Blog Archives - Page 44 of 60

December 1, 2023

How to Manage Taxes in Retirement

The biggest difference between managing taxes throughout your career versus during retirement is that when you are retired, you are responsible for calculating how much you owe and paying it on a timely basis. Retirees normally have several different income sources, and not all automatically withhold taxes from distributions.

Retirement Income Sources

Having multiple sources of income during retirement is a good strategy, as it helps protect you from market declines, tax legislation changes, and potential defaults or cutbacks in pensions or entitlement programs. However, be aware that the more income sources you have, the more effort it takes to determine how much you owe in taxes for the year.

As a general rule, retirement income is taxed as either ordinary income or long-term capital gains. Ordinary income includes:

Employer wages
Taxable interest payments
Ordinary dividends
Short-term capital gains (on assets held a year or less)
Taxable withdrawals from retirement accounts
Taxable Social Security benefits
Withdrawals from health savings accounts (HSAs) for nonqualified expenses
Annuity payouts
Rental income
Pension payouts

Income subject to long-term capital gains is taxed at 0 percent, 15 percent, or 20 percent, depending on your total taxable income. This type of income is generated from:

Profits from the sale of a business (assuming you started and sold the business over more than 1 year)
Real estate (excluding rental income)
Securities
Most other investments held for over a year
Qualified dividends

Additional Investment Tax

Single taxpayers may be subject to an additional 3.8 percent net investment income tax (NIIT) on income generated from invested assets – if their modified adjusted gross income (MAGI) is $200,000 or more ($250,000 or more if a married couple filing jointly). Examples of investment assets include interest, dividends, long- and short-term capital gains, rental income, royalty income, and nonqualified annuities.

Automate Tax Withholding

One way to make tax planning easier in retirement is to have taxes automatically withheld whenever you take income distributions. Much like having payroll taxes withheld from your paycheck, when you file year-end taxes, you reconcile the amount owed by either paying more or receiving a refund.

There are certain income sources on which taxes are automatically withheld, but be aware that a fixed percentage (e.g., 10 percent) may not be the appropriate amount for all taxpayers. The fixed percentage withheld may vary by investment type, and in many cases, the account holder can change the default withholding. The following shows how taxes are handled for different retirement income sources.

401(k), 403(b), and other qualified workplace retirement plans – Basic distributions are typically subject to 20 percent withholding. However, required minimum distributions (RMDs) are subject to a 10 percent withholding. Note that if the plan balance is high enough for the RMD to place the taxpayer in a higher tax bracket, a 10 percent withholding may be too low. Set up or change the withholding percentage by submitting Form W-4R to the plan administrator.
IRA (Traditional, SEP, and SIMPLE) – Unless the retiree specifies otherwise, non-Roth IRAs typically withhold 10 percent of distributions. Set up or change the withholding percentage by submitting Form W-4R to the custodian.
Annuity – Annuities are taxed as ordinary income, thus subject to a tax rate based on the total amount of income the retiree receives throughout the year. Note that a non-qualified annuity is usually comprised of already taxed income plus earnings. When a retiree starts receiving distributions, only the earnings portion is taxed. Set up or change the withholding percentage by submitting Form W-4P to the issuer.
Pension – Pensions are taxed as ordinary income, thus subject to the total amount of taxable income received throughout the year. Set up or change the withholding percentage by submitting Form W-4P to the payer.
Social Security – If Social Security benefits and all other income totals less than $25,000 per year, the beneficiary generally does not have to pay income taxes. However, if a retiree earns a higher amount through a combination of income sources, including tax-exempt income, up to 85 percent of Social Security benefits may be taxable. In this scenario, the retiree can request that the government withhold a fixed percentage (7 percent, 10 percent, 12 percent, or 22 percent) from his Social Security paychecks. Set up or change the withholding percentage by submitting Form W-4V to the local SSA office.
Taxable bank or brokerage accounts – These accounts may give you the option to have a percentage of taxes (10 percent or choose your own percentage) withheld from investments with realized capital gains, dividends, or other asset-based income. Retirees who withdraw regular income or periodic high distributions may want to elect a percentage of taxes withheld to reduce their tax liability at the end of the year. You can make this election at the time you set up your withdrawal.

Develop a Tax Payment Plan

One of the best ways to enjoy retirement is to automate your tax payment plan. You can do this by actively selecting a withholding percentage for each income source you own and varying it based on the amount and frequency you tend to draw down each year.

