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Aug 01
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How to Turn a Summer Job into a Tax-Free Retirement Nest Egg and More

By Blog, Tax and Financial News

Summer Job into a Tax-Free RetirementTis the season for summer jobs for high school and college kids. These seasonal jobs are more than just an opportunity for teens and college students to earn some money and gain experience. They also provide the opportunity for seeding a significant retirement nest egg and even a down payment on a home through a Roth IRA.

Seems too good to be true? Well, it’s not – but as always, the devil’s in the details, and it is not exactly a free lunch. So, let’s walk through exactly how this all works.

Step 1 – Earned Income

First, teen or college students must get a job that pays – and the more the better. This is because the gateway to opening and contributing to a Roth IRA is earned income. The magic number for earned income to max out a Roth IRA in 2021 is $6,000, as this is the contribution limit. This is because contributions are limited to the lesser of the $6,000 limit or 100 percent of earned income.

Step 2 – Make the Roth IRA Contributions

The next step is to make the contributions to the working child’s Roth IRA. Let’s be honest here. It is a rare case where a kid is going to take all or nearly all their summer job earnings and stash them away in a Roth IRA for 50+ years down the road. There is a way around this, however.

A parent or grandparent can contribute to the Roth IRA in the child’s[h1]  name, with two nuances. First, this contribution is still governed by the earned income limits discussed above. Second, these amounts count toward the $15,000 per year gift tax exclusion ($30,000 if married) so it will eat into that. Lastly, do not forget the deadline to make 2021 Roth IRA contributions of any type is April 18, 2022.

How Much is This Worth?

While $6,000 or so may not seem like a lot, it can make a significant difference over time due to the power of compounding returns from such a young age – coupled with the tax advantages of a Roth IRA.

To illustrate the power of this tax and investment move, let us take a scenario where a high school kid makes the $6,000 per year over three summers from age 16-18 before heading off to college, and the Roth IRA contribution is maxed out.

With contributions at just $18,000 and NEVER putting in another dime again, this will turn into the following amounts under different assumed investment returns by the time they are 66 (40 years of compounding).

  • 6 percent return = $313,000
  • 8 percent return = $783,000
  • 10 percent return = $1.93 million

Now, before you get too excited, you must understand that 40 years from now $300,000 will not be what it used to be if inflation continues at historical rates – but the point remains. This simple move made over just a few years can create significant tax-free wealth.

Side Benefit

Due to the characteristic of a Roth IRA, the other beneficial options relate to withdrawal. First, the contributions can be accessed any time before age 59 ½ without penalties or taxes. Second, even after all the initial contributions are removed, a first-time homebuyer can take up to $10,000 without the 10 percent early withdrawal penalty to help fund the purchase, although they will owe income tax on the withdrawal if it has been less than five years since the initial contribution.

Be VERY careful here though, because any withdrawals will dramatically lower the investment returns noted above.

Conclusion

Funding a Roth IRA for a high school or college child or grandchild can give them a tremendous head start in life. A few years of relatively small contributions early on can create substantial wealth over time due to compounding of returns and the tax advantages of the accounts.

Aug 01
Love0

How Businesses Can Harness Demand Forecasting

By Blog, General Business News

How Businesses Can Harness Demand ForecastingAccording to the Bureau of Economic Analysis, consumer spending has seen some interesting trends over the first half of 2021. May was flat, April was at 0.9 percent, March was 5.0 percent, and February was at 1.0 percent. With varied consumer spending statistics as the nation comes out of the pandemic, it’s important for businesses to get demand forecasting as accurate as possible.

According to The University of Tennessee, Knoxville, demand forecasting is “a method for predicting future demand for a product.” It’s a calculated method to plan for inventory and helps prepare the supply chain for the future.

Demand forecasting helps businesses forecast their future sales, which is based primarily on historical data. However, relying exclusively on historical data is not generally recommended.

Historical data provides an incomplete picture because it does not factor in economic trends, seasonal ordering, or consumer behaviors. Multiple analyses are also recommended because young companies don’t have enough of their own data to perform such analyses.

It’s recommended to run through more than one method to forecast sales. It’s important to ensure that data is as accurate as possible and to consider factors beyond inventory. Such factors include how external players – shippers, material suppliers, etc. – will work with the company’s internal functioning.

