Don’t pay tax on nontaxable income

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There are several sources of revenue that are not subject to income tax.

Here are the most common sources of money that are not taxed on your federal income tax return:

* Borrowed money, such as from banks or personal loans.

* Money received as a gift or inheritance from family or friends.

* Money paid on your behalf directly to a school or medical facility.

* Most life insurance proceeds.

* Cash rebates from businesses when you buy an item.

* Child support payments.

* Money you receive for sustaining an injury.

* Scholarships for tuition and books.

* Disability insurance proceeds from a policy purchased with after-tax dollars.

* Up to $500,000 of profit for a married couple selling their personal residence.

* Interest received on municipal bonds.

If you have included any of these as taxable income on your income tax return for the past three years, you can amend your return for a tax refund.

If you would like assistance in determining what to include on your income tax return, please contact us. We are here to help you.

Take steps to boost your business profits

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Keeping your company profitable when the economy slows down is a challenge for every business. You may be able to boost your bottom line with the following financial controls.

* Watch your customer credit. Use an accounts receivable aging report to flag past due accounts. Follow up with a customer immediately when you spot a delinquent bill. Don’t extend any more credit until the customer brings the account up to date.

* Don’t pay too quickly. Use an accounts payable aging report to keep money in your account as long as possible. Take advantage of early payment discounts if it makes sense. Otherwise consider using the full grace period to pay your bills.

* Invest surplus funds. Keep most of your money in a business savings or money market account where it will earn interest until you need it.

* Reserve cash for your short-term needs. Prepare a quarterly cash forecast report so you can anticipate cash shortfalls in time to carefully weigh your financing options. Establish a line of credit before you need it.

* Reduce inventory. Create a tax deduction and free up valuable shelf space by donating obsolete inventory to your favorite charity. If your inventory includes slow-selling or high-cost items, consider making them special order items.

* Control your labor expense. Provide adequate training for your employees. Cross-train every employee to do another’s job. Ask your employees to make a list of their assigned tasks. These steps may help you eliminate paying for unnecessary work and create more efficient processes for getting a job done.

* Resist the temptation to lower prices. Instead, look for ways to improve your product or your customer service to attract new customers and retain the ones you already have.

Please give us a call to discuss these and other profit-boosting ideas for your business.

Do you need life insurance on your children?

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Ask whether you should carry life insurance on your children and you’ll receive a variety of answers. Here’s a look at the arguments for and against.

* Financial security. Traditionally, you take out life insurance to provide for the financial security of dependents. The policy should provide funds to replace the insured’s income and to pay off debts. Neither of these reasons applies to young children. They don’t generally have any significant income, and they don’t usually have any debts. Some parents might want to carry a modest amount of insurance to cover funeral costs for their children in case the unthinkable happens.

* Insurability. Another argument is that by taking out a policy at a young age, you help to guarantee insurability as the child grows older. This could be important if the child develops a major illness later in life. The problem is that if the child does develop a serious illness, insurance could then become very expensive or limited in amount.

* Insurance as an investment. Some advisors suggest that parents should take out a whole life policy on their children. These policies include a savings component to build up cash value in the policy. You could then use that value for education expenses or other needs. But others say that there are cheaper and more efficient ways to save than by using life insurance. For example, putting money into a tax-advantaged Section 529 plan might be a better way to save for college tuition costs.

* The bottom line. Although a majority of financial advisors might argue against life insurance for children, there may be some situations when it makes sense. One thing is clear. You shouldn’t take out a policy just because it is offered to you or because others are doing it. Insure your kids only if you’ve done your homework and know exactly why you need the insurance.

Please contact our office if you’d like help reviewing the advantages and disadvantages as they apply to your particular situation.

Notify the IRS about name changes

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If you or a dependent had a name change last year, notify the Social Security Administration before you file your 2013 tax return with the IRS. Why? If the name on your tax return does not match SSA records, the IRS is likely to notify you about the mismatch. Any refund you expected could be delayed. So if marriage, divorce, or child adoption resulted in a name change, file “Form SS-5, Application for a Social Security Card” with the SSA to inform them of the change.