Blog – Page 19

Wage Garnishment Considerations for Business Owners

According to the United States Department of Labor’s Consumer Credit Protection Act (CCPA), wage garnishments are a complex legal process for employers to account for when it comes to employment matters. This article specifically refers to Title III of the Consumer Credit Protection Act.

Usually authorized through a court order, a wage garnishment directs an employer to withhold or garnish an employee’s wages for a certain amount or percentage to satisfy an outstanding debt. Wage garnishments also can be implemented for delinquent tax obligations and other debts owed to federal agencies of the U.S. federal government, as well as for state-level tax collectors.

Another consideration for Title III is that for a single debt, employees may not be fired; but if an employee’s earnings are garnished for two or more distinct debts, an employer has the discretion to involuntarily separate an employee from its business. This law also permits varying amounts and percentages of an employee’s “disposable earnings” that may be withheld.

The first step is determining how earnings are defined in the course of deciding the final wage garnishment calculation. Examples include but are not limited to retirement and pension payments to the employee, hourly wages, yearly salaries, commissions, bonuses, along with profit sharing, etc.

When it comes to lump-sum payments, the CCPA requires counting earnings that are for personal services but not including non-personal service-related lump-sum payment compensation as the first step when calculating the final wage garnishment.

Defining Disposable Earnings

The final amount able to be garnished is determined by the employee’s disposable earnings. This is defined as the earnings remaining once legally mandated deductions are factored into an employee’s earnings. Example deductions include local, federal, and state taxes, along with withholdings for unemployment, Medicare, and Social Security taxes. Voluntary deductions, such as health premiums, voluntary retirement plan contributions, etc., are not factored into the disposable earnings calculation.

When it comes to regular garnishment guidelines, which include non-support, bankruptcy, or tax-based requests, for both state and federal taxes, the maximum weekly amount is the smaller amount of either one-fourth of the worker’s disposable earnings or how much the worker’s disposable earnings exceed 30 times the U.S. minimum wage of $7.25 per hour x 30 hours = $217.50 (as of June 2023).

Looking at a weekly view, if disposable earnings are $217.50 or less, no garnishment can occur. If disposable earnings between $217.50 and up to $290 are considered, only $72.50 may be garnished, depending on how much the outstanding debt is in total. If the worker’s disposable earnings exceed $290 for a weekly pay period, up to one-fourth of the pay period’s disposable earnings can be considered to be garnished. It’s important to note that some bankruptcy court orders, state/federal tax debts, and court orders for child support and/or alimony are not necessarily subject to the garnishment ceilings discussed above.

While this information is not comprehensive for employers, it’s important to understand all the federal, state and local regulations to ensure compliance is achieved to reduce the chances for adherence complications.

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.

4 Smart Ways to Maximize Your IRA Contributions

Unless you’re near retirement, chances are you’re depositing a certain amount of cash each year in your IRA at tax time, then kind of forgetting about it, not thinking much about it until the next year. This dynamic can cost you a lot of money – today and at retirement age. Here are a few ways to make all your hard-earned money work even harder.

Invest your money; don’t simply fund it. According to a Vanguard study, two-thirds of last-minute IRA contributions end up just sitting in money market funds. The result? They’re just a little more than a checking account with a fancy name. Lesson: Don’t let your funds sit idle. They should be placed in the right investment, perhaps a target-date mutual fund. Maybe a bond fund or some carefully selected stocks. Do the work now. Take time to analyze what’s right for you so you can max out your investment.

Convert to a Roth. This scenario might not apply to you, but it’s a reality that quite a few have encountered: A sharp mid-career income loss, say, because of the pandemic, which would put you into a lower tax bracket. If this applies to you, it’s a good time to convert your traditional IRA to a Roth. Another scenario where converting might be a good idea is if tax rates are temporarily lowered by Congress. There’s also the backdoor Roth, which is a good tax reduction strategy; it works best for people who have high salaries (think C-suite) and access to a workplace retirement plan that causes them to be ineligible to deduct their traditional IRA contributions in the first place. It’s easy. Open a new traditional IRA, make non-deductible contributions, then convert it to a Roth. All said and done, no matter where you fall on the income spectrum, Roth IRAs are well worth looking into.