It’s important to be mindful of the time frame of the different analyses. Short-term refers to the next quarter to four quarters (3 to 12 months) and helps businesses adapt to changes in consumer demand and market variations. Real-time sales data is used to manage just enough inventory. Long-term refers to at least 12 to 24 months, but sometimes 36-48 months, and is used for things related to the long-term business vision. Examples include creating a more reliable supply chain, capital expenditures, advertising campaigns, etc.

Similarly, demand forecasts run by a business can be done regarding intrinsic or extrinsic factors. External forecasts evaluate how the broader economy and systemic changes in commerce shifts future demand. Recommended indicators include exploring how many retail consumers spend, what they are interested in, and whether the economy is expanding or contracting. Internal demand forecasts look at the organization’s employee makeup and where and how the business can divert resources to help deal with additional capacity, if necessary.

Passive demand forecasting relies exclusively on historical data and is usually geared toward established companies with generally reliable sales histories.

Active demand forecasting is geared more toward startup businesses looking to scale and diversify their portfolio. It can be variable because it factors in changing trends of the fluid economy and how companies, especially startups, plan to accelerate growth. However, active demand forecasting also may be useful in order for businesses to work around fluid inventory and logistic network overview. Startup businesses are better geared for real-time demand planning, mainly due to a lack of historical data. 

With the quantitative approach focusing on crunching data, oftentimes with complex “big data” processes, the qualitative method takes a more balanced approach with some data, but also cognitive-based analyses, including some of the following tactics:

  1.  The salesforce approach gleans data from the sales staff to predict demand. Those doing sales are in direct contact with the company’s customer base; therefore, they can get info on customer needs and behavior and even report back on what the competition is doing.
  2. Market research looks at present market trends and sees where businesses can meet newly created consumer demand. Startups benefit because they have little or no historical data.
  3. The Delphi Method works by hiring an outside group of experts and asking them a series of relevant questions. From there, each expert creates a demand forecast based on their market knowledge. Then, the individual forecasts are shared among the experts anonymously. From there, experts are asked again to come up with a forecast; this is repeated until there is far greater consensus among all the experts.

While demand forecasting is individual to each company and each industry, the more businesses that understand the approach to demand forecasting, the more able they’ll be to react to any type of consumer trend.

Sources

https://www.bea.gov/data/consumer-spending/main

https://supplychainmanagement.utk.edu/blog/guide-to-forecasting-demand/

Aug 01
Love0

Will Increasing Oil Prices Put a Ceiling on Global Economic Growth?

By Blog, Stock Market News

Increasing Oil Prices According to the U.S. Energy Information Administration’s Short-Term Energy Outlook, the June price of $73 per barrel for Brent Crude Oil was up by $5 per barrel over May. With more vaccinations being rolled out, uncertainty over OPEC+’s production moves, and a reduction in worldwide oil availability, the outlook for oil prices seems upward. If the price of energy – especially oil – keeps increasing, will it halt the improving economy in its tracks?

As part of the commodity boom, crude oil is not immune from the rapid rise, creating an increase in inflation that’s subject to contention of being “transitory” or longer-term. Based on the World Bank’s semi-annual Commodity Markets Outlook, the positive price of crude oil is expected to remain at present levels through 2021.

The price of energy is projected to be, according to The World Bank, about 33 percent more in 2021 compared to 2020, when oil averaged $56 per barrel. In fact, The World Bank explained that crude oil is not the only commodity expected to increase in cost, and attributed it to the recovery from the COVID-19 pandemic.

With more economies coming online, fossil fuels experiencing greater demand, and OPEC+ maintaining production cuts, The World Bank projects the price of crude oil to average $60 per barrel in 2022. One noteworthy factor is that although present levels of demand for gas and diesel are nearly at pre-pandemic levels, jet fuel demand is still lacking since air travel is not back to pre-pandemic levels.

However, The World Bank sees lower crude prices in these situations: the pandemic wears on longer than projected; there’s a major change in U.S. shale production; OPEC+ changes its production agreement; or if some combination of these three factors impacts crude oil demand.

U.S. Shale

One noteworthy statistic the International Monetary Fund (IMF) points out regarding U.S. shale production is that before the COVID-19 pandemic, shale oil output reached 2 million barrels annually, versus present-day production of approximately 500,000 barrels. While the Biden Administration has banned drilling on federal land, this shouldn’t impact shale production much. However, it signals a bigger approach with the administration’s statements on green energy.

Based on statistics from the U.S. Energy Information Administration’s (EIA) Drilling Productivity Reports, different regions show changes in oil rig production from July 2020 to July 2021. There’s been an uneven recovery over the 12-month period.

