Category: Blog

Increasing Small Business Investments, Relaxing COVID Vaccination Requirements and Generating More Challenges to Abortion Access

4 min read

Increasing Small Business Investments, Relaxing COVID Vaccination Requirements and Generating More Challenges to Abortion AccessInvesting in Main Street Act of 2023 (HR 400) – Introduced by Rep. Judy Chu (D-CA) on Jan.20, this bill would permit certain financial institutions to increase investments in small business investment companies (SBICs). The current cap is 5 percent; if passed, the amount would rise to up to 15 percent of their capital and surplus. The bill passed in the House on Jan.25 and is now under consideration in the Senate.

To terminate the requirement imposed by the Director of the Centers for Disease Control and Prevention for proof of COVID-19 vaccination for foreign travelers and for other purposes (HR 185) – This bill would nullify the standing CDC order that requires non-U.S. citizens who are not immigrants to be fully vaccinated against COVID-19 (or otherwise prove adherence to public health measures to prevent contagion)for entry into the United States by air travel. The bill also would nullify both successor and subsequent orders that would require proof of a COVID-19 vaccination as a condition of entry and prohibit the use of federal funds to enforce such a requirement. However, the bill carves out exceptions for certain individuals traveling from China to the United States. The bill was introduced on Jan. 9 by Rep. Thomas Massie (R-KY). It passed in the House on Feb. 8 and is currently under consideration in the Senate.

Freedom for Health Care Workers Act (HR 497) – The passage of this bill would eliminate the current COVID-19 vaccine mandate for healthcare providers working in certain federal healthcare programs. The bill was introduced by Rep. Jeff Duncan (R-SC) on Jan. 25 and passed in the House on Jan. 31. It is currently awaiting review in the Senate.

To nullify the modifications made by the Food and Drug Administration in January 2023 to the risk evaluation and mitigation strategy for the abortion pill mifepristone and for other purposes (HR 383) – This bill would nullify the FDA’s new rule allowing a pharmacy to dispense mifepristone, as well as ban the pill from being offered by mail. Medication abortion is now the most commonly used abortion method in the United States. Under the current guidelines, pharmacies may prescribe mifepristone in person to patients, essentially permitting it to be disseminated at the same time with misoprostol. This two-pill combination is taken in sequence to induce an abortion at home. The bill to ban this access was introduced on Jan. 17 by Rep. Diana Harshbarger (R-TN) but has yet to be assigned to a committee for review.

To ensure the privacy of pregnancy termination or loss information under the HIPAA privacy regulations and the HITECH Act (HR 459) – This legislation was introduced in the House by Rep. Anna Eshoo (D-CA) on Jan. 24. It would ban doctors from revealing a patient’s abortion information without consent, even under a court order or subpoena. Presently, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) restricts doctors, psychologists, pharmacies, hospitals, etc., from revealing a patient’s protected health information – unless compelled to do so by law. This bill would make it illegal for a medical professional to reveal a patient’s abortion information without the patient’s consent, superseding even a court order or subpoena. The bill is currently in the House awaiting a potential vote by the Energy and Commerce Committee.

Prescription Pricing for the People Act of 2023 (S 113) – This bill would authorize the Federal Trade Commission to study the role of intermediaries in the pharmaceutical supply chain and report on anti-competitive practices and other trends that impact how prescription medications are priced. In an effort to increase transparency, the FTC also would provide recommendations to Congress for potential legislative action. The bill was introduced on Jan. 26 by Sen. Chuck Grassley (R-IA) and is currently being considered in the Senate.

 

Leveraging the Internet of Behavior (IoB) to Boost Customer Loyalty

4 min read

Boost Customer LoyaltyCustomer loyalty is critical to any successful business strategy in today’s digital age. With emerging technologies such as the internet of things (IoT), companies are now leveraging a new approach called the internet of behavior (IoB) to gain deeper insights into their customers’ behavior and preferences.

What is IoB?

The internet of behavior exists because of the internet of things. IoT is the interconnection of physical digital objects that gather and exchange information over the internet. On the other hand, IoB makes sense of the collected data from various sources, including wearable devices, digital household devices, human online activity and social media.

