How to raise financially literate children

If everything your children ever learned about personal finances came from the mass media, they might think credit is a limitless resource and savings something you only find on a clearance rack. To fill in the gaps in their financial education, parents should teach their children the fundamentals of handling money. But where do you start? Perhaps begin with the following benchmarks of financial literacy.

* Time Value of Money
One of the most essential of all financial concepts is the time value of money. Children should be shown the benefits of saving money, watching it grow, and patiently deferring purchases until a future time. When children grow a little older, they can learn the reverse lesson: how debt today results in accumulated interest costs down the road. To illustrate the point, show them a loan amortization schedule for a typical car or home loan. That will get their attention.

* Transactional Skills
In today's cashless society, your children will someday need to know how to write a check, use a debit or credit card, and how to bank online. When they are ready, consider setting aside a morning to take them to the bank, introduce them to a representative, and set up their first checking account and bank card under the tutelage of the banker. Children will appreciate this rite of passage to adulthood, and they will learn how to navigate an ATM or bank website the right way, not just the way you do it.

* Keeping Good Records
You might feel a little hypocritical when pointing out your children's recordkeeping shortcomings, but they probably need your help more than you think. Knowing how to reconcile a checkbook and track where they spend their money is a valuable life skill. Developing a system for safely storing receipts, warranties, and other valuable papers is also important. When they begin driving, point out the location and importance of the vehicle proof of insurance and registration.

* Reflecting Your Values
Like any other area of life, you will naturally want to pass down truisms that have guided you financially. Succinct phrases often suit this purpose quite effectively, such as, "keep a little gas in the tank, a little money in the bank." Or, "don't place all your eggs in one basket." Sound corny? Perhaps. But such sayings today might just remind your children of something important tomorrow.

Those who value philanthropy should consider including their children in the charity selection process. Teach them why certain causes are important to you and how you determine the amount to give. Perhaps you could give your children gifting discretion over a small sum of charitable dollars.

* Investments 101
The day will eventually come when your children will be ready to talk investments, retirement, and taxes. Feeling intimidated yet? There is no need to fear. Our firm can assist you and your children with these advanced topics. Being financially literate is not child's play. But then again, neither is being a parent.

People and service you can count on!




Maris & Associates CPA's
10512 19th Ave SE #101
Everett, WA 98208
425-338-0414
info@mariscpa.com

www.mariscpa.com

Just what are the other expenses you can legitimately deduct?

What "other" business expenses are deductible? The generic term you see on your tax form may leave you scratching your head. Just what other expenses can you legitimately deduct?

While there's no hard and fast rule, examples include insurance premiums, legal and professional fees, supplies you use in your business, utilities, auto expenses, and the deduction for certain energy-efficient commercial building property.

Here's a guide for less obvious items:

* Like all costs you incur in your business, "other" expenses must be ordinary and necessary in order to be deductible.  In tax law, "ordinary" means normal, usual, or customary in the context of your business.

For example, if you're a commercial fisherman, boat insurance is an ordinary expense. Other business owners may have a harder time justifying a deduction for boat expenses.

* An expense is necessary if it is appropriate and helpful to the operation of your business.

* Some expenses are only partially deductible. For instance, the cost of meals and entertainment must have a direct business purpose before you can claim a deduction. Even then, your deduction is generally limited to 50% of your cost.

* Certain expenses are specifically identified as nondeductible. Personal, living, or family expenses fit into this category, as do fines, penalties, political contributions, commuting to and from your job, and most lobbying costs.

Contact us any time you have a question about the deductibility of a business expense. We'll help you get the greatest tax benefit.

Maris & Associates CPA's
10512 19th Ave SE #101
Everett, WA 98208
425-338-0414
info@mariscpa.com

www.mariscpa.com

Six ways for your business to go green

We see, hear, and read every day that the world is becoming more environmentally conscious and taking steps to "go green." While many of these may be out of reach for smaller businesses, there are several things that even small businesses can do to head toward going green.

* Recycling. Most communities these days provide recycling centers. Therefore, businesses should find it fairly easy to provide internal receptacles and to transport or purchase recycling pick-up services for such recyclables as paper (including shredded), newspapers and magazines, aluminum cans, and plastic bottles.

