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Strategies to Manage Taxes in Retirement

One way to potentially lower taxes in retirement is to start taking distributions from tax-deferred accounts before it’s required. Again, once you reach age 59½, you can withdraw funds from those accounts without paying the 10% early-withdrawal penalty. The withdrawals are still taxed as ordinary income, but over time they reduce the size of tax-deferred accounts, and thus the size of your RMDs. Another reason to access those funds before 70½ is that it could help you delay taking your Social Security benefit, which increases in size the later you take it, up to age 70.

That said, it’s important to look at your tax situation at age 59½ before taking early withdrawals. For the many Americans who will still be working at that age, withdrawing too much could push them into a higher tax bracket. Taking Social Security benefits could also push you into a higher tax bracket, but keeping RMDs low means less income would be subject to the higher tax rate.

One of the most popular and appealing strategies for reducing the potential tax consequences of RMDs is converting a traditional IRA or 401(k) plan into a Roth IRA before the age of 70½. Roth IRAs are funded with after-tax dollars and thus are exempt from RMDs during the owner’s lifetime — and when the funds are withdrawn, both the principal and earnings are tax-free. It’s worth noting that the act of converting to a Roth IRA is a taxable event and the five-year rule still applies.

A Roth conversion may make sense when you’re certain you’ll be in a higher bracket when you eventually withdraw the money, which is often the case once RMDs and Social Security are factored in. It may also be a good option when you don’t need the money, aren’t concerned about paying income taxes and would like to leave an income-tax-free Roth IRA to your heirs.

Lastly, if you make a full or partial conversion to a Roth IRA, you may be able to reduce the resulting tax burden via charitable giving during the same year as the conversion — though the donation can’t be funded from your retirement accounts.

There’s a lot to consider as you plan for how to manage your tax obligation in retirement. Consulting with a financial professional, and particularly a tax adviser, can help ensure your choices are most advantageous for your situation.

Catherine Golladay is senior vice president for 401(k) participant services and administration with Schwab Retirement Plan Services.

The information contained herein is proprietary to Schwab Retirement Plan Services Inc. (SRPS) and is for informational purposes only. None of the information constitutes a recommendation by SRPS. The information is not intended to provide tax, legal, or investment advice; please consult with your accountant or investment adviser for how this applies to your specific situation. SRPS does not guarantee the suitability or potential value of any particular investment or information source. Certain information provided herein may be subject to change.

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Tax-filing with Free File – Pros and Cons

If you’re doing your own business taxes, you need a good tax software program. Whether you want to maximize your credits and deductions, or avoid penalties and audits, you need to be sure you’re partnering with a great company. Incomplete forms and inaccuracies are unforgivable when it comes to taxation, so it’s important to select software that’s going to do the job right the first time.

IRS Free File Software

Might be good for you: If you want a variety of options to choose from. IRS Free File Software allows you to prepare and e-file your taxes for free through certain brand-name software.

May not be the best: If your adjusted gross income in 2017 was more than $66,000, you cannot use IRS Free File Software to file your 2017 taxes.

Pros

Works with multiple free brand-name software programs. The IRS website lists a dozen free-file software providers.

Help choosing a provider. By answering some basic life questions such as your income, age and state of residence, the Free File Software Lookup Tool can help you choose a Free File Software provider for your tax situation.

Cons

There’s an income limit. You can’t use IRS Free File to file your 2017 tax return if your AGI exceeded $66,000 in 2017.

You may not qualify for all the business automation software available. Each software provider may have its own eligibility requirements, and you may be restricted based on your age, state of residence and/or military status.

You may have to pay to file your state taxes. Some companies will allow you to also file a state return for free, while others will charge. You’ll need to review each company’s offering to find out if a state return is included in the free e-filing service.

So, What is unique about Free File?

Completely free taxation platform. Free File allows taxpayers to choose their preferred company to prepare and efile tax returns for free. It is also combined with direct deposits to enable users to obtain refunds in a shorter period of time.

Free fillable forms. The Free File Fillable Forms offers taxpayers a convenient way to fill IRS forms electronically. It is an excellent option for taxpayers used to preparing and filing income taxes on their own.

Tax breaks. Free File features a question-and-answer format which is instrumental in helping eligible taxpayers to find tax breaks. Some of the possible tax breaks reserved for taxpayers could consist of credits like the earned income tax credit and more.

Easy online extensions. If for any reason you fail to finish your tax return by the deadline, you can request a six-month extension using the Free File. However, the extension to file your returns will not mean an extension of the time to pay.

IRS partnership. This service is, in fact, a result of the partnership between the International Revenue Service (IRS) and the Free File Alliance, a union of the leading private sector tax preparation institutions.