Another option is to pay estimated quarterly taxes (due Jan. 15, April 15, June 15, and Sept. 15 every year). This is how most independent business owners and contractors self-pay their taxes in order to avoid an underpayment penalty. This strategy works best if you receive unexpected income throughout the year, earn self-employment income, or receive rental or taxable investment income.

The good news is that after your first full year of retirement, you will have set the bar for how much you owe in taxes – referred to as your safe harbor. Thereafter, you’re not subject to an underpayment penalty as long as you pay at least:

90 percent of the prior year’s full tax bill or
100 percent of the prior year’s full tax bill (if AGI is $150,000 or less;$75,000 or less if married filing separately), or
110 percent of the prior year’s full tax bill (if AGI is more than $150,000; more than $75,000 for individuals or married couples filing separately)

Remember that in addition to creating a retirement income plan, it’s important to develop a tax payment plan as well. This will help make tax season go a whole lot easier.

December 1, 2023

How the 2022 Consolidated Appropriations Act Impacted Accounting in 2023

According to the Centers for Medicare & Medicaid Services’ report “Advancing Rural Health Equity,” the 2022 Consolidated Appropriations Act (CAA) maintained telehealth options due to the COVID-19 Public Health Emergency (PHE) order for 151 more days beyond the original expiration of the Covid-19 PHE. Medicare recipients will benefit from the extension of telehealth services. This legislation will also permit Medicare to pay for telehealth services provided by Federally Qualified Health Centers and Rural Health Clinics.

The 2023 Consolidated Appropriations Act extends, through 12/31/2024, the following telehealth flexibilities authorized during the COVID-19 public health emergency. Healthcare providers are permitted to bill Medicare for telehealth services regardless of Medicare patients’ residence. Examples of providers include audiologists, speech-language pathologists, physical therapists, and occupational therapists. Telehealth coverage will also remain available for mental health services through 2024.

During March 2020, the U.S. Centers for Medicare & Medicaid Services (CMS) lengthened the Covid-19 Accelerated and Advance Payments (CAAP) Program to more medical suppliers under Part A and Part B. Such accelerated and advanced payments are remittances to both Part A and Part B providers in the case of interruptions to submissions and processing of claims. This can happen during man-made or natural disasters as a means to speed up cash flow to healthcare suppliers and providers. The CARES Act (P.L. 116-136) offers greater flexibility via increased time lines and payment sums through the expanded CAAP program for providers.

Based on the Continuing Appropriations Act, 2021, and Other Extensions Act, while the CMS no longer accepts accelerated or advance payments, permitted providers will have repayment begin 12 months after each provider or supplier’s accelerated or advance payment is issued.

One important consideration when it comes to accounting for these types of transactions is party consideration. Primarily, these transactions involve more than simply the purchaser and merchant. When it comes to medical services, and especially Medicare and Medicaid, there’s the patient, the direct service provider (doctor, nurse, admin staff, etc.), the facility (in or out of network consideration), and the private or government-based administered entity. The point here is that when it comes to revenue recognition, there needs to be explicit delineation for which party delivers services to the patient (and when) and how each party recognizes revenue based on their arrangement(s) with the patient.

As for recognizing revenue, the relationships between the patient and the different providers are important due to when the entities are able to recognize revenue — generally when the material/service/product is delivered/satisfied. This is where records are important to keep and analyze on the accounting end so there can be proper reconciliation as to when the product/service has been fulfilled and when it’s recognized by the appropriate entity for revenue recognition procedures.

While there’s no cut-and-dried method to account for the evolving way payments are made, it’s important to keep up with state and federal legislation. Always check with your accountant to stay current with the latest updates to these laws.

November 1, 2023

New Business Travel Per Diem Rates Announced for 2023-2024

New per diem rates were recently announced by the IRS and are effective for per diem allowances on or after Oct. 1, 2023. These updated rates include changes for the transportation industry, incidental expenses as well as the high-low substantiation method. Before we dive into the detailed changes impacting per diem rates, let’s revisit the concept of the per diem in general.

To Per Diem or Not to Per Diem

There are two basic ways that employees can be reimbursed for business travel expenses. The first is a direct reimbursement of the actual expenses. The second is the per diem method.