In July 2020, the following regions reported the following regarding oil rig production: Bakken at 1,385, Anadarko at 1,001, the Permian at 824, and Niobrara at 1,460. Looking one year later to July 2021, Bakken hit 2,400, with Anadarko dropping to 993, Permian increasing to 1,234, and Niobrara growing to 1,919.

Factoring in OPEC+

On July 18, OPEC+ agreed to phase out production cuts of 5.8 million barrels per day by September 2022, in response to higher prices. With Brent Crude Oil rising 43 percent between the start of 2021 and mid-July 2021, oil is forecast to hit $80 per barrel during the back half of 2021. They will therefore begin to increase oil supply at a rate of 400,000 barrels per day on a monthly basis, which will eventually reduce prices again.

Unknown Variables

Additional unknowns to the price of crude oil and the economy include projected actions by The Federal Reserve. If The Fed increases interest rates, it increases the strength of the U.S. dollar and decreases the strength of a foreign currency. This, in turn, lowers the cost of oil for U.S. dollar purchases and increases costs in foreign exchange, providing mixed demand for fossil fuel demand.

Another variable, according to the Federal Reserve Bank of Kansas City, is that 16 percent of U.S. white-collar workers are expected to work from home at least twice a week. If the Delta variant increases work from home and overall lockdowns, it could also depress oil demand.

With many unknown variables still present with the COVID-19 pandemic and the impact to commodity prices, including crude oil, the economy at-large will remain touch and go until the globe gets the Coronavirus crisis under control.

Aug 01
Love0

HSA: Save it for Retirement

By Blog, Financial Planning

HSA: Save it for Retirement, Health Saving AccountAccording to Fidelity Investments, the average 65-year-old couple retiring today will need about $300,000 for out-of-pocket healthcare expenses during retirement. And that doesn’t even include long-term care. One way to help pay for this enormous cost is to open a health savings account (HSA), which is a savings and investment vehicle designed to help people pay for medical-related expenses on a tax-free basis.

To open one of these accounts, you must be enrolled in an HSA-eligible, high-deductible health insurance plan (HDHP). These are offered by many employers and also are available on the individual insurance market. One of the little-known advantages of the HSA is that if you delay withdrawing from it until retirement, you’ll have money ready to tap for those out-of-pocket expenses on as-needed basis.

An HDHP works exactly as it is named; comprehensive coverage does not kick in until the plan member reaches an annual deductible that is typically higher than other healthcare plans. The trade-off for the higher deductible is that monthly premiums are lower. Therefore, this type of plan is generally suited for healthy individuals or families that do not have a lot of ongoing medical expenses.

In 2021, the annual HSA contribution limit is $3,600 for individuals and $7,200 for family coverage.  In 2022, these limits increase to $3,650 for individuals and $7,300 for families. Account owners age 55 and older may add another $1,000 “catch-up” contribution. With a work-sponsored HDHP, both the employee and the employer may contribute to the savings account, but their combined contributions may not exceed the annual limit. As long as you are enrolled in an HDHP, you may contribute to the HSA. Even when you no longer contribute, the account belongs to you and maybe invested for growth and tapped as needed.

Investment Advantage

An HSA is maintained at a financial institution, such as a bank. Once saved assets have reached a certain threshold, that custodian will allow the owner to invest a portion of the balance. While the HSA rules technically allow you to invest starting with your first dollar, many custodians have their own minimums required in the HSA (usually $1,000 to $2,500) to be available for medical expenses. Beyond that the balance, the savings can be invested for growth. Also, the owner can transfer money to and from the bank and the investment account as needed.

The invested portion of an HSA is transferred to a brokerage account. There, the owner has a variety of options to invest in, including mutual funds and individual securities. According to Morningstar, more than 80 percent of HSA investment funds have earned gold, silver, or bronze analyst ratings, and the lower end of investment fees range from 0.02 percent to 0.68 percent a year. Note that some investment management fees run higher, so it’s important to compare fees just as you would with any other type of investment.

Triple Tax Advantage

The health savings account features more tax benefits than any other type of investment, including a 401(k), a traditional IRA, or a Roth IRA. That’s because all contributions are tax-free (either through payroll deductions at work, which also avoid FICA taxes or as a tax deduction when health insurance is purchased independently). Moreover, HSA investments grow tax-free. If eventual withdrawals are used to pay for qualified medical expenses, they are not taxed either. So essentially, savings, investments, and gains from an HSA account that are used to pay for healthcare expenses are never subject to taxes. If you do use this money for nonqualified expenses, you’ll have to pay income taxes and, if taken before age 65, a penalty fee as well.

