guest post by Ken Dickson

Clients, buyers and prospects who are waiting for even lower interest rates on home loans (new construction, purchasing or simply refinancing) may well be making a very costly mistake. The most accurate comparison of mortgage loan interest rates comes from a report recently published by the Federal Home Loan Mortgage Corporation giant (Freddie Mac). This report published on Feb. 29, 2012 and called the Weighted Average Coupon (WAC), details the average interest rate for all mortgage loans currently held by consumers. Since 1977 the WAC has ranged from a high of 11.40% in 1984 and 1985, to the lowest recorded rate in 35 years which is today’s rate of 5.25%.

With construction loans for single family homes being offered by many lenders at rates below 3 .50%, and 30 year fixed rate mortgages being offered at rates below 4%, this is no time to “weight”. It’s time to build, buy and refinance!

For more information contact Ken Dickson,  kdickson@johnsonbank.com
Senior Vice President
Johnson Bank – Madison

In David Copperfield, Charles Dickens wrote, “Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” Seems like a simple concept, yet so profound.

No matter what stage in life or business you are at, it is important to keep this concept in mind. Spend less than you make. Live below your means. Grow your assets rather than your liabilities. Keep moving forward rather than backward. The psychological benefits of this far outweigh the sacrifices.

In The Millionaire Next Door by Thomas Stanley and William Danko, one of the key characteristics of millionaires is their ability to live far below their means. Many of these millionaires only have average or slightly above average incomes, but are just exceptionally good with their money and invest regularly. They thoroughly enjoy life but don’t have lifestyles that resemble how we think millionaires normally live. In contrast, those that we often think of millionaires based on their large homes or fancy cars or lavish lifestyles could very well be head over heels in debt and miserable on the inside.

Spending below your means and having a solid plan for investing the difference may not make you a millionaire, but it can help ensure financial security and happiness. And doesn’t the thought of watching your accounts grow and your debts wither away, knowing you are building rather than tearing down, make you feel happy?

Kathy Johnsen is the WBA Director of Accounting.

It’s that time of year again…the snow is falling and signs of Christmas are popping up everywhere. The year is drawing to a close quickly, but before it’s gone there are several things you can do now in regard to your financial records to prepare for next year’s required filings.

First and foremost, add next year’s filing due dates to your calendar so that you don’t miss them. Important business filing deadlines include 1099 and W-2 filings, sales & use tax filings, and income tax filing. Depending on your industry or type of organization, there may be other filings that you need to do periodically as well.

Then, draft a list of the information needed for those reports and get a head start on gathering that data. For example, the 1099 filings require information on your vendors. Check now to see that you have W-9’s on file for each vendor with all relevant information. If you have employees, check to make sure you have their correct social security numbers and current addresses on file. For sales & use tax filings, make sure you have exempt certificates from all customers who claimed an exemption. And for any out-of-state purchases that you paid sales tax on, make sure you have a receipt or other documentation showing proof of that so you don’t have to pay use tax on those purchases. For income tax filing, make sure your business records are in order and that you have receipts for all deductible business expenses and charitable donations.

Finally, once all of your records are in order, kick back and enjoy the holidays as you look forward to a less stressful 2012!

Kathy Johnsen is the WBA Director of Accounting Services
Photo by Annie Rubens

With the recent passing of Apple co-founder, Steve Jobs, there have been many news stories highlighting his role in changing our lives in ways we could never have foreseen. Because of his ingenuity, we can easily access thousands of songs instantly without having to lug around cases of CD’s. We can check email and Facebook updates on our phone anytime we want and can download apps for anything from tracking our calories to refilling our prescriptions. These devices have become indispensable to many of us and leave us wondering how we ever lived without them.

But there’s no doubt that these devices have also greatly transformed businesses. Many people use business apps on their iPhones or iPads to help with everything from tracking mileage to managing projects. These devices allow you to easily carry around or access all the information you need in one little device and allow you to become a virtual office. Productivity is increased as information can be updated on the spot and may allow you to take care of everything in one meeting rather than two or three. There are countless stories on Apple’s website of ways in which the iPhone and iPad have transformed workplaces through the use of business apps.