The acronym internet of behavior (IoB) was coined by Gartner, a tech research firm, as identified among the top 10 trends in their strategic technology report for 2021. However, the concept of using data to influence customer behavior was developed in 2012 by Göte Nyman, a psychology professor at the University of Helsinki, long before the internet of things took hold.

Gartner defines IoB as an extension of the internet of things, focusing on capturing, processing and analyzing the “digital dust” of people’s daily lives.

Simply put, IoB interconnects IoT, consumer psychology and data analytics. The data is analyzed in terms of behavioral psychology to capture patterns that marketing and sales teams can use to influence customer behavior.

How IoB can Influence Customer Loyalty

Aside from products and services, customer experience has become a significant factor in business success. By understanding customer behavior, businesses can leverage IoB data to influence customer loyalty in various ways.

Personalization

Personalization has the power to transform customer experience. This is reflected in a survey that revealed 76 percent of Americans are more likely to complete a purchase because of a personalized experience.

To take advantage of IoB, companies study insights extracted from collected data and use it to decipher customer behavior; that is, their practices, preferences, habits, needs, wants and more. The company can then leverage this data to offer personalized product recommendations, such as insurance premiums, saving plans, travel destinations, etc.

For example, an insurance company can have users install apps on their phones that collect data on distance traveled, car speed, etc., and optimize their car’s premium based on driving behavior.

Timely Improvement of Products and Customer Services

IoB also makes studying how customers interact with specific services or products easy. This saves companies from time-consuming surveys that are used to determine consumer preferences. The collected data is analyzed to identify pain points and issues of concern. The company can then address the issues before they become significant problems, such as by improving on products and services. This is an excellent way to build trust and confidence in a brand, leading to customer retention.

Behavioral Retargeting

Since companies can access customer preferences, recent activities, likes, dislikes, and location data, they can send real-time notifications to customers about discounts and new offers in stores nearby. They also can track loyal customers and offer them rewards. This kind of retargeting will make customers feel like a business values them and caters to their interests.

Develop a Tailored Marketing Strategy

Insights from IoB data can help tailor marketing strategies to individual customers. For instance, a retail store can offer products or services based on the mood, age or gender of a customer; thereby providing a satisfying experience that will lead to a stronger emotional connection with the brand.

Key Challenges that must be Addressed for the Success of IoB

Despite the opportunities IoB offers, companies must be aware of some key challenges to fully realize its benefits.

  • Privacy Concerns – Although personalization will make consumer lives easier, there is a concern about privacy. Companies must implement strong cybersecurity policies and measures to ensure that customer information is used only for that which a customer has given consent.
  • Convincing Users to Share Personal Data – People might not be comfortable sharing their personal data.
  • Laws and Regulations – Strict regulations around collecting and using personal data, such as the General Data Protection Regulation (GDPR), require companies to comply in order to avoid fines and legal issues.
  • Cybersecurity – As reliance on technology rises, so do cyberattacks. Cybercriminals may access sensitive data on consumer behavior, making consumers susceptible to online scamming and identity theft, among other threats.

Conclusion

Leveraging IoB can provide businesses with a competitive edge and drive revenue growth. Companies seeking continuous success should consider placing IoB at the center of business innovation to create personalized customer experiences. At the same time, they must also examine any challenges that might reduce the effectiveness of IoB.

Why You Might Not Need a New Budget for the New Year

4 min read

New Budget 2023So, we’re a month into 2023, and the sheen might’ve dulled from all your shiny New Year’s resolutions. Though diet and exercise are the top things you might want to change, there’s one you might not need to touch – your budget. Here’s a discussion about who does and doesn’t need to revamp their finances.

Who Needs a New Budget?

Budgets are always a good idea. They help you save money and pay off debt. But only a few folks need to create a new one. According to Annette Harris, founder of Harris Financial Coaching, you need a new budget if you are:

  • Unable to keep up with expenses
  • Falling behind on debt payments
  • Borrowing money from others
  • Relying on credit cards
  • Using payday lenders

But on the flipside, some positive life events may also call for a fresh look at your budget:

  • Buying a house
  • Planning home improvements
  • Sending a child to college

Now, if you’re debt-free, saving, and investing, then a new budget probably won’t provide much value. Further, Harris says that if you don’t have children that you’re putting through college, don’t have any upcoming big purchases, continue to spend wisely and build your net worth, don’t bother changing what you’re already doing. In other words, of it’s not broke, don’t fix it.