However, consider when most people encounter their highest medical bills: during retirement. If you pay for all out-of-pocket expenses with current income throughout your career, your HSA has the opportunity to grow into a substantial nest egg by (and during) retirement. The most effective use of these funds is to pay for health-related expenses, such as Medicare premiums, dental, and vision care, long-term care insurance premiums, and nursing home costs.

An additional advantage is that health savings accounts are not subject to required minimum distributions. However, be aware that when an HSA is left to a non-spouse heir, it converts to a taxable account – so it’s best to use up these assets while you’re still alive.

Aug 01
Love0

5 Tips for Job Seekers Over 50

By Blog, Tip of the Month

Job Seekers Over 50You’ve got loads of experience in your field. You know things that only time can teach you. However, all of your experience and knowledge can sometimes work against you. And even though age discrimination is illegal, it doesn’t mean it isn’t prevalent. You can’t turn back the clock, but you can reshape how you present yourself. Here are a few good ways to get started.

Learn New Skills

If you see a job posting in your industry that requires knowledge of the software you don’t know, hop on YouTube or enroll in an online class. Certifications help, too, and are available in some of the most in-demand programs, such as Amazon Web Services (AWS), Systems Applications and Products (SAP), Hootsuite (used for social media), and Salesforce. This way, you’re demonstrating to employers that you have the necessary qualifications for the job – you’re a viable candidate – and you haven’t fallen behind over the years.

Rethink Your Resume

First of all, limit your experience to the past 15 years, unless there’s a job that reflects a title or skill that’s relevant to the position. You don’t want to appear, upon first glance, overqualified. Second, make sure your CV includes the right keywords. The days of HR managers poring over resumes is mostly gone; they often use applicant tracking systems (ATS) to weed out the candidates that are filling up their inbox at warp speed. Finally, if you’re using AOL or Hotmail, get a new account; this is a red flag that screams too old. Sign up for Gmail instead.

Widen Your Net

Think outside your industry’s box. For instance, you might be attracted to a big-name corporation or a hot startup, but it might not be the right environment for you, especially if there’s a chance you’d report to a much younger manager. You might find a better fit by going outside your comfort zone. Colleges and universities might be good options; you can leverage your experience by teaching. Smaller companies or startups that aren’t as well known might also be good places to look; you could take on multiple roles. Being open to contract or freelance jobs is another good idea. Getting your foot in the door is half the battle.

Use Personal Connections

While job sites like Zip Recruiter and LinkedIn, leads on social media and head hunters are places you might have found opportunities before, reach out to friends and former coworkers. It creates immediate familiarity and, when faced with a sea of resumes, helps move your name closer to the top. When you do get introduced to someone who has an opening, ask about their industry, role in the company, as well as what tools they’ve used, podcasts they listen to, or online classes they’ve taken to keep current. This not only shows your business savvy but also could help keep you top-of-mind if they hear of anything.

Own Your Experience

Your age doesn’t have to be the elephant in the room. Demonstrate why the invaluable skills you’ve accumulated over the years differentiate you from others. Craft an elevator pitch and jump right in. Talk about how, for instance, your breadth and depth of knowledge can help junior executives learn and grow. Busy employers generally want to know how quickly you meet the job requirements and if you can make their life easier, or help them shine.

Remember, you have so much to bring to the table. That’s why serving up your accolades in the right way can make all the difference in the world.

Sources

https://www.themuse.com/advice/jobhunting-after-50-the-new-rules

Aug 01
Love0

Technology Driven Accounting: How to Prepare Staff for a New Age in Accounting

By Blog, What's New in Technology

How to Prepare Staff for a New Age in AccountingTechnology has no doubt changed the traditional way of doing things. Businesses and professionals are left with no choice but to adopt new technology to remain relevant in a changing environment.

However, the successful adoption of this new age in accounting can happen only if you prepare your staff in advance.

Why it’s Necessary to Prepare for the New Age Accounting

Technology offers many benefits; however, the constant rapid changes in technology create a major challenge to organizations and even to the professionals/employees. Some decide to stick with systems with which they are already proficient. Unfortunately, such a decision is not an option if you want to remain relevant in a changing accounting landscape.

