.This roundly bipartisan bill was introduced by Rep. Mike Gallagher (R-WI) on March 5. It was passed by the House on March 13 and is under consideration in the Senate.

Protecting Americans’ Data from Foreign Adversaries Act of 2024 (HR 7520) – The purpose of this bill is to prevent the current targeting, surveilling, and manipulation of user data from apps by brokers who sell sensitive information to foreign adversaries, such as China. Examples of data collected and sold include individual physical and mental health, as well as where and when they travel outside the country. This bipartisan bill was introduced by Rep. Frank Pallone (D-NJ) on March 7. It is currently assigned to a committee for review in the House.

E-BRIDGE Act (HR 1752) – This legislation was introduced by Rep. Sam Graves (R-MO) in March 2023. It would authorize the Department of Commerce to issue economic development grants for the purpose of expanding and improving high-speed broadband service in underserved and geographically diverse markets. The bill passed in the House on March 11 and currently lies with the Senate.

USE IT Act of 2023 (HR 6276) – This Act would require the Office of Management and Budget (OMB) and the General Services Administration (GSA), through the use of technology sensors, to ensure federal government building utilization and federally leased spaces average at least 60 percent in each public building over each one-year period. The bill, introduced by Rep. Scott Perry (R-PA) on Nov. 7, 2023, passed in the House on March 12 and is now under consideration in the Senate.

A bill to require the Administrator of the Environmental Protection Agency to carry out certain activities to improve recycling and composting programs in the United States and for other purposes (S 1194) – This Act was introduced by Sen. Thomas Carper (D-DE) on April 19, 2023, and passed in the Senate on March 12. This bipartisan bill would require the Environmental Protection Agency (EPA) to collect data and issue reports on nationwide composting and recycling efforts, including implementing a national composting strategy to help reduce contamination rates for recycling. The legislation is currently under consideration in the House.

A bill to establish a pilot grant program to improve recycling accessibility and for other purposes (S 1189) – A companion bipartisan bill to S 1194, this Act would authorize the EPA to issue grants to states, local governments, Indian tribes, or public-private partnerships to fund improved recycling accessibility within communities. It was introduced by Sen. Shelley Moore Capito (R-VA) on April 19, 2023, and passed in the Senate on March 12. It is also under consideration in the House.

Social Security Expansion Act (HR 1046) – This new bill is designed to enhance Social Security benefits and ensure the long-term solvency of the Social Security program. It was introduced on Feb. 14 by Rep. Jan Schakowsky (D-IL). The bill includes the following provisions: 1) increase benefits for low earners; 2) restore student education benefits to children of deceased or disabled parents, up to age 22; 3) revise the calculation to yield higher annual COLA benefits; 3) make active trade or business income subject to the net investment income tax; 4) make all earnings above $250,000 subject to Social Security payroll taxes. The bill has yet to be assigned to a committee and has virtually no chance of being enacted by the current Congress.

Reduce Your Taxes by Putting the Right Assets in Your IRA

5 min read

Reduce Your Taxes by Putting the Right Assets in Your IRAMost people know the basic concept that certain types of investment accounts are tax sheltered while others are not. Think 401(k), 403(b), IRA and Roth IRA accounts, for example. What most people are not aware of is how you split your investment positions between your taxable and non-taxable accounts can result in major tax savings.

Asset Allocation and Location

One of the core principles of investing is to have an appropriate asset allocation that aligns with your risk tolerance and goals. In other words, how much of your investable net worth is in cash, stocks, bonds, precious metals, real estate, alternative assets, private investments, etc? Once you have this determined, the next consideration should be the location of these assets, primarily meaning whether you hold them in a taxable or tax-sheltered account.

The first, core principle behind asset location positioning is that bonds and other fixed income investments get the highest priority within tax sheltered accounts because they pay high-taxed ordinary income. Stocks that pay qualified dividends may be taxed at the more advantageous long-term capital gains rate, so they are typically better in taxable accounts.

What Are the Stakes?

To put it simply, big money. Take the example of a hypothetical $2 million portfolio evenly split between stocks and bonds. In the case where an investor has $1 million each in a taxable account (50/50 stock and bonds) and another $1 million in a tax-sheltered account (again 50/50 stock and bonds); this would cost about $148,000 over 30 years versus placing all the stock in a taxable account and all the bonds in a tax-sheltered account.

Asset Class Location Ranking

Of course, there are many more nuances and types of investments. Below we review 10 different types of assets, ranking them in order of those that get the most benefit from being in a tax-sheltered account with an explanation of why.