Direct actual expense reimbursement is exactly what it sounds like. For example, a sales employee pays for a plane ticket and meals during a customer visit and then submits an expense report with the receipts as backup. Typically, a company will have a travel and expense policy that limits the expenses allowed – no Michelin star restaurants or first-class flights, for example. Other than this, direct expense reimbursement is simple and straightforward.

The second expense reimbursement method is called the per diem method. The per diem method is basically a pre-package policy of controls for both spending and tax purposes.

Fundamentals of Per Diems

Per diem is Latin for the term for each day. In practice, it is a daily allowance granted to each employee. It covers travel and related business expenses, allowing a fixed amount to cover business travel expenses.

Per diem policies can cover only three types of expenses: lodging, meals, and incidentals (anything else must be directly reimbursed). A per diem policy does not need to cover all three, however. An employer can use the per diem only for meals, for example, and deal with lodging under the direct actual expense reimbursement method. Also, the per diem method cannot cover transportation expenses or mileage reimbursement.

Taxation of Per Diems

Per diems are generally not taxable, and no withholding tax on the payments is necessary. The exception to this is if an employee does not provide or provides incomplete expense report information – or if you give the employee a flat amount that is in excess of the maximum allowance (with the excess being taxable).

Two Types of Per Diems

Per diem rates can be determined in one of two ways: either the standard rate or using the high-low method.

The standard rate is a fixed rate, whereas the high-low method is based on the cost of living being higher or lower in different locales. Under the high-low method, for example, Boston gets a higher reimbursement than Des Moines to account for this.

2023-2024 Rate Updates

The IRS updates the per diem rates every year. The 2023-2024 rates took effect Oct.1, 2023. They are as follows:*

Travel to high-cost locations is $309 ($297 prior year)
Travel to other locations is $214 ($204 prior year)
Incidental expense stay is the same at $5 per day, regardless of location

*Taxpayers in the transportation industry are subject to special rates

November 1, 2023

Two Ways to Measure Revenue Per User

When it comes to measuring revenue, it’s essential that businesses analyze it from a variety of perspectives. While there’s revenue and net income on an income statement to show a company’s quarterly financials, another way to measure it is through ARPU (average revenue per user) and ARPPU (average revenue per paying user).

Defining ARPU

ARPU is the average revenue per customer or per unit. It looks at how much revenue is earned over a particular timeframe (multiple times a month, quarter, half-year, or 12 months) divided by the average patron during the same timeframe. This can be applied to many different types of companies, including social media and software as a service (SaaS). It’s calculated as follows:

ARPU = Total revenue/Average units or subscribers

ARPU = $10,000,000/100,000 = $100

Interpreting ARPU

This is a snapshot of a company’s profitability. It’s a way for companies to track revenue generation over a short or long period. With this information, a company or investor can analyze the business’s past and present performance. It can help determine whether or not the business needs to re-evaluate its operations and product models or if an investor should invest in a company.

When it comes to evaluating an investment, if one company in a specific industry is generating an ARPU of $5 and another company is generating an ARPU of $3, the first company could be a more attractive investment. Similarly, if the trend of a company’s ARPU is increasing, it’s worth looking at how the company’s stock has performed. Additional investment research can determine how the company’s stock price is appreciated.

Average Revenue Per Paying User (ARPPU)

ARPPU is used to determine the average revenue from a company’s paying customers only. To contrast this measurement type, ARPU factors in all users.

Assume the following: A business had revenue of $2 million, an average user base of 1 million, and an ARPU of $2.

If, however, we’re looking at the ARPPU, we need to take out the non-paying user base. If the non-paying user base is determined to be 425,000, the remaining paying base is 575,000. Use the following formula to calculate ARPPU:

ARPPU = Period of Recurring Revenue/Active Paying Users during the same measurement period

ARPPU = $2 million/575,000 = $3.48 per active paying user

Interpreting ARPPU

When the ARPPU is low, this indicates the business’ products or services aren’t well received by customers and those to whom it is marketing. A higher ARPPU indicates a company’s marketing efforts, products, and services are received well by customers. Similar to ARPU, results from ARPPU can be analyzed for trends to see when products or services are well received; and then investigated to determine whether it is influenced by the sales and marketing, customer service, product quality, etc.

Whichever way a business analyzes its sales and revenue generation processes, taking multiple approaches can provide different perspectives to help owners and employees determine when and where to make improvements to its operations.