The Stigma Around the ‘B’ Word

That would be “budget.” Jesse Mecham, founder of the app You Need a Budget aka YNAB, has a good explanation about why this is so. He says that this very term (budget) is among the reasons that people don’t follow through with setting one – and sticking with it. He says that generally, people think it means restriction, deprivation, or diet. What you need, he says, is a shift in perspective. If you think about a budget being a plan for intentional spending, no matter what year it is, you always want to be intentional. Makes good sense, right?

Some Budgets Might Even Cause Harm

Dana Miranda, founder of the “budget-free” financial ed website Healthy Rich, believes that budgets can do more harm than good. She says that people inevitably feel like they’re failing and aim for a fresh start at the beginning of the year, but no amount of recommitting to budgeting can make the realities of your life fit into the unrealistic restriction of a budget. Miranda says when people are stressed about money, they budget. When they succeed, it’s great. But when they fail, they feel like a failure and, consequently, are even more stressed, much like dieting.

Alternatives to Budgeting

Here are three other ways to get a handle on your finances in the New Year.

Track Your Goals

We’re not talking about counting every dollar but focusing on goals. Instead of not overspending, eating out less, or avoiding online shopping, find areas in your budget that can help you accomplish your goals – one at a time. For instance, if you want to save for college for your kids, buy an investment property, or create a vacation fund, set up a tracker with a defined timeline and work toward that. It’s easier to narrowly focus on one important goal than on everything all at once.

Create an Annual Budget

This is in contrast to a monthly budget. This helps you accommodate for variables – life stuff – that inevitably come your way and knock you off course. According to Harris, take time to map out monthly costs, travel plans, and home renovations, along with any one-time and variable recurring costs. The bills you pay regularly are easy to anticipate; it’s the ones you don’t that will throw you a curveball.

Look at Your Relationship With Money

Ask yourself things like:

  • Do I find joy in the way I make money?
  • Are the commitments I made (like a monthly savings amount) still working for me?
  • Am I achieving what I want?
  • Am I at peace with the way I spend?

Harris says self-awareness found through journaling, meditation, yoga, and prayer are great ways to harness conscious spending. They contribute, she says, to helping you become more intentional with the way you spend.

No one is perfect. Everyone makes mistakes. However, with a few helpful hints like these, you can get better and better every day.

Sources

https://www.forbes.com/advisor/personal-finance/new-budget-new-years-resolution/

2022 Consumer Saving & Spending Behaviors (bankofamerica.com)

Defining an Impaired Asset

3 min read

Defining an Impaired Asset, What is Impaired AssetWhen it comes to defining an impaired asset, its fair market value is worth less than the original cost of the asset – or, more formally, its carrying value. As a company re-evaluates its assets’ value, and when it determines there’s a discrepancy between the book or original value and the current market value, impaired assets that are lower in value are written down on the balance sheet. The business’ income statement shows a loss for the negative difference in value. Impaired assets can be Property, Plant, and Equipment (PP&E), goodwill, or fixed assets.

Making a Judgment on Asset Impairment  

One more consideration to get an accurate calculation, according to generally accepted accounting principles (GAAP), is to ensure that accumulated depreciation is subtracted from the asset’s historical or original cost before assessing the difference between the fair market and carrying values. Equally as important is the GAAP recommendation for businesses to perform impairment tests annually.

Assets could be damaged physically, consumer demand may change, or legal factors could reduce its fair market value. These reasons may cause lowered projected future cash flows – lower than an asset’s current carrying value. It, therefore, requires an impairment assessment.  

Illustrating With a Real-World Example

Take a business that bought a piece of equipment 24 months ago worth $500,000 and depreciates it $25,000 annually. Using these two figures, we can determine the equipment’s carrying value is as follows for the present year:

[($500,000 – ($25,000 x 2 years)] = $450,000

If the same type of asset (same age, usage, etc.) can be purchased on the open market but is able to be purchased for $400,000 (market value), the asset the business owns would be considered an impaired asset.

The difference between the current market value and the carrying value is: $450,000 – $400,000 = $50,000. The $50,000 would be written down.

