by Marcio Silveira, CFP, CFA, CAIA, Pavlov Financial Planning
Young professionals often find it intimidating to start saving for retirement. Even when there is enough income to allow for savings, many young people do not know how to get started and end up leaving too much of their money in bank accounts.
The most important thing is to get started early with retirement savings. It may be intimidating to plan for something that is 30 years or more on the horizon, but here are some tips:
6 Principles:

• Cash has a negative real rate of return. Inflation erodes the long-term purchasing power of money that is not invested. Keeping your money in cash will ensure long-term loss.
• Long time frame means you can take more risks. Between 1900 and 2014, there was no 30-year interval in which the stock market has lost money. The real return, after inflation, has always been more than 3%. Compare this to the return from your savings account to see where your money is better invested.
• When the market drops, it is good news for you! If you are accumulating assets over time, the stock market going down means that you can buy more shares at a lower cost. This effect is called dollar-cost-averaging, and it boosts your long-term return.
• You don't control investment performance. It is very difficult to out-perform the market consistently. If you hire someone to do it, there is a good chance you are overpaying for the service. It is wiser to track the market yourself and ride its ups and downs.
• You control investment costs. The most reliable determinant of investment outcomes is the cost paid to invest. These costs are brokerage commissions, account maintenance fees and mutual fund expense ratios.
• You can be savvy about taxes. One area that many people saving for retirement can control is the taxation of retirement assets. Look into tax favored accounts like the Thrift Savings Plan (for Federal Employees), 403(b) plan for non-profit employees, 401(k) plans for corporate employees and Traditional and Roth Individual Retirement Accounts. These accounts can provide substantial tax savings. Roth IRAs can be particularly attractive for young professionals.

 8 Actions:

• Make sure you save at least 15% of your income.
• Your cash cushion should cover emergencies only, not your retirement.
• If available, take advantage of your employer 401(k) match.
• Consider a Roth IRA as a first option for individual savings. (www.rothira.com)
• Have a broadly diversified investment portfolio aimed for the long-term.
• Make sure your investments are low cost. (www.vanguard.com)
• Contribute to a Health Savings Account, if you are eligible.
• Consider hiring a fee-only Certified Financial Planner to put a comprehensive plan together. (www.napfa.org)

by Christine M. Searle, CIA, CRMA, Owner, Searle Business Solutions, LLC. 
You are a busy business owner or non-profit leader. Your organization purchases or contracts for the goods and services that are necessary to operate and deliver services promised to the customer. You pay the invoices and credit card bills that arrive.
But are you sure the bills are accurate? Are you getting the goods and services for which you are being billed?
You work hard for your revenue or donations, so it is important that you consider these questions before paying any vendor invoice or credit card bill:

• Were the invoiced goods or services received and accepted?
• Is the invoiced price accurate?
• For non-profits, were taxes included for goods or services for which you are exempt?
• Were all bills and credit card charges for valid business purposes?
• Has this invoice already been paid?

Invoicing and payment mistakes can be made by the vendor or by someone in your organization. You can reduce costly errors by implementing some best practices for managing accounts payable and funds disbursements. Attention to this part of your business or non-profit also sends a strong signal to your vendors, employees, and volunteers that payment activities are being monitored.
Best Practices for Paying the Bills
1. Separation of Duties
Separation of duties helps to ensure that only appropriate, authorized payments are processed by having more than one person control conflicting tasks in the payment process. Potential consequences of not segregating duties include inappropriate or fraudulent expenses being approved and paid.

• Best practice is to have different people:
  • Approve purchases or purchase commitments
  • Receive ordered materials or validate that services were provided
  • Approve payments
  • Review and reconcile financial records
• Expense payments and reimbursements for executives/leaders should be approved by a controller, Board member, or other independent party.
• Preparing the check or electronic payment should be separate from check signing/transmission.
• To avoid payment misdirection, prepared and signed checks should be mailed directly, not returned to the requestor for mailing.