November 1, 2023

Super Apps and Their Impact on Traditional Business Models

As technology advances, users crave convenient and feature-rich solutions. In mobile app development, the concept of super apps is taking the tech world by storm. These apps include a wide range of services within a single platform, such as messaging, payments, ride-hailing, food delivery, and more. Super apps have disrupted traditional business models by providing a more convenient, personalized, and cost-effective user experience.

Defining Super Apps

Super apps are powerful, multifunctional platforms that offer numerous services, from transportation and finance to e-commerce and social networking, all within a single application. This is unlike standalone apps, where each focuses on a specific function, like the video-sharing service YouTube. The super apps allow users to access different services without downloading them to their devices and without switching between numerous applications.

Super apps, a term popularized by WeChat in China, represent a new breed of applications that provide a centralized hub for users to access various services. They usually start as one service before evolving to include several mini-services. For example, WeChat began as a messaging and social media app. WeChat now has more features, including mobile payments, ride-hailing, entertainment, and an e-commerce platform, among other features.

One of the primary factors contributing to the rise of super apps is the shift in consumer behavior. Users increasingly favor a one-stop-shop experience, where they can perform different tasks without switching between multiple apps. This convenience has made super apps highly popular, becoming an essential part of the digital ecosystem in many countries.

The adoption of super apps in the West has been slower and more fragmented compared to Asia. While user preferences are shifting toward integrated digital experiences, regulatory and market dynamics have challenged the widespread adoption of super apps. However, elements of the super app model are gradually being incorporated into existing Western apps as companies explore ways to provide users with a broader range of services within their ecosystems. A good example is the acquisition of Twitter, rebranded to X by Elon Musk, intending to turn it into an everything app.

According to research on the global super apps market, the value of the market in 2022 was $58.6 billion. The market size value is expected to reach $722.4 billion by 2032. This signals the enduring presence of super apps, requiring businesses to adapt in order to maintain their competitive edge.

The Impact on Traditional Business Models

Super apps have challenged established business models in many industries, including finance, retail, and transportation, among others. In retail, super apps often include marketplaces that offer users a wide range of products and services. This has disrupted traditional brick-and-mortar retailers and standalone e-commerce platforms. As users spend more time within super apps, they are less likely to use separate e-commerce apps, leading to a shift in the retail landscape.

In finance, super apps frequently integrate financial services, such as mobile payments, digital wallets, and personal financial management. This has upset traditional banking models by offering a more accessible and user-friendly way to manage money. The convenience and speed of financial transactions within super apps are compelling, drawing users away from traditional banking.

In transportation, super apps have revolutionized the industry with ride-sharing and mobility services. Traditional taxi companies and car rental agencies are facing stiff competition from these apps, which offer efficient, cost-effective, and user-friendly alternatives for getting around.

Super apps have also transformed the food and delivery industry by offering a seamless way to order meals, groceries, and other goods. This has challenged traditional restaurants and grocery stores to adapt to the changing market dynamics.

How Businesses Benefit from Super Apps

Super apps provide a platform for businesses to reach a vast and diverse user base, leading to increased brand awareness and customer acquisition. They also allow businesses to upsell and cross-sell existing products or services to their customers, increasing sales.
By offering a wide range of services, super apps create new revenue streams for businesses and increase customer loyalty as users can access all their favorite services in one app.
By bringing together multiple service providers inside their ecosystem, super apps promote cooperation and innovative ways to solve client problems.
Businesses may invest in joint ventures and collaborations with other businesses using the super app, resulting in the development of distinctive products and value-added services.
Super apps simplify processes for businesses by bringing together multiple service providers. This lets businesses give undivided attention to their core competencies and leave other services to the super app.
Super apps allow businesses to build stronger brand loyalty by providing a more convenient, personalized, and cost-effective user experience.
Super apps can help businesses reduce costs by eradicating the need to develop and maintain multiple standalone mobile apps. Besides, building a single super app is less expensive than managing multiple apps, and it allows developers to focus on a single product and eradicate unnecessary costs involved in the app development process.

Conclusion

Super apps are here to stay, and their impact on traditional business models is undeniable. They offer users unparalleled convenience, forcing traditional businesses to rethink their strategies. To thrive in this evolving landscape, businesses need to embrace digital transformation, innovate, and consider how they can leverage the reach and capabilities of super apps to their advantage.