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5 Tips for First-Time Tax Filers

Filing taxes for the first time can be overwhelming. But if you have the right tools and advice before you start, it won’t be. Here are a few critical things to know before you begin, which will make the seemingly daunting process much easier.

Start Prepping Early

Even though the deadline to file a tax return is April 15, you’ll want to start as soon as you can. You’ll need time to gather all of your important documents like a W-2 from each employer and, if you’re a contractor, your 1099 forms. If you have a full-time job and worked freelance on the side, you’ll need both. The good news is that the forms show how much you made in the past year and how much tax was withheld. According to Kathy Pickering, executive director of The Tax Institute at H&R Block, you should gather any additional forms that show big expenditures, such as paying for education or charitable giving. Finally, proofread your form. Karen M. Reed, director of communications for Citrus Heights, California-based TaxResources Inc., said that a mistake in just one digit can lead to disastrous results.

Learn Key Terms

If you have a basic understanding of key terms, the entire process will be much more manageable, according to CPA Tim Wolfe. Wolfe recommends that you understand the meaning of things like effective tax rates, the average rate at which someone is taxed, and tax-deferred, which refers to investments on which applicable taxes – typically income taxes and capital gains taxes – are paid at a future date instead of during the period in which they are incurred. Other important terms to know are the difference between tax deduction and tax credit – a deduction lowers taxable income, while a credit reduces the amount of taxes you owe.

Consider Educational Expenses

If you’re a student and paying for your education, you just might be in luck. Deductions for your education are key. Arthur Agulnek, an accounting professor at the University of Texas at Dallas, said that new taxpayers should make sure they don’t leave money on the table by looking into the education tax credit and earned income tax credit. In fact, Agulnek said that education deductions can save a student as much as $4,000.

Get Familiar with New Tax Laws

You don’t have to be an expert the first time around, but there have been a few changes you’ll want to be aware of. First, there are new tax brackets. Second, the standard deduction has increased to $12,000 for single filers, up from $6,500 for the 2017 tax year. Third, the personal exemption of $4,050 has been eliminated this year. With all the changes to tax laws, you’ll want to keep up-to-date about the latest information.

Ask the Professionals

If you have a question on your return, don’t guess. Ask a tax professional. If you’re a student, consult your advisor or parents. Remember, there is no such thing as a dumb question. It’s only dumb if you don’t ask it!

Taxes are an inevitable part of living in the United States and something you will learn to harness. The good news is that the process and terminology will get easier each year you file your return. Having informative resources at your fingertips are all you need to be a success.










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Automated Workflow Tools

We often read about how technological advances such as artificial intelligence will someday be used for customer-facing jobs – even eliminating the human touch. However, small firms that rely on trust and personal relationships are not likely to benefit from these innovations. Nonetheless, technology – when used effectively – can enhance a firm’s efficiency and free up resources so that more human time is spent on customer interaction. Used in combination, technology and personal relationships can improve a company’s bottom line.

One of the best ways to use technology is to enhance current processes. Over the past two decades, many firms have begun tracking their client and prospective client interactions via spreadsheets and data software. These days, automated workflow tools can replace many of those older, time-consuming tasks by integrating single-source data for a variety of uses.

For example, meeting notes can now be stored and mined so as to retrieve and compare reported results from month to month or year to year. Client databases can be integrated with information from multiple sources, including handwritten notes, Post-its, voicemails and emails. By collecting, compiling and analyzing related information from every available source, client-facing personnel can track previously asked questions – and answers – so that information is transparent, consistently communicated and reviewed to help understand the concerns of individual clients. This data can be used for periodic outreach communications that directly touch on the issues of greatest interest to each client – proving that technology can actually enhance client relationships rather than detract from them.

However, to take advantage of automated workflow tools, it’s important to conduct periodic reviews to identify ongoing challenges and issues within your organization as well as research tech solutions that can address them in a more efficient manner. The goal is to compile both client data and relevant project information in a centralized location to improve efficiency and collaboration.

The following are a couple of examples of automated workflow tools that can enhance small business operations.


It’s one thing to have a triggering system designed to automate scheduled appointments. However, many times these meetings are wasted because either clients do not arrive with the information (such as forms and receipts to complete a tax return) they need to provide or the consultant has not completed the assignments necessary to facilitate a productive meeting. A scheduling tool can do more than signal it’s time for a periodic consultation. It should be integrated with previous meeting notes to share any ongoing issues that need to be monitored, discussions tabled for a later date, tasks or forms that need to be completed and details of next steps – updated when they are completed. By integrating scheduling software with client data files, regular consultations are enriched with the information necessary for a complete discussion and more time can be spent building trust based on competence and personal interaction.