These devices can also help with the important function of accounting. There are several apps available such as Invoice2go for iPad and Quick Sale for iPad that allow you to create invoices on your iPad that you can email immediately to your client rather than waiting until you’re back at the office. There is also a QuickBooks Mobile app for the iPhone that works with your existing online QuickBooks account and allows you to see customer detail and balances anytime and also allows you to create invoices and receipts that can be emailed. Apps such as Square and Credit Card Terminal for iPad allow you to process credit card payments instantly. Taking advantage of this technology can help you be more productive and can help your business run more smoothly while you wait to see what the next wave of technology will bring.

Kathy Johnsen is the WBA Director of Accounting Services
Photo by Tony Buser

During a continuing education class I attended a couple of years ago, the presenter told a story of how a young man he knew confessed to his father’s accountant at his father’s funeral that his father used to pay him and his brother a dime for each receipt they found in the lumber yard parking lot while he was inside shopping for supplies for his apartment rental business. He thought it was a fun activity at the time, but didn’t realize until years later when he went into the family business that his father was using those receipts to claim additional expenses for his business.

While I don’t recommend that tactic, your receipts are indeed important. The IRS requires proof of what you spent, whether you store your legitimate business receipts in neatly organized files or in an old shoe box. If you are audited and don’t have adequate documentation for the expenses you claim, you could incur severe penalties. All receipts and other documentation should be kept as long as that tax year can be legally audited, which is generally four years in Wisconsin. For dining, entertainment, or any other business expense that could have a personal component, there should be documentation on or attached to the receipt stating the business purpose of the expense.

Receipts are also necessary for personal charitable deductions to qualified organizations. For monetary donations under $250, a canceled check can be your receipt. Anything above that amount requires a receipt from the charity. If you pay by cash, regardless of the amount, you need a receipt from the charity in order to be deductible. Qualified non-cash donations also require a receipt listing the charity’s name, date received, and description of items received. Without these receipts, you cannot claim the charitable deduction.

Kathy Johnsen is the WBA Director of Accounting
Photo by epSos.de with permission

I recently got hooked into watching an episode of Extreme Couponing while flipping through the channels one evening.  While it was intriguing to see this family get cartloads of groceries for virtually nothing, it made me wonder about the time and energy they were spending to accomplish this.  They obviously had a passion for it and were willing to give up a significant amount of time clipping coupons and organizing them, but aren’t there plenty of other things in life they would enjoy doing more?  The wife in this particular episode said that she spent around 35 hours each week on couponing, which is the equivalent of a full-time job.  If, according to recent studies, the average family of four spends around $600 per month on groceries, she was “earning” far less than minimum wage for her efforts.  Wouldn’t she come out ahead if she worked full-time at a regular job and used some of her excess earnings to pay for her groceries?

The same can probably be said for many of the things that we do in our businesses in the effort to save money.  If, instead, we focus on what we’re good at and outsource the other things that take up our time, we can be more effective at what we do.  Outsourcing can give you access to professional services at a lower cost than hiring additional employees.  Rather than spending hours trying to remove a virus from your computer or trying to install a new printer, why not outsource your technology needs?  Rather than trying to keep up to date on payroll tax changes, why not outsource your payroll processing?  Rather than spending hours on basic accounting functions, why not find a reliable bookkeeping service and use them for outsourcing?  By stripping these and other similar functions away from your weekly duties, you will have more time to spend on the things that generate income for your business.  And isn’t that what your business is all about?

Kathy Johnsen is the WBA Director of Accounting Services

A good accounting background has always been important in helping business people make good business decisions. Knowledge of accounting principles and being able to understand financial statements helps you to see the big picture and make rational decisions instead of impetuous on-the-spot decisions that may help in the short-term but hurt in the long run. While there is often good luck and other factors involved in successful businesses, without the skills to make good decisions, it makes it much harder to survive.