Technological changes that have affected the accounting field can be attributed to technologies such as 5G, data analytics, robotic process automation (RPA), computer-assisted auditing technologies (CAATS), blockchain, and cloud computing, among others.

These technologies are literally creating new roles in the accounting field. For instance, automation will take away some accounting jobs, such as data entry, payroll, tax handling and bank reconciliations – thanks to Enterprise Resource Planning (ERP) systems and more advanced systems like Robotic Process Automation (RPA).

The effect of technology in the accounting field has made such an impact that the AICPA and NASBA are supporting a CPA evolution. This is aimed at incorporating changing skills and competencies in the accounting field. As a result, this will include a new curriculum and new CPA exams expected to be launched in 2024.

Despite the disruption in the accounting field by technology, it has introduced many new opportunities. Consider this: while automation takes care of repetitive tasks, the accountant can devote more time to planning, organizing, and advising. This enables the accountant to add more value to an organization as they focus on major tasks.

However, this advantage will benefit only those who are well prepared in advance and ready for the new form that accounting is taking.

How to Prepare Your Staff for a New Age in Accounting

Change is not always welcome, but preparing your staff in advance will help ensure a smooth transition. Here is how to prepare your staff:

  • Communicate
    Let your employees know the intended changes in roles as well as new technologies that you plan to implement. Employees also can play a role in selecting technologies best suited to your business operations.
  • Mindset Shift
    Help employees accept the technological changes. They need to shift their mindset and accept the changing digital landscape. This will help with expediency and the ability to take advantage of its benefits.
  • Upskilling and Reskilling
    Give employees a chance to enhance their abilities. They also should learn new things to ensure they have relevant skills to continue working in advanced areas of accounting that require innovation, critical thinking, decision making, etc. Where necessary, they could learn basic programming and even basic automation for more advanced roles like data analysis. Gaining new skills will help your business transition from old systems to new ones, without necessarily hiring new staff.
  • Soft Skills
    Accountants now more than ever need to learn non-technical skills so that they can easily interact with people. If they are expected to take up advisory roles, they should be good at problem-solving, communication, relationship skills, business acumen, etc.
  • Emerging Business Models
    Let your staff be aware of new business models, such as microservices, marketplace platforms, and do-it-yourself models. This especially affects accounting firms whose employees need to be creative on how to leverage these models.
  • Positive Culture
    Develop a culture that enables staff to compete at a new level to keep their morale up so they are not worried about losing their jobs.
  • Stay Updated
    Keep everyone up-to-date with trends even when you don’t intend to implement every new technology that comes up. It helps to stay in the loop of what’s happening in the accounting field.

Keeping up with evolving accounting trends and changes will save you from losing clients. Preparing your staff for the new age of accounting will help your business provide value beyond traditional accounting to your clients. This is because you will be serving as business consultants and strategic partners as opposed to simply accounting experts.

Aug 01
Love0

Blocking Voter Expansion, Proposing Greater Scrutiny of Inspectors General, and Paving the Way for Climate Change Measures

By Blog, Congress at Work

hr 12, s65, s1251, hr3684, hr2662For the People Act of 2021 (HR 12) – This bill is designed to improve voter access to the ballot box by expanding automatic and same-day voter registration, vote-by-mail and early voting. The legislation also contains provisions that limit removing voters from voter rolls, strengthens ethics rules for public servants, reduces the influence of big money in politics and addresses other anti-corruption measures. The bill was introduced by Sen. John Sarbanes (D-MD) on Jan. 4 and passed in the House on March 3. In early July, the bill was blocked by Republicans in the Senate and its status is pending further action that may be taken by Senate Democrats.

Uyghur Forced Labor Prevention Act (S 65) – This bipartisan bill is designed to prevent goods from entering the U.S. market that are made via forced labor in the Xinjiang Uyghur Autonomous Region of the People’s Republic of China. It would also enhance existing asset- and visa-blocking sanctions of foreign individuals and entities responsible for human rights abuses connected to forced labor in Xinjiang. The bill was introduced by Sen. Marco Rubio (R-FL) on Jan. 27. It was passed by the Senate on July 14 and is currently in the House.

Growing Climate Solutions Act of 2021 (S 1251) – This bill was introduced by Sen. Mike Braun (R-IN) on April 2. The purpose of this legislation is to reduce barriers to entry for farmers, ranchers and private forest landowners in certain voluntary credit markets. In order to participate in the program, providers must offer technical assistance to help landowners utilize sustainable land use management practices that prevent, reduce or mitigate greenhouse gas emissions, or sequester carbon; or be a third-party charged with verifying the process for voluntary environmental credit markets. The bill passed in the Senate on June 24 and is currently under consideration in the House.