Better yet, the more your client files are digitalized the less need for time-consuming, face-to-face meetings just to get a signature. Digital signatures are now a legally accepted form of agreement in many scenarios, and can be integrated as an automated workflow tool. While clients may initially be hesitant, it’s important to make the e-signature process simple in order to demonstrate its value over having to print out documents and sign, scan, upload and return them. Consider using the time normally spent on trying to get a client to respond to invite him out for lunch the first time he successfully completes an e-signature form.

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When Is A Loan Not A Loan?

With the sweeping new tax legislation in 2018 capturing everyone’s attention, other changes have taken a back seat. There were several Tax Court cases in 2018 that rendered important decisions impacting how things work – one of which was Povolny Group, Inc. v. Commissioner, T.C. Memo 2018-37.

The Povolny Group decision centers on a common issue where an individual uses his corporation like a personal pocketbook, transferring money in and out without any formality.

Facts of the Case

James Povolny joined his spouses’ company (LLC) as a minority owner. Later in 2002, he went out and started his own real-estate brokerage firm, the Povolny Group (PG), as a 100 percent owner.

At one point, PG won the bid to build a hospital for the Algerian Ministry of Health. To perform the job, Povolny formed another company as the sole owner: Archetone International (AI). To secure the contract, the government mandated guaranties and collateral. To meet this obligation, Povolny had AI, PG and LLC borrow money from lenders.

Unfortunately, the Algerian government quit paying Povolny and terminated the project. In the end, Povolny had a lot of debt and AI couldn’t pay it so he used LLC to pay $241k of AI’s debt, with LLC claiming a deduction for bad debt for tax purposes.

Later, Povolny used PG to pay $70k of the debt for both LLC and AI, with PG deducting these amounts as cost of goods sold. Eventually, when he was audited, Povolny changed his position claiming the amounts were really loans from PG to the other two companies.

IRS Position 

The IRS denied LLC’s $241k deduction for bad debt, claiming that the amounts were capital contributions and not loans and therefore could not be deducted as bad debt. The IRS also denied PG’s $70k deduction again on the premise that it was not a loan, but a capital contribution.

Relevant Law for Business Owners

If an individual owns 100 percent of a company or group of companies, they often treat business transactions informally because they view it as all their own money – taking cash in and out of the business without any formal process. This is something that could never happen if the business had multiple owners.

Example and Why It Matters

This often results in midstream changes in how the owner treats the transactions for accounting purposes. One example is where a business owner takes cash out and later discovers that these distributions exceeded their stock basis. This should result in a capital gain, but due to the informality of the transactions the shareholder changes how they treat the cash withdrawal from a distribution to a loan.

Another example of what frequently happens is there is a shareholder who puts money in a corporation, either themselves or through another entity they own, without any formal designation and then later accounts for it as a loan instead of a capital contribution.

What Really Matters

The rules are that you can only claim a bad debt deduction if there’s been a loan. Problems stem from the informality of the treatment between the individual and the entities they control; the IRS wants these types of dealings to be treated like arms-length transactions to validate the treatment and classification as either debt or equity.

Generally, there are 11 factors the IRS considers – all of which focus on how the transaction is structured and documents to see if it acts more like a real loan from a third-party lender or more like a capital contribution from the owner.


In the end, the court sided with the IRS and disallowed all of the deductions. The lesson here is that if you or a company you own advance money to another company and you want it to be considered a loan, then you need to treat it as a loan. Make sure you use a formal note with a stated maturity date, post collateral, pay interest, and record it as a loan on the tax return. If you want to write off debt as bad debt, you need to prove that you’ve done everything possible to collect and that repayment isn’t possible.

At the end of the day, the IRS doesn’t care if you own it all. But they do expect you to treat each entity you own as a separate entity rather than extensions of each other, making sure that everything is documented and treated with the appropriate formalities.

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How Will Domestic and Global Policy Impact Oil Prices in 2019?

With the Federal Reserve raising rates in 2018 and speculation of doing so again in 2019, combined with projected oil production cuts by Russia and Saudi Arabia, it is likely that these and other global events will impact world energy markets in 2019.