It’s important to note that once an asset is impaired, depreciation going forward must be recalculated based upon the new valuation figure.

Criteria to Establish Impairment

According to GAAP, businesses must begin with a recoverability test. If the initial cost of an asset (minus any depreciation or amortization) is more than the non-discount rate adjusted cash flows it’s projected to produce, the asset is considered impaired.

Assuming the asset is deemed impaired, the second part determines how much impairment exists, which is the gap between the original and market value of the asset in question. If the fair value is unspecified, the total of the discount rate adjusted future cash flows is acceptable.

Assuming the total of non-discount rate adjusted future cash flows is $90,000 – the projected undiscounted cash flows through the next 36 months, which is lower than the estimated carry amount (or book value) of $115,000. The recoverability test is passed, so the asset should be impaired. Based on the second step, the impairment loss will be $25,000 ($115,000 – $90,000). If, however, the fair market value is unknown, the projected cash flows of $30,000 per year for the next 36 months should be discounted to present value. This example can assume a 5 percent discount rate:

Year 1 – $30,000 / (1+0.05) = $30,000 / 1.05 = ($28,571.43)

Year 2 – $30,000 / (1+0.05)^2 = $30,000 / (1.1025) = ($27,210.88)

Year 3 – $30,000 / (1+0.05)^3 = $30,000 / (1.1576) = ($25,915.69)

To calculate the impairment loss with an unknown fair market value: $115,000 – ($28,571.43 + $27,210.88 + $25,915.69) = $115,000 – $81,698.00 = $33,302.00

Whether it’s a time of economic uncertainty or the economy is firing on full cylinders, assets can change value. Businesses that effectively navigate changing conditions are able to increase their chances of surviving or thriving amid the challenges they might face.

Key Deadlines and Changes for the 2023 Tax Season

3 min read

Key Deadlines and Changes for the 2023 Tax SeasonEvery year, typically right after the new year starts, the IRS formally announces key dates and deadlines for the current tax season. Recently, the IRS made the announcements for the current 2023 tax season.

To make sure the process goes as smoothly as possible, it’s best if you are aware of this tax season’s deadlines and key dates so you don’t miss a beat in working with your CPA.

Tax Season in Perspective

More than 168 million individual tax returns are expected to be submitted to the IRS in 2023, covering the 2022 tax year. The last three years saw delays and snafus, largely impacted by the pandemic. This year, the IRS assures taxpayers it is taking measures to streamline filings.

Under the recently passed Inflation Reduction Act, the IRS hired thousands of customer service representatives. They will be on call to assist with answering questions via the IRA taxpayer helpline. The helpline number is: 1-800-829-1040; additionally, online tools and resources can be found on the IRS website.

The IRS also provides other free assistance services, such as its Volunteer Income Tax Assistance and Tax Counseling for the Elderly for qualified individuals.

Important Dates for the 2023 Tax Filing Season

  • IRS Free Filing Opens for the season – Jan. 13

    Opening 10 days earlier than the regular official start of the season, the IRS free file program offers taxpayers making less than $73,000 in 2022 to file free of charge using online tax software.

  • Estimated Tax Payments for the 2022 tax year 4th quarter – Jan. 17
  • First day the IRS starts accepting and processing 2023 tax season (2022 fiscal year) individual tax returns – Jan. 23
  • Earned Income Tax Credit (EITC) Awareness Day – Jan. 27

    This day is designed to raise awareness of the EITC availability to low- and moderate-income workers and families who may qualify but are unaware.       

  • Due date for 2022 tax returns to be filed or extension requested, tax due to be paid – April 18

    This deadline is an additional three days beyond the typical deadline of April 15, granted due to the Emancipation Day holiday in Washington, D.C., and the way the weekend falls.         

    Note that refunds are expected to be issued in 21 days or less (if using the direct deposit option and filing electronically).

  • Due date for 2022 individual tax returns put on extension – Oct. 16     

Gather Your Important Documents 

Keeping these dates and deadlines in mind, make sure you organize and gather all your tax records and documents as you receive them electronically or in the mail. This will make it faster and easier to work with your tax professional.