INVEST in America Act (HR 3684) – This bill authorizes federal funds for highways, highway safety and transit programs. It includes strategies to reduce climate change impacts of the surface transportation system; revises Buy America procurement requirements for highways, mass transit and rail; establishes a rebuild rural bridges program to improve the safety and state of good repair of bridges in rural communities; and other purposes. The legislation was introduced by Rep. Peter DeFazio (D-OR) on April 19 and passed in the House on June 29. It is currently under consideration in the Senate.

IG Independence and Empowerment Act (HR 2662) – Introduced by Rep. Carolyn Maloney (D-NY) on April 19, the bill amends the Inspector General Act of 1978. Some of the provisions include: allowing an Inspector General to be removed only for cause; requiring that Congress be notified before an IG is placed on nonduty status; requiring the president to explain any failure to nominate an IG; adding provisions regarding acting IGs when an IG position is vacant; notifying Congress when an allegation of wrongdoing made by a member of Congress is closed without referral for investigation. The legislation passed in the House on June 29 and is in the Senate for consideration.

Jul 01
Love0

Restricted Stock & RSUs: 3 Planning Tips

By Blog, Tax and Financial News

Restricted Stock & RSUs: 3 Planning TipsEquity compensation is becoming more mainstream and is not just for executives anymore. Grants of restricted stock or restricted stock units (RSUs) are getting to be more common than stock options – and the rules are different, as is the tax planning. Below we will look at some of the particulars of how restricted stock and RSUs operate, how to understand a grant, planning for the tax consequences, and what to do after the shares vest.

How Restricted Stock and RSUs Work

At their core, restricted stock and RSU company shares that vest according to a schedule can be awarded as compensation. The vesting schedule can be tied to length of employment, meeting certain performance criteria, or a combination of both. Upon vesting, the employee owns the shares themselves and can do what they wish with them – from holding, selling, gifting, etc. While this might sound simple, the devil is in the details.

Understanding Your Grant

First, it is important to understand that restricted stock or RSUs are similar to stock options but have important tax and financial planning differences.

There are important facts you need to determine. First, how does the vesting schedule work; what amount of shares vest and when? Is the vesting simply tied to length of service or are there performance or even liquidity event triggers? Second, what are your tax-withholding choices?

From there, you can determine or at least estimate key factors such as how much the award will be worth both pre-tax and post-tax.

Tax Planning – Section 83(b) Election

Taxation can be tricky with restricted stock and RSUs. One strategy is to use a Section 83(b) election for restricted stock.

Typically, a person is taxed when the restricted stock vests regardless of whether the shares are sold. The Section 83(b) election allows the taxpayer to be taxed on the share value at the grant date instead. This election can be made within 30 days from the grant date of the restricted stock and is not an option for RSUs.

Why would you want to consider a Section 83(b) election? Remember that regardless of the election or not, you are taxed as ordinary income for the share value regardless of whether you hold or sell the shares. The advantages are that if you think the stock price will rise between the grant and vesting, then you will pay less ordinary income tax and have lower cash outflows. Second, after the initial taxation of the grant, the change in value after this point is capital gains.

Tax Planning – Withholding

The other issue to consider is not withholding enough taxes. The IRS rules say that your company is required to withhold 22 percent for restricted stock and RSUs (37 percent for income over $1 million during the same year).

The problem is that there is a good chance your margin tax bracket is higher than 22 percent if you are receiving these kinds of equity compensation awards. As a result, you will need to make some estimated payments to cover the difference. Unless you have enough cash from other sources, you may need to consider liquidating some of your shares to cover the tax bill.

The conundrum here is that if you do not see the shares immediately and the price falls, then you will be selling shares at a lower value than what you are being taxed on. It is best to consider your holistic tax scenario and work with your tax advisor to come up with a plan.

Game Plan for After Vesting

Aside from the tax consequences, you need to consider the impact on your overall financial planning. One of the biggest risks taxpayers can face is that they become heavily concentrated in the company stock. You will need to look at your overall portfolio and consider if you need to diversify depending on how much of your net worth is tied up in a single stock now.

Some financial planners recommend looking at the situation this way in an example with your shares worth $150,000 at vesting. If you had $150,000 in cash to invest, pay down debt, etc., would you use all of that to buy the company stock? If the answer is no, then why would you hold it? In other words, do not let tax implications lead your financial planning decisions.