  1. K-1-Free Commodity Funds
    Popular for investing in futures, these are typically structured as Cayman Islands holding companies. As a result, they often kick-off highly taxed ordinary income even when the fund is losing money. Keep these in a tax-sheltered account at all costs.
  2. Junk Bonds
    High-yield corporate bonds typically come with large coupons (often 7 percent to 9 percent) and a small capital loss in the 1 percent to 2 percent range. Since the large coupon payment is taxed as ordinary income, while capital losses are worth less from a tax perspective, junk bonds are a prime candidate to go into a tax-sheltered account.
  3. Income Stocks
    Preferred shares and real estate investment trusts are characterized by their high unqualified dividends, so they are not eligible for preferential capital gains tax rates. This makes them best suited for a tax-sheltered account.
  4. High-Grade Bonds
    Similar to junk bonds, but with lower coupons and smaller capital losses, the benefits of holding these in a tax-sheltered account is less than the items above, but it is still preferable to place them in a tax-sheltered account.
  5. U.S. Treasuries
    The interest on U.S. Treasuries is taxed as ordinary income; however, it is exempt from state income tax. Depending on the state in which you are subject to taxes, these fall in the middle ground and could be held in either a taxable or tax-sheltered account.
  6. Actively Managed Mutual Funds
    The frequent churn of the holdings in actively managed funds typically creates more short-term capital gains versus long-term. Again, depending on total returns and how active the fund manager is, these could be held in either a taxable or tax-sheltered account.
  7. K-1 Commodity Funds
    Usually taxed as partnerships, profits typically get a 60/40 treatment, with 60 percent of gains classified as long-term and qualifying for favorable rates, putting them in the middle ground as well.
  8. High-Dividend Stocks
    For some investors, dividends are king. Think utility stocks and big-name blue chips with a steady track record of paying consistent dividends, like Altria. Since most, if not all, the dividend income is usually in the form of qualified dividends, holding these in a taxable account is much less painful.
  9. Stock Index Funds and Low Dividend Stocks
    Broader market mutual funds and ETFs have lower dividends. For example, on average, a total U.S. market ETF yields approximately 0.3 percent. Given this and their low churn, these funds are prime to be held in a taxable account, especially if the intended holding period is more than a year and will qualify you for long-term capital gains treatment and defer any taxable event until sale.
  10. Master Limited Partnerships (MLPs) and Private Real Estate Funds
    Typical of oil and natural gas pipeline investments, MLPs pay big dividends early on and they usually are not taxed in early years. Similarly, private placement real estate fund investments are shielded from the income they produce due to the upfront benefits of depreciation. Given their structure and the fact that they hold debt attributable to the owner, however, makes them a no-go for a tax-sheltered account since they create what is considered “unrelated business taxable income.” This makes these investments only suitable for a regular taxable account.

Conclusion

The decision of which types of investments you keep in either taxable or tax-sheltered accounts can make a big difference in how your investments grow and how much you keep. Consider evaluating not only your asset allocation but also your asset location to optimize for taxes.

Importance of Fostering Digital Trust in Today’s Businesses

4 min read

Fostering Digital TrustModern business today is dominated by digital transactions and interactions. Businesses are increasingly storing customers’ personal information, which is potentially accessible without the customers’ knowledge or consent. Therefore, understanding the significance and implications of digital trust will help businesses foster it, as it is crucial for success. 

What is Digital Trust?

Digital trust is the faith customers and business partners have in a business’ secure, reliable, and transparent existence on digital platforms. It involves protecting business and customer data, respecting privacy, managing cybersecurity threats, and enhancing transparency around data usage. Customers expect that when they share their personal and sensitive data with a business, it will be protected from unauthorized access or usage.

The Importance of Digital Trust

Digital trust is a factor that drives customer decisions. Investing in digital trust can lead to sustained growth and competitiveness. See below for more reasons why establishing a sense of digital trust is so important.

1. Address Security and Privacy Concerns  

One of the primary reasons why fostering digital trust is vital is the increasing concern over security and privacy. Due to the rise in frequency and sophistication of cyber threats, businesses face substantial risks related to data breaches, fraud, and identity theft.

Therefore, businesses must instill confidence in their customers and stakeholders by implementing robust security measures and strict privacy protocols. This includes employing encryption technologies, multi-factor authentication, and regular security audits to safeguard sensitive customer data and mitigate risks effectively.

2. Build Credibility and Reputation

A company’s reputation can make or break its success in today’s interconnected world. Trust is the foundation upon which credibility is built, and establishing a solid digital presence can significantly enhance a business’ reputation.  Customers and other stakeholders are more likely to engage with organizations that demonstrate transparency, integrity, and reliability in their digital interactions.

A business can build trust and credibility by leveraging digital tools and platforms to streamline processes and enhance transparency. This, in turn, strengthens their relationships with stakeholders and fosters long-term success.

3. Enhance Customer Relationships

Customer relationships are increasingly forged and maintained online in our digital age. Whether communicating via email, interacting on social media or conducting transactions through e-commerce platforms, businesses rely on digital channels to engage with their audience.

Enhancing customer relationships while ensuring data security and privacy will require measures such as implementing secure payment gateways, providing transparent financial reporting, and offering personalized digital experiences tailored to each client’s needs. Businesses can cultivate stronger customer bonds and drive loyalty over time by demonstrating a commitment to transparency and accountability.