Conclusion

Keep in mind the above dates as you organize and prepare for the 2023 tax season. Doing so will make your life much easier and less stressful when it comes to taxes.

Overhauling the National Tax System, Eliminating Oil Sales to China, and Criminalizing Late Abortion Attempts

3 min read

Overhauling the National Tax System, Eliminating Oil Sales to China, and Criminalizing Late Abortion AttemptsTo rescind certain balances made available to the Internal Revenue Service (HR 23) – Introduced by Rep. Adrian Smith (R-NE) on Jan. 9, this bill would rescind funds allocated to the Internal Revenue Service by the Inflation Reduction Act of 2022. The bill is designed to “defund” specific enforcement activities, operational support, enhancement to the e-file tax return system, and allocations to the U.S. Tax Court and other Department of the Treasury tax agencies. The bill passed in the House on Jan. 9 and has moved to the Senate, 

Protecting America’s Strategic Petroleum Reserve from China Act (HR 22) – This bill would prohibit the Department of Energy (DOE) from selling crude oil to any entity under the ownership, control, or influence of the Chinese Communist Party. The bill was introduced on Jan. 9 by Rep. Cathy Anne McMorris Rogers (R-WA). It passed in the House on Jan. 12 and is currently under consideration in the Senate.

Born-Alive Abortion Survivors Protection Act (HR 26) – An example of one of many abortion-related bills introduced by the House in the new 118th Congressional Session, this Act would require healthcare practitioners to exercise the proper degree of care in cases where a fetus survives an attempted abortion – including ensuring the neonate is immediately admitted to a hospital. Failure to provide such care or failure of others to report the crime would be subject to a fine and/or up to five years in prison. Furthermore, anyone who intentionally kills the neonate would be subject to prosecution for murder. However, this bill would bar criminal prosecution of the birth mother in these circumstances and permit her to bring civil action for these violations if perpetrated by others. The bill was introduced by Rep. Ann Wagner (R-MO) on Jan. 9 and is under assignment in a House committee.

Fair Tax Act of 2023 (HR 25) – This legislation was introduced in the House by Rep. Buddy Carter (R-GA) on Jan. 9. It is currently assigned to committee for consideration.  The purpose of the bill is to replace the current income tax system (including payroll, estate, and gift taxes) with a national consumption sales tax on goods and services. Instead of paying the current 10 percent to 37 percent tax rates based on income bracket, as well as eliminating all deductions and credits, U.S. residents would pay a minimum 23 percent federal tax (in addition to state and local taxes) on all purchases, regardless of income bracket. Exemptions would include property or services purchased for business, export, investment, or state government functions. The flat rate would essentially tax a higher percentage of income from low earners while high-income earners would have more assets available for savings and investment that would not be taxable. Each state would bear the responsibility for collecting and remitting this federal sales tax to the Treasury.

How To Use Natural Language Processing To Improve The Efficiency Of Accounting Processes

4 min read

Natural Language ProcessingNatural language processing (NLP) is a technology that allows computers to understand and process human language. Processing of natural language is necessary when you want an intelligent device to follow your instructions. NPL is an artificial intelligence (AI) component with many real-life applications.

As technology advances, business leaders have to figure out how to tap into the new trends to remain relevant, stay ahead of competition, and meet consumer expectations and needs.

How NLP Works in Brief

NLP involves making computers perform tasks with the natural language humans use. The input and output can be spoken or written text. NLP combines computational linguistics – rule-based modeling of human language – with statistical, machine learning, and deep learning models.

NLP aims to build machines that understand and react to text or voice data and then respond with text or speech in a similar manner as humans do. Examples of NLP in real life include voice-operated GPS systems, personal assistant apps, speech-to-text dictation software, and customer service chatbots.

As businesses seek better ways to improve efficiency, NLP is one technology promising huge rewards for enterprises dealing with vast quantities of unstructured text. In accounting, unstructured data include transaction descriptions, invoices, written communication, etc.

The use of NLP is growing significantly in enterprise solutions designed to help streamline business operations. Large companies such as Deloitte, Ernst & Young (EY), and PricewaterhouseCoopers (PwC) have implemented various NLP solutions. A good example is Deloitte, which incorporated NLP into its Audit Command Language to improve contract compliance.