* Installing energy-efficient light bulbs. Compact fluorescent light bulbs are more energy-efficient than incandescent bulbs, offering a greener alternative. Also, watch for the next generation of commercial-use energy-efficient LED (light-emitting diode) bulbs. While LED pricing currently is rather high, LED bulbs typically use one-tenth the power of traditional light bulbs and last up to 20 times longer. Also, as volumes increase, prices should fall.

* Going smoke-free (or tobacco-free). One way for businesses to create a cleaner, healthier environment is to go smoke-free. This might involve eliminating smoking indoors, while providing limited smoking areas outside; or a business might go totally smoke-free, prohibiting smoking anywhere on the premises -  indoors or outdoors. Further, a business might offer its employees complimentary or discounted programs to assist them in their efforts to quit smoking.

* Providing favored parking spaces. Businesses might consider offering special parking spaces for hybrid vehicles and transportation forms that use lesser amounts of fuel (e.g., motorcycles, scooters). The provision of easily accessible bicycle racks also is important.

* Going "paperless." While most would agree that going totally paperless probably is unachievable, many companies already have begun to make progress in decreasing the amount of paper they use. To reduce paper, consider offering electronic portals to clients or utilizing other electronic means of sharing and working with data. Our office is approximately 75% paperless!

* Offering "green" shopping bags. Many stores are selling reusable shopping bags. Consider distributing to your customers, clients, and prospects a green shopping bag with your business logo. You take a step toward environmental consciousness, while garnering some publicity at the same time.

These are just a few of the steps a small business can take toward "going green." The benefit to your business includes energy cost savings and maybe a bit of positive publicity, plus making a contribution to a healthier environment.

Maris & Associates CPA's
10512 19th Ave SE #101
Everett, WA 98208
425-338-0414
info@mariscpa.com

www.mariscpa.com

Tax breaks can help when disaster strikes

Recent events here and abroad are reminders that disasters can occur at any time - often with staggering human and financial costs. If you're a victim of disaster, you may receive insurance and federal disaster aid. But the tax code also offers some relief. You may be able to take an itemized deduction for part of your loss. In tax terms, it's a "casualty loss," and it can also apply to events such as a car crash, a house fire, or theft. Here are the basics.

•  The loss or damage must be due to an unexpected and sudden event. Losses due to slow deterioration over the years, such as rot, rust, or insect damage, don't qualify.

•  Your tax deduction won't equal your total loss. You must subtract any insurance or other reimbursement. Then you must also deduct $100 for each loss and 10% of your adjusted gross income.

•  Your loss may also be limited by your adjusted basis in the property. That's generally what you paid for it, plus or minus any improvements or previous losses.

•  In a widespread disaster, the area may be classified a "Presidentially declared disaster area." If that happens, you have a special option. You can claim your casualty loss against the current year's taxes. Or you can amend the previous year's return and claim your loss against that year's taxes. That usually generates a faster refund, but it may change the amount of your deduction.

If you suffer a casualty loss, please contact us. We'll explain the rules and help you claim the maximum possible tax benefit.

Maris & Associates CPA's
10512 19th Ave SE #101
Everett, WA 98208
425-338-0414
info@mariscpa.com

www.mariscpa.com

Will the dreaded AMT affect you?

With the attention surrounding the alternative minimum tax (AMT) year after year, you may be wondering if you'll be snared by it in 2011. What can cause you to owe the tax?

The answer lies in items that are treated differently when calculating the AMT than they are when figuring your regular tax. Certain itemized deductions fall into this category. For instance, under the regular federal income tax computation, you can claim an itemized deduction for medical and dental expenses in excess of 7.5% of adjusted gross income.

For the AMT, these expenses must exceed 10% of your adjusted gross income, which means your deduction is limited even more.

Another example: Taxes, including real estate taxes, state income taxes, and sales taxes, are not allowed under the AMT calculation.

The same restriction applies to miscellaneous itemized deductions such as investment expenses and employee business expenses.