Looking at how international markets have priced crude oil in 2018’s fourth quarter, there’s a lot to speculate on where prices will go in 2019. During the final quarter of 2018, oil prices hit a 48-month high of $86 per barrel. Yet, by the end of December, the price of a barrel of oil lost almost one-third of its value, settling under $50 per barrel. Since the global economy is so volatile and is forecast to continue this way, oil prices will likely follow.

Along with protests in Iran from 2018 that have continued into 2019, creating political unrest, the current U.S. Administration has reinstituted the oil embargo it put in place. With the United States formally withdrawing from the 2015 nuclear agreement and reapplying sanctions as of Nov. 5, 2018, sanctions against importing oil from Iran were also enacted.

Instead of simply cutting off oil imports from Iran immediately, it gave eight nations (India, Italy, Greece, Turkey, Taiwan, Japan, South Korea and China) 180-day waivers to put in place contingency plans to gradually stop imports from Iran before oil imports from the Islamic Republic are penalized. This action is part of a larger act by the U.S. Administration to reduce oil exports by Iran, impacting global crude oil prices.

As Secretary Pompeo has cited, more than 20 nations have stopped Iranian oil imports, leading to 1 million fewer barrels of crude oil off the market daily. This also cut off profits for Iran’s oil revenue, with the nation losing $2.5 billion since May 2018. As for overall production figures, consulting firm Wood Mackenzie reports that Iran’s oil exports dropped from 2.8 million barrels a day in April 2018 to 1.8 million barrels per day recently. Analysts estimate the current trends will lower Iran’s exports to 1 million barrels per day.

When it comes to forecasting 2019’s crude oil production, the outlook is similarly in flux. There is speculation that more details will be released on the level of production cuts on March 17, during an OPEC meeting that will include other global producers such as Russia.

As part of the OPEC meetings, an agreement for the first half of 2019 is to lower production by 1.2 million barrels a day. Members meeting this lowered production goal will be evaluated during OPEC’s Joint Ministerial Monitoring Committee in Vienna on April 17 and 18. This April meeting will determine how production cut efforts are going and if such cuts should extend into the second half of the year.

One ancillary but important factor for the world oil market is the U.S. dollar. With the Fed revising its average growth forecast down for 2019, from 2.5 percent to 2.3 percent, the consensus is for the Fed to increase the Federal Funds Rate twice, and not the projected three times. With the U.S. dollar strengthening and the commodity priced in dollars, based upon these projections, prices can be expected to drop.

The current world economic situation not only directly impacts oil prices, but it also gives insight as to the globe’s economic health. Whether it be uncertainty about the Fed’s decision to hold off or lessen its interest rate increases, the back and forth trade negotiations between the United States and China, or the developing situation in Venezuela with Russia becoming friendlier and Maduro recently giving U.S. diplomats 72 hours to leave, the only thing that’s for sure is market and price volatility.

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How Businesses Can Effectively Manage Seasonal Sales

When it comes to businesses dealing with seasonal sales, making payroll and other financial obligations can be stressful on budgets. However, one way to deal with fluctuating sales and cash flow problems is to see if invoice factoring is appropriate to meet year-round needs.

Invoice Factoring

One way for businesses dependent on seasonal sales is to have better financial predictability and available resources, as the Journal of Accountancy explains. Businesses can accomplish this by selling their accounts receivables through factoring.

Companies looking to increase cash flow during the slow sales season can benefit by selling their accounts receivable to a third-party business called a factor. When a company sells its invoices through the factoring process, it can collect much faster on that invoice from recent customer purchases compared to Net 30, Net 60 or Net 90 when an invoice is submitted. 

How the Process Works

During the course of this arrangement between a company and the factor, there are three main phases. The company receives an advance, or a portion of the invoice’s outstanding balance from the factor. The difference between the portion the factor pays the company initially and the remaining portion of the invoice is called the reserve. This remaining amount is held by the factor until the invoice is completely paid off by the company’s customer –more commonly referred to as the debtor.

Depending on the factor, there could be an initial invoice fee, along with an “interest charge fee,” which is determined by how much is advanced from the factor’s purchased invoices multiplied by the factor’s interest rate and how long it takes the debtor to pay the invoice.

Accounting for Recourse and Non-Recourse Factoring

Depending on how invoices are arranged to be sold to a factor, accounting must be noted accordingly. If receivables are sold to a factor with no recourse, it should be classified as a sale on the balance sheet.