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Business Profit Versus Cash Flow

Cash flow and profit are two different financial parameters, but when you’re running a business you need to keep track of both. Here’s how they’re different, why they’re both important and how they intersect with other corporate issues, especially when a company grows rapidly.

A business can be profitable and still not have adequate cash flow. In the worst case, insufficient cashflow in a profitable business can send it into bankruptcy. For example, you’re making products and selling them at a profit. But your product goes through a long sales chain and some of your biggest and most important wholesale customers don’t pay on invoices for 120 days.

Cash flow is the amount and timing of the payments you receive and the expenses that you pay. Specifically, when the money is actually deposited into your bank account or given to you as cash it can be counted as an inflow in your cash flow. When you pay for an expense and the money leaves your bank account or you pay an expense in the form of cash you have on hand, that money is counted as an outflow in your cash flow on that specific day.

Cash flow refers to the inflow and outflow of money from a business. Managing cash flow effectively is necessary for running daily operations, paying taxes, purchasing inventory, and paying employees and other costs. Unlike profit, cash flow is an indicator of how much actual cash is available to a business at any given time.

Your sales may be growing and the money keeps pouring in, but that doesn’t mean you’re making a profit. If you borrow money to solve the cashflow problem, for instance, the rising debt costs that result can raise your costs above the breakeven point. If so, eventually your cash flow will dry up and eventually your business will fail.

A positive cash flow is actually needed to generate profits. You need enough cash to pay your employees and suppliers so that you can make goods. It’s the sale of those goods that helps generate a profit. But if you don’t have the money to make the goods, you don’t end up with the profit. So you really need to structure your business to have a positive cash flow if you want your business to grow and increase profits.

Profit, also called net income, is what remains from sales revenue after all the firm’s expenses are subtracted. It’s obvious in principle that a business cannot long survive unless it is profitable, but sometimes, as with cash flow, the very success of a product can raise expenses.

It may not be immediately apparent that this is a problem. In other cases, you may be aware of the problem, but believe that by reducing production costs you can restore profitability in time to avoid a crisis. Unfortunately, unless you have a clear understanding of all the relevant cost data, you may not act effectively or promptly enough to make the firm profitable again before it runs out of money.

Profit is typically the best indicator of a business’s success as it reflects its ability to actually generate value. No business can truly last long-term without generating a profit.

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Finance and Money Management For Small Businesses

Finance and money management is particularly important for new and growing businesses. Money flow can be a problem even when a small business has numerous clients, offers a product superior to that offered by its competitors, and enjoys a sterling reputation in its industry. Companies suffering from money problems have no margin of safety in case of unanticipated expenses. They also may experience trouble in finding the funds for innovation or expansion. It is, somewhat ironically, easier to borrow money when you have money.

Keeping on top of your business finances, whatever industry you are in, is essential and allows you to keep abreast of what is going in and out of your business.

If you haven’t really had a marketing budget before but have some cash aside that you could use to help promote you better, start by doing a bit of market research into where your target audience digests their daily news, whether they spend their time on social media, what offline publications they read. This will allow you to look at advertising costs or ways in which you can target your market.

You can always use a ledger to keep track of your income and expenses. But with the variety of high quality, low cost, or even free software options, there is no need to try to save a few pennies and do the work by hand. Software is often quicker, easier, and more accurate than pen and paper.

New internal systems help you to work more cost effectively if you were to make the purchase? Sometimes, investment into technology – while sometimes expensive – can be more worthwhile in the long run.

Using technology to manage cash flows is one of the most obvious ways to enhance efficiency. Dropbox, Quickbooks, Google Drive, and Xero all offer great services and cloud-stored accounting software that will help you manage your cash professionally. Some of these services are free, but if you don’t know your way around basic accounting concepts it’s best to pay a professional or buy a premium software package.

If you need more cash, it seems like a no brainer to go out and try to attract new customers or sell additional goods or services to your existing customers. But this may be easier said than done. New customer acquisition is essential to a growing business, but it can take time and money to convert prospects into sales. Selling more to existing customers is cheaper and you may be able to do this by analyzing what they’re buying and why – information that may even lead you to increase your profit margin and, hopefully, generate more cash.

Cash is the lifeline of your business. Even a small business which allows you to work from home and doesn’t employ a lot of people will require some thorough cash management. By extending payables, borrowing when necessary, asking for advances, and using professional software, you can ensure your business survives and thrives over the long term.

One top way of business finance and money management is tracking your cash flow results every month to determine if your management is creating the type of cash flow your business needs. This also helps you get better and better at creating cash flow projections you can rely on as you make business decisions about expanding your business and taking care of your existing bills.