4. Comply With Regulations

Businesses must navigate complex legal and regulatory requirements in an increasingly regulated environment. From data protection laws to financial reporting standards, non-compliance can have severe consequences, including fines, legal penalties, and reputational damage. Fostering digital trust involves ensuring businesses adhere to regulations and standards governing their operations.

Every business has a responsibility to stay up to date with the latest regulatory developments. This may involve implementing internal controls, conducting risk assessments, and providing guidance on best practices for data management and governance. Navigating regulatory challenges helps build trust and confidence among stakeholders while mitigating legal and financial risks.

5. Drive Innovation and Growth

Fostering digital trust enables businesses to embrace innovation and drive growth in a rapidly evolving marketplace. By leveraging emerging technologies such as artificial intelligence, cloud computing, and blockchain, a business can enhance operational efficiency, expand its reach, and deliver innovative products and services to customers.

However, it is crucial to consider the implications that emerging technologies can have on digital trust. Chasing emerging trends and innovations may result in some oversight of ethics and transparency. Therefore, businesses require strategies to help adopt new technologies and harness their potential to drive value and competitive advantage.

Conclusion

In conclusion, fostering digital trust is essential for businesses to thrive in today’s interconnected world. Therefore, businesses must build trust, enhance credibility, and drive growth through secure and transparent digital interactions. By prioritizing security, privacy, compliance, and innovation, businesses can confidently navigate the digital landscape’s complexities and achieve their strategic objectives. 

What to Know About the Art Donation Deduction

4 min read

Art Donation DeductionIf you would like to donate artwork to an eligible charitable organization, you might be able to take a deduction on your tax return. However, the rules are complex. There are different requirements for different values, and there are scams you want to avoid that could lead to severe consequences for taxpayers who abuse this deduction.

Generally, the deduction for donated art is based on the fair market value of the property. This refers to the price the artwork could reasonably be expected to sell for on the open market. To qualify for the deduction, note that the value of an art donation may be limited to between 20 percent and 60 percent of the taxpayer’s adjusted gross income, based on the type of organization and whether the deduction must be reduced.

For the donation to qualify for a deduction at the full fair market value, the artwork must be used by the charitable organization in a way that relates back to its charitable purpose. For example, art is donated to an art museum or school. Otherwise, the deduction is limited to the amount of capital gain realized had you sold the property instead of giving it to a charity.

Requisite Tax Documentation

The IRS requires the following records to claim a charitable art donation deduction:

  • Name and address of qualified receiving charitable organization
  • Date and location of the donation
  • Detailed description of the artwork

The following details require additional documentation based on the value of the art donation:

  • $250 or more requires a documented acknowledgment from the recipient
  • $500 or more must file Form 8283 with a tax return, and records must be retained documenting how and when you obtained the artwork as well as its cost basis
  • $5,000 or more, the donor must obtain a documented qualified appraisal no more than 60 days before the contribution date
  • $20,000 or more must include the signed appraisal with your tax return
  • $50,000 or more, request that the IRS appraise the artwork and issue a Statement of Value to substantiate the value

Fractional Gift/Deduction

It is possible to make fractional deductions for an art donation as long as the artwork is wholly owned by the donor or shared between the donor and the charity. Furthermore, fractional donations must be completed within 10 years of the initial fractional gift or the donor’s date of death.

Artist Donation

The art tax deduction is more beneficial to collectors than artists. If an artist decides to donate a piece to a charity, he can deduct only the cost of the materials used to create the art – assuming he hasn’t already claimed them as a business deduction.

IRS Caution

Recently, the IRS has published warnings about art tax deduction schemes being promoted by fraudsters. It starts with a promotion encouraging (usually high net) taxpayers to buy art at a “discounted” price. The entity or person will offer various accompanying services, such as appraisal, storage, and shipping. The promoter may then help the taxpayer donate the artwork to one or more specific charities in order to claim a higher deduction than the purchase price.

The scheme generally involves waiting a least a year before donating in order to claim the deduction at an inflated fair market value. Some promoters work with taxpayers to donate art on a rotating basis every year in order to continue receiving the artificially inflated deduction. The following are some red flags from the IRS that indicate an art deduction scheme.

  • Be wary of buying multiple works by the same artist, especially when the art appears to have little to no market value beyond what the promoter is advertising.
  • Be wary of an appraisal that does not adequately describe the art in terms of rarity, age, quality, condition, the stature of the artist, the price paid, and the quantity purchased.
  • Remember that taxpayers are ultimately responsible for the accuracy of information reported on their tax returns. Avoiding taxes by participating in an overvalued art scheme could lead to back-tax payments, additional penalties and interest, additional fines, and even imprisonment.

Another option is to simply sell the art and donate the proceeds to a charity. The donor may owe capital gains taxes on the sale, but it’s possible that the charitable donation deduction will offset this expense.

As with all complex tax deductions, it’s a good idea to consult with a tax professional or legal advisor when donating artwork. This can help ensure that both the taxpayer and the charity are able to maximize the potential benefits of the donation.