Your mortgage interest deduction may differ for AMT purposes, too. Why? Interest you pay on home equity loans is generally not deductible unless you use the loan proceeds to buy, build, or improve your primary or second residence.

Don't itemize? The standard deduction is also not allowed for the AMT calculation. That's one reason it can sometimes make sense to itemize even when your standard deduction is higher.

In addition to the items mentioned here, the IRS form used to compute your AMT liability includes other adjustments that may affect you. Give us a call for an AMT review. We can help with planning suggestions and strategies you may be able to implement before year-end.

Maris & Associates, CPA's

10512 19th Ave SE, Suite 101

Everett, WA 98208

425-338-0414 

info@mariscpa.com

www.mariscpa.com

Consider the time value of money in making business decisions

Suppose you’re selling your business, and it’s worth $400,000. You’re offered $210,000 down and lump sums of $100,000 at the end of year one and year two. Should you take the offer?

Most people know that $1,000 now is worth more than $1,000 a year from now. Here’s why:

1. Inflation: In a year, a dollar will buy less than it would today.

2. Risk: Over time, the risk increases that some of the money owed you will not be paid.

3. Opportunity loss: Funds on hand could be invested and earning more money.

Present value analysis attempts to quantify these variables. It discounts the value of future funds by estimating inflation rates, risks of loss, and rates of return from alternative investments.

Assume you could earn 2% by investing in a $100,000 CD. Disregarding compounding, in a year your investment would be worth $102,000. Conversely, if you postponed receipt of $100,000 for a year and inflation eroded the principal by 3%, you’d receive the equivalent of $97,000 in today’s dollars. (Note that with 3% erosion, even the $102,000 CD proceeds would be worth only $98,940 in today’s dollars.)

In the opening example, your proposed “investment” (a two-year $200,000 note receivable) would be far riskier than a CD. To compensate, you might decide not to accept anything less than an 8% return. A present value table indicates that at 8%, the discount factors for one and two years are .926 and .857, respectively. $100,000 times .926 is $92,600; $100,000 times .857 is $85,700.

Thus, in today’s dollars, the buyer is offering $388,300 ($210,000 down payment plus $92,600 plus $85,700). Since your business is worth $400,000, you would be selling for $11,700 less than full value.

A similar analysis can be applied to any business transaction involving future payments. For help with the calculations or assistance with any of your business needs, call us for an appointment.

Maris & Associates CPA's

10512 19th Ave SE #101

Everett, WA 98208

www.mariscpa.com

425-338-0414

Plan for a Smaller Refund

Did you receive a big refund check from last year’s taxes? If so, you’re not alone. Many of us deliberately pay extra taxes throughout the year so we can enjoy a nice bonus early the next year. Sometimes it’s insurance against having to come up with extra cash when you file your return. That’s a valid concern. But sometimes it’s just a form of enforced saving. Or perhaps you’ve simply never bothered to adjust your withholding. Those aren’t such good reasons. After all, when you overpay your taxes, you’re making an interest-free loan to the government.

Should you adjust your withholding? Reducing your withholding is as simple as filing a new Form W-4 with your employer. The form comes with a worksheet to figure out how many allowances you should claim. Don’t forget to allow for your other taxable income besides wages, such as dividends or investment gains.

If you’re worried about underpaying tax, there are a couple of rules you should know. Generally, you’ll escape a penalty if you pay, through withholding or quarterly estimated payments, at least 100% of last year’s taxes (110% if your adjusted gross income is over $150,000), or if you pay at least 90% of what you owe for this year.

If you reduce withholding, here are some ideas on how to use your extra take-home pay.

* Contribute more to your employer’s 401(k) plan, especially if your company matches contributions. You’ll enjoy a double benefit because the extra contributions will reduce the tax on your wages as well as provide tax-deferred savings.

* Pay down balances you’re carrying on your credit cards. That’s equivalent to earning interest on your extra payments, often at double-digit rates.

* Put the money in a tax-favored Coverdell IRA or Section 529 plan for your child’s education.

Contact our office if you’d like help figuring out your withholding level for 2011.

Maris & Associates CPA's

10512 19th Ave SE #101

Everett, WA 98208

www.mariscpa.com

425-338-0414