How NLP Can Improve the Efficiency of Accounting Processes

Areas in which NLP helps improve efficiency include:

  1. Forensic Investigations
    When CPAs want to perform forensic investigations, they have to deal with significant amounts of data from documents such as bank statements, transaction data tables, and data found in emails or deposition transcripts. Analyzing all the data as they try to look for specific patterns or gain insights is challenging. However, the application of NLP can be helpful in the investigative analysis process. NLP using algorithms can identify patterns automatically and reduce the time it would have taken to analyze the documents.
  2. Accounting and Auditing
    Auditing is challenging due to the process of reviewing financial statements and ensuring they match regulations and legal standards. Auditors must have excellent analytical and decision-making skills to spot inaccuracies in financial statements. However, NLP helps to optimize the auditing process.
  3. Financial Analysis and Automated Generation of Financial Reports
    NLP can automatically extract financial data from balance sheets, income statements, and cash flow statements. This can cut down on time and error-prone work. At the same time, it can obtain insights from massive financial data sets and financial reports. This enables accountants to make data-driven decisions and quickly identify trends and patterns in the data, hence, making it easy to provide guidance to clients on investments and household finances.
  4. Automated Data Entry
    NLP can be used to extract data automatically from unstructured text documents, including bills and receipts. It also can be used to automate the entry of data from tax documents and input it into accounting systems. This can cut down on time and error-prone work.
  5. Improve Centralized Data Management Solutions
    Incorporating NLP in accounting and procurement helps improve the ability of a centralized data management system to collect and integrate data from different sources. This enables standardization and collaboration. Additionally, the data provided has higher-quality insights. As a result, there is better financial planning and improved risk assessment and management.
  6. Customer Interaction
    NLP can be used to enhance the effectiveness of customer interaction. This is done by automating the procedure for responding to client inquiries, such as concerning invoices, payments, and account balances.

Conclusion

Natural language processing is proving to be a powerful technology that can help improve the efficiency and effectiveness of accounting processes. As it continues to evolve, it will likely become an increasingly important tool for accountants and other financial professionals. Most importantly, these advanced technologies take care of manually reviewing unstructured data. This helps businesses scale and – at the same time – reduce costs.

5 Financial Resolutions You Can Live With

4 min read

5 Financial Resolutions You Can Live WithFor the most part, New Year’s resolutions are hard to keep because many times you either list too many things or ones that aren’t manageable for the long haul – especially those that involve money. Here are a few simple tricks to help you make changes that are bite-sized, easy to implement, and more likely to stick.

Do a five-minute daily money check-in. Life is so busy that sometimes it’s easy to just spend money, then move on to the next task at hand. You might think, “I’ll check my bank balance later,” and then you never do. But if you’re serious about getting a handle on your finances, you might want to try this one thing: give yourself a “money minute.” Select a time of day, maybe after dinner, to log into your bank account. Take stock of what you spent money on. Did you really need that bottled water? That designer coffee? This way, you can nip those small (perhaps unnecessary) expenditures in the bud and make smarter choices in the coming days.

Get a money-saving app. One of the best ones to help you achieve financial goals is Ibotta. Let’s say you want to buy a new pair of running shoes, a good brand that’ll really last. With this app, you’ll save on everyday purchases, and when you’ve earned enough cash back, you can cash it in for a gift card from your selected store and get what you really want.

Consider micro savings goals. This technique is actually about rewarding yourself financially for changing your behavior. For instance, every time you go to yoga or Pilates, stash away $5. Or if you wake up early or finish a difficult task, stash away $10. When you’ve saved enough money to buy whatever it is you’ve decided on beforehand, you’ve not only avoided the trap of putting your goodie on credit (and paying interest), but also most likely started a new, healthy habit.

Set up an automatic savings plan. After you’ve paid taxes, insurance premiums, and perhaps even your retirement account, you might consider tucking away money for yourself that you’ll never miss. Every. Single. Paycheck. That’s right. When you automatically have a set amount deducted every time you get paid, over time, you’ll accumulate a bucket of money to use in whatever way you deem important – it could be saving for a vacation or a new car. It could also be a fund for emergencies. The point is it’s an easy, failsafe way to save and achieve your goals.