The Journal of Accountancy discusses how Generally Accepted Accounting Principles (GAAP) applies to factoring contracts with recourse. A company looking to sell its accounts receivables sells them to the factor with no stipulations attached. If an invoice transferred to the factor can’t be paid for within 90 days by the customer, the borrowing company assumes all risk for the factored invoice.

Factoring for Companies and Accounting Considerations

According to the FASB Account Standards Certification (ASC) Section 860-10-40, if receivables are sold to a factor with recourse, there are guidelines that determine if it’s a sale or a secure borrowing. If the three following tests, referring to the example sale above and according to the above referenced ASC Section are satisfied, it can be accounted for as a sale.

First, if the invoices are put “beyond the reach of the transferor and its creditors” including in times of bankruptcy or if a company’s assets and/or its operations are put in a legally appointed receiver, it has met the “isolation condition.”

Second, the factor has the right to exchange the asset. Third, the company relinquishes control over the transferred invoices by not having an agreement the permits the company to rebuy or reclaim the accounts receivables prior to the date of maturity. The other prohibited method of control for the transferor is to have a one-sided ability to demand the transferee give back certain assets, except through a cleanup call – which is when the factoring company can make the initial company buy back the invoices before the factoring term has expired.





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New Proposals for Government Programs

The Tax Cuts and Jobs Act delivered a wealth of benefits for taxpayers at every income level, but none more so than for the very rich. The net result of huge tax breaks for both high-income and corporate taxpayers is that the government now has much reduced tax revenues coming in to help pay for government programs. It comes as no surprise then that prior to the November 2018 midterm elections, Republican leaders in Congress were calling for cuts to government “entitlement” programs, such as Medicare and Social Security.

While the word “entitlement” has adopted a negative connotation, it is an accurate description of these programs. In other words, workers pay into the Medicare and Social Security systems through an automatic payroll (FICA) tax throughout their careers. Therefore, when they retire, they are entitled to benefits paid out by those programs.

Given that cutting benefits or raising the federal retirement age are not popular solutions – particularly among the large (voting) baby boomers population that is in or on the cusp of retirement, other proposals have been suggested to help protect benefits and even provide new ones for the nation’s taxpayers.

Social Security Lump Sum Benefit

Researchers at the Wharton Business School have come up with a proposal that they say will help the government better fund the Social Security program at its current level of benefits without changing the minimum or full retirement age. The proposal features two key components: 1) incentives to encourage workers to delay retirement and, 2) pay out the increase benefit in a different manner.

Presently, a retiree who waits to begin drawing benefits at some point beyond age 62 will increase his monthly benefit when he does begin taking them. However, the Wharton proposal suggests that instead of increasing the monthly payout later, the value of that increase would be calculated to determine how much he would receive over his lifetime, and then paid out as a lump sum when he first begins drawing benefits. He would also receive the same monthly benefit he would have received had he started drawing benefits at age 62.

For example, let’s say a beneficiary is eligible for $1,500 a month at age 62. Instead of retiring, he delays starting benefits until age 67. At that point, he begins taking his $1,500 a month, but he also gets a one-time, lump-sum benefit of $178,000. The $178,000 is a calculation of his lifetime accrued value of the increased benefit earned by waiting until age 67, only he receives that value in one lump sum in his first benefit check .

According to the Wharton team, while retirees see an obvious advantage to receiving a lump-sum benefit, what’s interesting is that the new proposal would help prevent the Social Security program from experiencing any additional solvency issues.

Medicare for All

Both the media and some politicians have referred to a program to provide universal health care to all Americans as “Medicare For All.” While this concept is not popular among conservatives, it’s worth pointing out that we already have a form of this “socialist” styled program – it is the military health care program. Both active duty and veterans receive medical services from providers and facilities that are owned, trained and paid for by the U.S. government.

It’s also worth noting that, conversely, the current Medicare system is not a form of socialized medicine. Its services are provided by private physician practices, hospitals and large health care systems, while drugs and medical equipment are developed by private entities. It’s also worth noting that Medicare is not only considered a well-run program with low overhead, it is very popular among beneficiaries.

For this reason, universal health care based on the Medicare model is not such a far-fetched idea. The primary issue is that it would require all working residents to contribute to funding the program via higher FICA payroll taxes. While workers might not appreciate having more money coming out of their paychecks, they would pay lower out-of-pocket medical expenses for health insurance premiums, co-pays, deductibles and coinsurance.