In today’s economy, with ever increasing scrutiny on the bottom line, having a strong accounting background or having trusted financial advisors to consult has become essential to survival. Knowing how every decision will affect the bottom line is crucial. Having the ability to analyze what can be sacrificed in order to expend your resources where needed is vital. Being able to manage cash flow in order to pay bills on time is important. These are some of the skills that have allowed many small businesses to survive while others have not. These are also the skills that can allow your business to be financially solid and prepared for the future, whatever that may be.

If you don’t have a strong knowledge of accounting principles and financial statements, it is advisable to have trusted advisors to consult from time to time on business decisions. CPA’s are very knowledgeable about business structures, financial statements, taxes, and many other items. The U.S. Small Business Administration, www.sba.gov, has a multitude of resources for business owners, including low-cost training and counseling along with hundreds of small business development centers. One of their resource partners, SCORE, www.score.org, has several offices throughout Wisconsin and is made up of many knowledgeable local volunteers willing to offer confidential business counseling services to small business owners at no charge. Many of these volunteers are recently retired successful businessmen and women who have decades of experience to draw on. No matter where or how you get it, good sound financial advice is essential in today’s business world.

Kathy Johnsen is the WBA Director of Accounting Services

For a variety of reasons, many people, particularly those in the baby boom generation, are considering retiring later than they might have originally planned. If you’re in this group, you’ll want to take full advantage of those extra working years by contributing as much as you can to a retirement plan that can help you build resources, defer taxes and, ultimately, maximize income. And if you own a small business, you’ve got some attractive plans from which to choose. Let’s look at two of these retirement plans — the “owner-only” 401(k) and the defined benefit plan.

If you have no employees other than your spouse or a partner, you can establish an “owner-only” 401(k), also known as an individual 401(k). This plan offers many of the same advantages of a traditional 401(k): a range of investment options, tax-deductible contributions and the opportunity for tax-deferred earnings growth. You may even be able to choose a Roth option for your 401(k), which allows you to make after-tax contributions that have the opportunity to grow tax free.

Your owner-only 401(k) contributions consist of two parts: salary deferral and profit sharing. In 2011, you can defer up to $16,500 of income, or $22,000 if you’re 50 or older. The amount of your profit-sharing contribution is based on your earnings. The sum of your employer contribution and your salary deferral contributions can’t exceed $49,000 in 2011 (or $54,500 if you’re 50 or older). Keep in mind that if your spouse is employed by your business, you each can contribute the maximum amount allowed.

You’ve got considerable flexibility in funding your owner-only 401(k). Both the salary deferral and the profit-sharing contributions are discretionary, so you can change them at any time based on your business’s profitability.

Now, let’s move on to the defined benefit plan, which might be appropriate for you if you are highly compensated and have no other employees. By establishing a defined benefit plan, you’ll be providing yourself with a monthly payment (or “benefit”) for life, beginning at the retirement age specified by your plan. In 2011, the yearly benefit limit is $195,000.

The amount you can contribute to your defined benefit plan each year is based on several variables, including your current age, your compensation level and your retirement age. But you’ll certainly be able to contribute large amounts: A defined benefit plan is the only retirement account that allows contributions in excess of the limits placed on 401(k)s and other defined contribution plans. Generally speaking, the closer you get to retirement, the larger your maximum yearly contributions will be. (This is because you’ll have fewer years left in which to fund your defined benefit.) And since your defined benefit contributions are tax-deductible, you are, in effect, getting a big boost from the government to fund a generous retirement plan.

Here’s one more benefit to owner-only 401(k) and defined benefit plans: You can contribute to both of them at the same time. But before you choose either or both of them, consult with your tax and financial advisors. After all, you work hard to help provide for a comfortable retirement tomorrow — so you’ll want a retirement plan working hard for you today.

by Dan Sprader, Edward Jones Investments, Fond du Lac (920) 923-3934