Conclusion

More and more companies are issuing compensation in equity forms such as restricted stock grants or RSUs. Make sure you understand your vesting schedule and conditions so you can plan for the tax implications as well as your overall financial picture.

Jul 01
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How to Develop a Hybrid Work Policy Post-Pandemic

By Blog, General Business News

How to Develop a Hybrid Work Policy Post-PandemicAccording to a Prudential survey, 87 percent of respondents said they would prefer to work remotely at least one day per week. This is compared to 13 percent of respondents preferring to work at the office all the time. The same survey found that one-third of respondents wouldn’t want to work for a business that had a 100 percent on-site work policy.

According to a report from Microsoft titled, “The Next Great Disruption is Hybrid Work – Are We Ready?” 54 percent of employees report “feeling overworked” while 39 percent say they “feel exhausted.” The study attributes these employee feelings to an overload of “digital collaboration” through “remote meetings, emails, chats, and groups working on documents together.” With workers reporting a desire for change in the workplace, how can companies develop their own hybrid work policy?

Crafting an Effective Hybrid Work Policy

By developing the right mix of remote work and office work, employees and employers can find a balance that works well for everyone. Looking to Fujitsu, as Harvard Business Review (HBR) explains, we can study a model of how the pandemic changed everyone’s view – including owners, managers and workers – of working in the office all the time.

Hiroki Hiramatsu, head of the human resources unit at Fujitsu, realized that the 120 minutes people spent traveling to work could be put to better use. There was a better mousetrap to be devised to make both the business and its workers more efficient with a hybrid workplace plan. For businesses that want to create more flexible working arrangements, HBR believes there are four areas of focus:

1. Employee’s Position and Responsibilities

The first task is to examine the employee’s position and list of responsibilities. HBR looks at the job of a strategic planner and hones in on the attribute of focus. They are responsible for creating business plans and obtaining details on their industry. Requiring intense focus, they need time that is not interrupted; hence, this can be performed virtually anywhere.

Looking at the team manager, being able to coordinate things is imperative. Team managers are more efficient and effective in person to provide guidance and job-improving feedback while in the office working on projects.

While there’s no cut-and-dry call on where both of the scenarios could be done, with a hybrid work policy, certain tasks can be done anywhere, while other tasks are more effectively completed at home or at the office. A hybrid work policy merges the benefits for businesses and their employees.

2. Worker Inclinations

HBR explains that it’s imperative to understand individual worker preferences and aid teams to work within such preferences. Using the example of two strategic planners, there are different employees with different work and family lives. One lives far away from the office, has a busy family life with kids in school and prefers a hybrid work approach. The other employee is at an earlier stage in their career, doesn’t have a dedicated home workspace and lives near the office.

This stage is where companies can speak with employees and have them take surveys to see how a hybrid workplace policy can be constructed for optimal employee engagement.

3. Reworking How Work is Done

When it comes to working outside the office, HBR explains that in a hybrid work environment, businesses have to get creative, especially with technology. HBR uses the example of the Norwegian Equinor corporation that is involved in handling gas from North Sea fields. In place of normal operations for plant inspections, robotic devices were supplied to provide real-time visual data for inspection engineers to complete their jobs remotely with the same level of accuracy.

4. Equal Policy Application

Regardless of the hybrid policy that’s developed, it’s important to maintain inclusion and fairness. HBR points out that without applying the policy evenly, it can lead to less productive workers, higher rates of burnout, fewer instances of teamwork, and more turnover. Additionally, with select employees having time- and place-dependent jobs unsuited or not optimized for a hybrid workplace, many felt they were treated unfairly when this approach is taken.

HBR gives the example of how Brit Insurance changed the traditional approach to the uneven application of a hybrid work policy. One out of 10 of its employees were chosen randomly, from all departments and job roles. Over the next six months, these employees were put in six-person groups to work together virtually. After reflecting on their working styles and capabilities, and their coworkers’ and company’s needs, they concluded that by developing ideas based on their experience and sharing them with the CEO, change would occur. The project resulted in the Brit Playbook, documenting novel ideas for employees to work together.

While each business is unique and will have its own tailored hybrid plan, taking the time to learn how to develop it effectively it will help reduce problems in implementing it.