Currently, the United States is the only developed country that does not provide a universal health care system. In many countries, health care is offered through a combination of private sector insurers and providers that are paid by the government, much like our current Medicare program.


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Congress at Work: Reimbursing Unpaid Federal Workers, Fact-Based Policy Making and Fighting Human Trafficking

Government Employee Fair Treatment Act of 2019 (S. 24) – This bill was introduced by Sen. Ben Cardin (D-MD) on Jan. 3 and signed into law on Jan. 19. It requires federal employees who are furloughed or working without pay to be compensated for the time of the government shutdown. Workers are to be paid as soon as possible after the government is reopened, irrespective of pay schedules.

Foundations for Evidence-Based Policymaking Act of 2017 (H.R. 4174) – This legislation mandates that agencies of the federal government use available scientific data, statistics and fact-based evidence when making policy decisions. The bill authorizes each agency to appoint a chief data officer to manage relevant data assets and determine how to incorporate them, including how to secure private data that contains personally identifiable information. The bill is designed to make data more readily available to both federal employees and independent researchers. The bill also establishes a common application system for qualified individuals to apply for access to restricted, confidential government data for approved projects. This legislation was introduced on Oct. 31, 2017 by Rep. Paul Ryan (R-WI) and was signed into law by the president on Jan. 14.

Preventing Maternal Deaths Act of 2018 (H.R. 1318) – This bill was introduced on March 2, 2017 by Rep. Jaime Herrera Beutler (R-WA) in response to the country’s high rate of maternal deaths – deemed the highest in the developed world. The bill authorizes $12 million per year to support state investigations and data gathering regarding every maternal death that occurs for compilation and analysis by maternal mortality review committees. The objective is to use fact-based evidence to make policy decisions to reduce deaths due to childbirth, which are largely considered preventable. The bill was signed into law by the president on Dec. 21, 2018.

Medicaid Extenders Act of 2019 (H.R. 259) – Sponsored by Rep. Frank Pallone Jr. (D-NJ), this bill expands the current “Medicaid Money Follows the Person” program to encourage states to test ways that Medicaid nursing home benefits can be used to help elderly people and people with disabilities remain in their own homes. Program funds may be used for home health aide services, personal care services, homemaker services, information services and adult daycare services. The goal of the legislation is to enable individual states to determine ways to prevent eligibility rules for Medicaid home and community-based long term care programs from depleting the income and assets of the care recipient’s spouse. The bill, which authorizes $112 million for this program for fiscal year 2019, was introduced on Jan. 4 and signed into the law by the president on Jan. 17.

Frederick Douglass Trafficking Victims Prevention and Protection Reauthorization Act of 2018 (H.R. 2200) – This legislation is part of a trio of bills designed to combat human trafficking worldwide and in the United States. Named for Frederick Douglass, the former slave who became an abolitionist, this bill authorizes $430 million to strengthen efforts to stop human trafficking. One provision is to establish an Office to Monitor and Combat Trafficking in Persons within the State Department, which will be responsible for reporting on and ranking countries based on their efforts to eliminate human trafficking. Other programs include educating factions on how to detect human trafficking activities, including people in diplomatic and consular posts within the United States, airline personnel, and education for school-age children. This legislation was introduced on April 27, 2017 by Rep. Chris Smith (R-NJ) and signed into law by the president on Jan. 8.

Trafficking Victims Protection Reauthorization Act of 2017 (S. 1862) – This legislation was introduced on Sept. 26, 2017 by Sen. Bob Corker (R-TN) and signed into law by the president on Jan. 9. It was first passed in 2000 and is now updated to provide criteria for determining whether countries are meeting the minimum standards for the elimination of human trafficking, and actions to be taken against countries that fail to meet such standards. The bill sets forth child soldier protection provisions and directs the U.S. Agency for International Development to incorporate child protection and anti-trafficking strategies into the policies developed for each country on the special watch list.

Trafficking Victims Protection Act of 2017 (S. 1312) – This legislation is designed to renew existing programs that make federal resources available to human trafficking survivors and establish new prevention, prosecution and collaboration initiatives to help bring the perpetrators to justice. This bill was introduced on June 7, 2017 by Sen. Chuck Grassley (R-IA) and was signed into law by the president on Dec. 21, 2018.

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