Do one frugal thing a day. This is all about a little bit of forethought and then just taking action. And when you adopt this mindset, you’ll be working daily toward your financial goals like paying off debt, saving money to quit a job you hate, or even having enough extra cash to invest in real estate or whatever strikes your fancy. Here are a few things to consider: drink more water than soda. Eat at home. Use public transportation instead of driving when you can. But this just scratches the surface. For more smart ways to start living frugally, check out this super helpful article. You’ll be surprised at all the ways you can cut back and save.

All of these tricks are easy and, in some cases, no-brainers. When you take a few minutes, set your mind on what you want, anything’s possible. Here’s to fulfilling your dreams in the New Year!

Sources

11 Financial Resolutions That Will Stick in 2024

Understanding the Weighted Average Cost (WAC) Method for Inventory Valuation

4 min read

Weighted Average Cost (WAC) MethodWhen it comes to businesses and their inventory and accounting methods for managing it, there are a few different ways to approach the task. The three different options to value inventory/implement cost flow assumptions, include: Last In, First Out (LIFO); First In, First Out (FIFO); and Weighted Average Cost Accounting (WAC). This article will focus only on the WAC method.

Weighted Average Cost (WAC) Method

WAC is a way to value inventory based on how much each tranche contributes to the overall valuation of its cost of goods sold (COGS) and inventory. Recognized by both GAAP and IFRS, it’s determined by taking the cost of goods available for sale and dividing it by the quantity of inventory ready to be sold. It’s important to note that while WAC is a generally accepted accounting principle, it’s not as precise as FIFO or LIFO; however, it is effective at assigning average cost of production to a given product.

It’s done primarily for types of inventories where parts are so intertwined that it makes it problematic to attribute clear-cut expenditures to a particular part. This often happens when stockpiles of parts are indistinguishable from each other. It also accounts for businesses offering their inventory for sale all at once. Here’s a visual representation of the formula: 

Weighted Average Cost (WAC) Method Formula

WAC per unit = Cost of goods available for sale / Units available for sale

Costs of goods available for sale is determined by adding new purchases of inventory to the value of what the business already had in its existing stock. Units available for sale is how many saleable items the company possesses. Its value is assessed per item and encompasses starting inventory and additional purchases.

When it comes to calculating WAC, there are two different types of inventory analysis systems: periodic and perpetual.

Periodic Inventory System

In this system, the business tallies its inventory at the end of the accounting period – be it a quarter, half or fiscal year – and analyzes how much the inventory costs. This then determines the value of the remaining inventory. The COGS is then calculated by adding how much starting, final, and additional inventory within the accounting period cost.

Perpetual Inventory System

This system puts a bigger emphasis on more real-time management of its stock levels. The trade-off for such real-time tracking of inventory requires more company financial resources. Looking at an example of how a company began its fiscal year with the following inventory can illustrate how it works.

At the beginning of the year, a company had 1,000 units, costing $50 per unit. It also made three additional inventory purchases going forward.

Jan 20: 75 units costing $100 = $7,500

Feb 17: 150 units costing $150 = $22,500

March 18: 300 units costing $200 = $60,000

During the fiscal year, the business sold:

235 units sold during the last week of February

325 units sold during the last week of March

Looking at the Periodic Inventory System, for the first three months of its fiscal year, the company can determine its COGS and the number of items ready to be sold over the first three months of its fiscal year.

WAC per item – ($50,000 + $7,500 + $22,500 + $60,000) / 1,525 = $91.80

Based on this method, the WAC per unit would be multiplied by the number of units sold during the accounting period, therefore:

560 units x $91.80 = $51,408 (inventory sold)

To calculate the final inventory value, we take the entire purchase cost and subtract the remaining inventory to arrive at the valuation:

$140,000 – $51,408 = $88,592

Perpetual Inventory System

Unlike the periodic inventory system, this looks at determining the mean prior to the transaction of items:

This would calculate the average before the 235 units were sold during the last week of February:

WAC for each item: ($50,000 + $7,500 + $22,500) / 1,225 = $65.31

Looking at the 235 units sold during the last week of February, it’s calculated as follows:

235 x $65.31 = $15,347.85 (inventory sold)

$80,000 – $15,347.85 = $64,652.15 (remaining inventory value)

Before calculating for the 325 units sold the last week of March, the unit valuation per WAC is: ($64,652.15 + $60,000) / (1225 – 235 + 300) = 1290 = $96.63

Looking at the 325 units sold during the last week of March is calculated as follows:

325 x $96.63 = $31,404.75 (inventory sold)

$124,652.15 – $31,404.75 = $93,247.40 (remaining inventory)

Based on these options, businesses have the choice, along with LIFO and FIFO, to decide how they want to vary it based on their own business needs.