Avoid the procrastination penalty. Sure, making a full-sized IRA contribution right before your filing deadline feels good. You’re doing what you’re supposed to do, right? Taking the tax break for the prior year, right? Yes, but not so fast. (Just to refresh, it’s $6,500 for individuals in 2023; $7,500 for people 50 and older; the contribution cap is $7,000 for individuals in 2024 and $8,000 for people 50 and older.) But here’s the rub: You’ve left more than 15 months of potential investment income on the table. What? Yes, that is $6,500 that you should have invested during the previous year, maybe placed in a mutual fund or stock that could have been earning for you. So, think again about waiting until the last minute to contribute. It might end up being quite costly.

Invest in stocks and bonds – strategically. If you’ve been lucky enough to maximize your tax-advantaged account contributions and have some cash left over in your standard investment accounts, think about buying bonds in your IRA and stocks in your standard account. But why? Bond dividends are taxed as ordinary income. Stocks and stock-filled mutual funds generally generate capital gains. Specifically, these gains aren’t simply regular payments you get from your stocks. They’re the increase in their sticker price each year. It’s important to understand the difference. Capital gains, which only occur when you sell a stock or fund, are taxed at a lower rate. It makes sense to put them in taxable investment account and then save your tax-advantaged accounts for larger investments. Regardless of which IRA you decide upon, you won’t pay taxes on money while it stays put in your account.

Saving for retirement is one of the most important things you can do. Granted, life happens, and sometimes you get off track. But if you keep your eyes on your future nest egg and max out contributions while you’re working, you’ll be better prepared to enjoy your next season of life.

Sources

https://www.forbes.com/advisor/retirement/maximize-ira-contribution

Expanding Benefits for Veterans and Extending Government Funding Until Jan. 19, 2024

A bill to amend Title 38, United States Code, to extend and modify certain authorities and requirements relating to the Department of Veterans Affairs, and for other purposes. (S 2795) – This bill was introduced on Sept. 13 by Sen. Don Tester (D-MT). This act extends various Department of Veterans Affairs (VA) programs and benefits, including extending the use of contract healthcare professions for disability exams from three to five years; extending authorization for VA emergency preparedness for public health emergencies through fiscal year 2028; and extending certain fee rates under the VA’s home loan program through Nov. 15, 2031. The bill passed in the Senate on Sept. 13, the House on Sept. 26, and was signed into law by the President on Oct. 6.

Wounded Warrior Access Act (HR 1226) – This bill requires the VA to develop and maintain a secure online website that will allow claimants to request records related to their VA claims and benefits, as well as a process for reporting violations. The legislation was introduced by Rep. Pete Aguilar (D-CA) on Feb. 28. It passed in the House on March 7, the Senate on Nov. 2 and was signed into law on Nov. 13.

Korean American Valor Act (HR 366) – This act amends U.S. Code Title 38 to treat certain members of the armed forces of the Republic of Korea, who served in Vietnam under the Armed Forces of the United States, as veterans for purposes of qualifying for healthcare by the VA. The legislation was introduced on Jan. 13by Rep. Mark Takano (D-CA), and was passed in the House on May 22 and in the Senate on Oct. 19. The bill was enacted by President Biden on Nov. 13.

A bill to amend Title 38, United States Code, to strengthen benefits for children of Vietnam veterans born with spina bifida, and for other purposes. (S 12) – Introduced by Sen. Mike Braun (R-IN) on Jan. 26, this bill requires the VA to provide healthcare, job training and monetary benefits to children of Vietnam veterans who were born with spina bifida – for the duration of the child’s life. The bill also requires the VA to establish an advisory council responsible for the care, coordination and ongoing outreach to assist with any care changes over time. The bill passed in the Senate on July 13, the House on Sept. 19, and was signed into law on Oct. 6.

Further Continuing Appropriations and Other Extensions Act, 2024 (HR 6363) – This continuing resolution (CR) was introduced by Rep. Kay Granger (R-TX) on Nov. 13. It is part of a two-step process to continue funding most government programs and activities at fiscal year 2023 levels for the current fiscal year (2024). The CR expires on Jan. 19, 2024, by which time budget legislation will need to be passed in order to avoid a government shutdown. This CR passed in the House on Nov. 14, the Senate on Nov. 15, and was signed by the President on Nov. 16.

Impact of Digital Currency on Businesses’ Accounting

The emergence of digital currency is reshaping how businesses operate and account for financial transactions. As accounting professionals navigate this transformative wave, understanding the profound impact of digital currency on business accounting becomes not just relevant but imperative.

What is digital currency?