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Streamline Order Management in eCommerce

The purpose of order management is to ensure that the administration of processes within related to goods and/or services run smoothly. Implementation of order management systems helps to streamline the ordering process and to ensure that inventory information, vendor databases, customer databases, information on billing and payments, records of order processing and general order information is always updated and retrievable. A well implemented order management system improves the relationships businesses have with their customers, improves order efficiency and prevents delays and back orders of products.

While a clear project structure is essential, it’s also important to consider B2B best practices and design principles that are meaningful to your customers – always put your customer first. Create an experience that focuses on your customer and their job. While there are complex decisions that you and your team will make, always put yourself in the shoes of your customer.

B2B Order management gets more complex the more channels you add. You’ll need a system that can give you a holistic view of all your orders, in different stages of the supply chain.If a merchant is only selling products through one channel, like an online store, an eCommerce platform can typically keep track of inventory. But when more than one sales channel is used, inventory management can become difficult.

If a merchant is only selling products through one channel, like an online store, an ecommerce platform can typically keep track of inventory. But when more than one sales channel is used, inventory management can become difficult.

Order management systems are very critical to order fulfillment and in effect how effectively a business will perform within its ecommerce component. A business cannot grow efficiently if that particular business cannot adequately fulfill its orders. Therefore, it is often recommended to have multichannel order management systems that allow for significant optimization in inventory and notable sales each and every day.

Order management systems have specific software that provides details and data necessary to ensure that all eCommerce orders are managed properly. All order management systems have powerful features that include shopping cart integration, PCI compliance as well as fraud protection.

Most products that online retailers sell are sourced from distributes, drop shippers, or directly from the manufacturer itself. In each of those situations, establishing a good working relationship with them is essential. Having a healthy rapport and good reputation with your suppliers will benefit you when something goes wrong. Also, just as important is how you relate to them technologically. Integration between your ordering system and theirs is key to providing your customers with excellent service and fast delivery.

Complexity is not new. Manufacturers and Distributors typically already had all of that complexity before e-commerce. B2B enterprises have elaborate ERP systems that route, fulfill and handle return orders for existing channels. E-Commerce is just a new order capture channel. This is why I spend so much time articulating the differences between B2B and B2C. The challenges can be radically different. For a change, order management is an issue that is less complicated.

The benefits of Streamlining eCommerce order management system are significant. A Centralized order management offers greater efficiency in managing orders across the enterprise.With the help of an order management software, retailers can ensure faster and more efficient responsiveness to customer demands and marketplace changes.

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Money Management and Financial Budgeting

Wise financial management requires a series of daily choices. Take control of your financial situation with our money budgeting tips and learn how to calculate net worth, create a budget, monitor your progress, manage the flow of income and expenses, and protect your assets. After all, no one cares more about your money than you.

The first step to taking control of your finances is doing a budget.

It will take a little effort, but it’s a great way to get a quick snapshot of the money you have coming in and going out.

Setting up a budget means you’re:

Less likely to end up in debt
Less likely to get caught out by unexpected costs
More likely to have a good credit rating
More likely to be accepted for a mortgage or loan
Able to spot areas where you can make savings
In a great position to save up for a holiday, a new car, or another treat

If you’re spending more than you have coming in, you need to work out where you can cut back. This could be as easy as making your lunch at home, or cancelling a gym membership you don’t use. You could also keep a spending diary and keep a note of everything you buy in a month. Or, if you do most of your spending with a bank card, look at last month’s bank statement and work out where your money is going.

Some people find it hard to get motivated about saving, but it’s often much easier if you set a goal. Your first step is to have some emergency savings – money to fall back on if you have an emergency, such as a boiler breakdown or if you can’t work for a while. Try to get three months’ worth of expenses in an easy or instant access account. Don’t worry if you can’t save this straight away, but keep it as a target to aim for. The best way to save money is to pay some money into a savings account every month.

Savings (for your emergency fund and for investments) must be deducted FIRST from your income; whatever is left may be used for expenses. Most of us live the other way around — spending first, then parking the remaining money in investments. Ideally, 30 per cent (or more) of your income — whether you earn a lot or a little — must be saved. If that seems impossible, step it up slowly. Start by saving at least 10 per cent of each pay-check and keep increasing this every quarter.

If you find that you need help with your finances, professionals such as tax advisors, credit counselors, financial planners, and lawyers can help. Before working with any financial professional, be sure to check their credentials. You may choose to ask your friends and family if they have any trusted financial partners that they recommend. Ask specific questions about their history and areas of expertise. Finally, be sure that you are comfortable with the advisors you choose; ideally, you will be financial partners for life.