If the organization does not have enough people to separate duties, a regular, periodic review should be performed by someone who is independent of the approval and payment process, such as a Board member. The reviewer should be someone familiar enough with the organization to identify inappropriate financial activity.
2. Essential Recordkeeping
Tracking electronic or paper vendor invoices helps to ensure that bills are paid accurately and in a timely manner. Consequences of poor invoice management include missed discounts, late fees, and accidentally paying the same invoice twice.

• Best practice is to ensure that:
  • Vendor invoices are electronically or manually logged and date stamped when received.
  • Vendor discounts are considered when scheduling payments.
  • Vendor invoices and supporting (e.g., receiving) documents are matched and maintained.
  • Vendor invoices are cancelled when payment is made.
  • Unpaid vendor invoices are maintained separately from paid invoices.
  • An accounts payable aging report is maintained and reviewed to avoid late fees and order holds.

Accounts payable and funds disbursement recordkeeping can be automated, manual, or a combination of both, depending on the organization's circumstances and resources. Automated processes still require human oversight to make sure the system is working properly and to address any potential issues, such as lost discounts or misapplied payments.
3. Accountability and Approvals
Accountability ensures that you authorize, review, and approve invoices for payment based on signed agreements, contract terms, and purchase orders. Establishing who in the organization is authorized to approve the commitment or expenditure of funds is an important part of safeguarding resources.

• Best practice is to implement:
  • Owner or manager approval of all vendors and extensions of credit.
  • Review and update approval authorizations periodically.
  • Invoice check against supporting documentation.
  • Owner or manager review of unpaid vendor invoices and statements monthly.
  • Reconcile ledgers for accuracy of recorded transactions.

Potential consequences of not establishing approval accountabilities include making unauthorized, unnecessary, or fraudulent payments/purchases; payments to fictitious vendors; and incorrectly coded expenses, impacting financial reporting. All of these conditions equate to higher costs for your business or non-profit organization.
Even businesses and non-profits with just a few employees or volunteers have options for implementing many of these best practices at no or low additional cost. Your accountant or Board members are good resources to help.

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by Alison Robinson, CPA, Manager, Burdette Smith & Bish, LLC

“In this world nothing can be said to be certain, except death and taxes.” Benjamin Franklin

Sadly, they often go together. For the bereaved, this presents some uncertainty. And we can help.

It is often recommended that the elderly or sick give away their property before they die, for one reason or another. Sometimes for sentimental reasons, perhaps to avoid probate, or maybe they worry they won’t be mentally or physically up to managing their assets. Often this takes the form of deeding their house to their children. Accountants hate when that happens. We would prefer that the elderly be lovingly and capably taken care of by their heirs, and that all property and assets pass upon death. Here is our logic:

Let’s use Betty as an example. She has a home that she and her husband, Mort, bought in 1950 for $20,000. They made a few improvements through the years, adding another $15,000 to their “basis” making their total basis $35,000. (Basis is their investment in the property.) Mort died in 2000, and at that time the home’s Fair Market Value (FMV) was $100,000. Betty inherited Mort’s half ownership, becoming the sole owner.  She got a “stepped up” basis for his half of the house, which was $50,000 (his half of the FMV on the date of his death). Betty’s original half didn’t get stepped up and remained at $17,500 (her half of the original $35,000). Her new basis was $67,500 (her original half, and her stepped up half from Mort). Sadly, Betty died in 2013.  Her will spelled out that the home she and Mort shared will now go to their only living child, Bob. The FMV of the house in 2013 was $150,000. Bob decided to sell the old homestead, and did for $150,000. He paid no tax on the sale because his basis was “stepped up” to FMV when heinherited the house from his mother, and because he sold it for the same amount, there was no gain to be taxed. Everyone but the IRS is happy.

But what if in 2000, after Mort died, Betty deeded the house over to Bob, retaining a life-estate. In this case, Bob’s basis became $67,500, the same basis that his mother had. So, when he sold it after she died in 2013 for $150,000, his gain was $82,500, and boy did he owe taxes!

You can apply the same theory to stocks. If you are “gifted” shares of stock, your basis is what the benefactor paid for them. If you inherit shares of stock, your basis is the FMV of the stock on the date of death of the benefactor.
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You can’t cheat death, and while you can cheat on your taxes, proper planning can help you handle both legally, morally, and with much less confusion.