The IRS Versus the Taxpayer

4 min read

The IRS Versus the Taxpayer

According to the IRS, ignorance of tax rules and regulations is no excuse. Therefore, it’s essential to use an experienced tax preparer to assist in filing your taxes. The tax code is complex and only gets more complicated as time goes on, making it almost impossible to ensure they are filing correctly without the help of a CPA, EA, or Tax Professional.

Moreover, the penalty for making what could be deemed an innocent mistake can cost a taxpayer a significant sum. What is worse yet is that defending yourself against the IRS is a costly endeavor in terms of both time and money. Part of the problem is that taxpayers often do not have the option of making an appeal directly to the tax court and instead need to first pay the IRS and then challenge it in either District Court or the Court of Claims. Stated plainly, the average taxpayer simply can not afford to fight the IRS in tax court.

In the remainder of this article, we will look at two main areas that tend to be problematic for taxpayers: first assorted penalties for misfiling and mistake, and second obscure international form.

Miscellaneous Mishaps and Mistakes

Taxpayers can get caught up in “gotcha” type situations where they inadvertently make a mistake in the type, accuracy or timing of the filings. Here is a checklist of some of the most common issues in which taxpayers typically make unintentional errors that will not be forgiven by the IRS.

  • Filing late and paying short: Filing a return late and underpaying the tax owed each carry separate penalties. Together, these penalties can add up to 47.5 percent of the original tax owed in a worst-case scenario.
  • Careless Filing Details: If you make a mistake in filing your return and it results in tax liability in your favor, you can owe a penalty of 20 percent of the under-reported taxes. In the case of faulty appraisals for items such as donated property, the penalty can double up to 40 percent.
  • Writing Bad Checks: Technically, it does not matter if it is a physical check or another payment method, but if a taxpayer’s payment to the IRS is declined, the IRS will charge an additional 2 percent penalty.
  • Missing Checklists: Failure to file the two-page “due diligence” checklist before claiming certain credits, such as earned income or college credits, can result in a fine of $545 per credit.

Obscure International Forms

Many compliance-related rules related to international investments and banking activities were originally created to put a stop to drug dealers, terrorists, and flagrant tax cheats. Unfortunately, the regulations are still in force but apply to increasingly more taxpayers as the threshold amounts have not increased yet more U.S. citizens are working, living, or retiring abroad. Moreover, the penalties can be severe. In this section, we will look at some of the most obscure and serious foreign tax compliance issues.

  • Passive Foreign Investments: If you own mutual fund shares incorporated abroad, you must file Form 8621.
  • Personal Holding Companies: If you create a corporation to hold a foreign property, you will need to file Form 5471 for a Controlled Foreign Corporation.
  • FBAR: If you have $10,000 or more in any combination of international bank and brokerage accounts at any single point in the year, you need to file the FBAR form electronically. Note the trigger here is that the bank or brokerage is outside the United States. If you hold securities of foreign companies or foreign currencies with a U.S. institution, the reporting is not required.
  • Fatca Disclosures: Facta disclosures were created to combat money laundering, covering all manner of foreign financial assets, including insurance and retirement assets. It can overlap with the FBAR requirements, but the additional reporting here is triggered by higher thresholds starting at $50,000 in assets for single U.S. residents and up to $400,000 for couples residing abroad and filing joint returns.

Conclusion

Remember that ignorance of the tax law is no excuse, especially in the eyes of the IRS. It does not matter if a mistake you make is truly innocent; there is still a good chance that you will end up with unpleasant fines and penalties and, in the worst case, a big mess. It is best to be timely and diligent in your filings, and if your situation is anything short of vanilla, to engage a competent tax professional. More on whos responsible can usually be found in your annual engagement letter from your tax professional.