Sources

https://news.prudential.com/presskits/pulse-american-worker-survey-is-this-working.htm

https://www.microsoft.com/en-us/worklab/work-trend-index/hybrid-work

https://hbr.org/2021/05/how-to-do-hybrid-right

Jul 01
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How Will Uncertain Inflation Outlook Impact Stock Market?

By Blog, Stock Market News

How Will Uncertain Inflation Outlook Impact Stock Market?The June 16 Federal Open Market Committee (FOMC) meeting Q&A session with Chairman Jay Powell and recent comments from The Fed have signaled two potential inflation rate hikes in 2023. Two days later, James Bullard, president of the Federal Reserve Bank of St. Louis, signaled there could be a rate hike as soon as 2022. With these mixed signals and upcoming FOMC meetings, how might inflation and the markets play out in 2021?

Inflation and the Dollar

One explanation for inflation is that there are too many dollars chasing too few goods – or more simply put, things will cost more over time. Say you can purchase a pair of shoes for $100. Then, inflation is 3 percent over the course of a year, making them cost $103 after one year.

This example illustrates when the cost of things – including school, housing, clothes, food, energy, etc. – increases according to the Consumer Price Index or CPI, as the U.S. Bureau of Labor Statistics defines it.

Some Factors Impacting Inflation

One of the Federal Reserve’s dual mandates is price stability. There are three ways The Fed can steer inflation.

The first is by adjusting the Federal Funds Rate, which determines how much banks pay for overnight borrowing from a “depositary institution,” such as the Federal Reserve Bank. By raising this rate, it lowers spending and helps reduce the likelihood of inflation by tamping down costs, along with pushing up interest rates for lenders.

Another tool is the Fed increasing its Reserve Requirement. By increasing this metric, it slows down spending, and therefore inflation by how much money institutions can lend out.

The third is through open-market operations (OMO), whereby the Fed can either buy U.S. Treasury Bonds to increase the supply of money or sell U.S. Treasury Bonds to decrease the money supply.

The Fed uses the Personal Consumption Expenditures (PCE) Index from the U.S. Bureau of Economic Analysis, along with the Depart of Labor’s Consumer Price and Producer Price indexes, to gauge inflation.

Understanding Cost-Push Inflation

According to the Federal Reserve Bank of San Francisco, there are a few ways to quantify inflation. Cost-push inflation happens when inputs necessary for manufacturing cost more. This can include input resources that cost more or worker pay that rises quickly. During the energy price spike during the 1970s, the increased cost of fossil fuel increased production and commercial hauling costs.

Wage-Push Inflation

According to the Monthly Labor Review, the Bureau of Labor Statistics, the Federal Reserve Bulletin and the American Economic Association, wage-push inflation is the “thesis” that argues employee pay has risen faster than actual good or service output and is squeezing profitability and price attractiveness to consumers.

One reason this occurs is due to a minimum wage mandate. Another reason is to attract better workers or increase their applicant pool. It’s important to know that doing so will increase the money supply in the economy, which will help them purchase more and create a higher demand for goods. This will further increase the price of goods, whereby businesses will charge more for goods to pay higher wages, which will increase the price of goods throughout the economy. It’s all about balancing the wage increases versus the cost of goods.

Demand-Pull Inflation

Demand-pull inflation happens when there’s the classic too much demand but too little supply scenario. It’s often accompanied by an increase in money supply by a loose central bank monetary policy, oftentimes leading to higher prices.

Looking to Commodities

Taking energy, specifically West Texas Intermediate Spot price, due to increasing costs of energy, this sector is projected to do well in an inflationary scenario. Looking at data from the U.S. Energy Information Administration, the price per barrel increased from nearly $45 on Jan. 1 to more than $59 on April 9, to more than $71.55 on June 18 and climbing. Be it stocks, options or futures, investors who took positions earlier in 2021 or 2020 likely benefitted from inflation.

Performance May Vary by Asset

However, it’s important to select the right assets to decrease the likelihood of losses and increase the chances of gains. For example, fixed income, in conjunction with higher interest rates, is likely to decline due to not staying competitive with inflation rates. Using the “discounted cash-flow method” to evaluate a stock, especially in periods of higher interest rates, growth stocks fare worse compared to their value counterparts. When investing in dividend paying stocks, these may provide a hedge against inflation because they oftentimes can pass on higher costs for their products, keeping their earnings in line with growth expectations, along with receiving dividends themselves.

While the future of the market can’t be predicted, paying attention to how the economy reopens and the Fed manages inflation can help determine what investments are the best going forward.

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