Digital currency is a form of currency that exists only in electronic or digital form, without a physical counterpart like coins or banknotes. There are two main types of digital currencies. First, there are decentralized cryptocurrencies such as Bitcoin or stablecoins such as USDC (that track to the US dollar at 1-1). Cryptocurrencies are always based on blockchain technology. The other main type and more likely to serve as a substitute for traditional government issued currencies are digital currencies such as central bank digital currencies (CBDCs). Unlike crypto-currencies, CBDCs are centralized and issued by issuing authority and also are not necessarily based on a blockchain or immutable ledger systems.

Immutable ledger systems ensure transparency, traceability, and security in financial transactions. The technology has also given rise to decentralized finance, or DeFi, designed to offer access to financial services without the need for institutions such as banks. This translates into a paradigm shift for accounting professionals, as digital currency and cryptocurrency are continually adopted to make payments and investments and as a reservoir of value.

The Impact of Digital Currency on Business Accounting

Enhance Financial Reporting – Digital currencies facilitate real-time transactions, eliminating the lag time associated with traditional banking processes. This newfound speed provides accounting professionals with instant access to financial data, enabling quicker and more accurate financial reporting. Businesses can now assess their financial health daily, leading to more informed decision-making.
Smart Contracts Streamline Auditing Processes – Smart contracts, self-executing contracts with the terms of the agreement written directly into code, bring automation to the auditing process. This reduces the risk of human error and accelerates auditing procedures. Accounting professionals can leverage smart contracts to automate routine tasks, allowing them to focus on higher-value analytical work.
Cross-Border Transactions Simplify Global Accounting – Accounting for international transactions has historically been intricate due to varying currencies and exchange rates. With digital currencies, businesses can streamline these processes, reduce the complexities associated with global accounting, and provide accounting professionals with standardized data for analysis.
Enhanced Financial Inclusion Accounting for a Broader Audience – Digital currencies can enhance financial inclusion by providing access to financial services for unbanked or underbanked individuals. Accounting professionals will need to consider the unique accounting challenges associated with this expanded user base, such as diverse transaction volumes and varying levels of financial literacy.

Challenges of Digital Currencies

Accounting professionals face both challenges and opportunities as businesses increasingly adopt digital currencies for transactions. Accounting standards may need to evolve to accommodate the unique characteristics of digital currencies.

The integration of digital currencies with traditional accounting systems is another critical consideration. Businesses will likely operate in a hybrid financial environment for the foreseeable future, necessitating seamless integration between digital and conventional accounting systems. Accounting professionals must adapt to this coexistence, ensuring data accuracy and integrity across platforms.

The volatile nature of digital currencies poses both risks and opportunities for businesses. While the potential for significant gains exists, so does the risk of value fluctuations. Accounting professionals play a pivotal role in developing robust risk management strategies, ensuring businesses can thrive in the evolving landscape of digital currency without exposing themselves to undue financial risks.

The regulatory environment surrounding digital currencies is still evolving. Accounting professionals must stay abreast of changing regulations to ensure businesses remain compliant. This adaptability is crucial as governments define and regulate digital currencies worldwide. For instance, the lack of a precise classification of digital currencies poses difficulties in determining their financial treatment. The absence of standardized guidelines complicates valuation, reporting, and compliance, requiring accountants to navigate a complex landscape where traditional classifications may not fully capture the distinctions of these evolving assets. Therefore, a proactive approach to compliance will be integral to the long-term success of businesses in this space.

As digital currencies evolve, accounting professionals must commit to continuous learning. Staying ahead of technological advancements, regulatory changes, and industry best practices is paramount. Professional development in areas such as blockchain technology, cryptocurrency taxation, and digital auditing will be essential for accounting professionals aiming to thrive in the digital era.

Conclusion

The impact of digital currency on business accounting is transformative and far-reaching. Accounting professionals are at the forefront of this paradigm shift, navigating the challenges and harnessing the opportunities presented by the digital revolution. Embracing innovation, adapting to changing regulations, and continuously honing skills will ensure businesses survive and thrive in this dynamic era of digital currency.

Updated IRS 2024 Penalties for Late Filing and Missed Tax Forms

Every year, the IRS announces annual inflation adjustments related to tax rate schedules, deductions, cost-of-living adjustments, etc. What many taxpayers do not realize is that they also adjust the cost of fines and penalties as well. This means that the penalties for late filings and missing tax forms are getting more expensive. In this article, we will look at the penalties for failing to file various types of tax returns as well as failing to file certain types of forms.

Failure to File Penalties

There is simply no way around it: skipping out on filing a tax return is going to cost you. Each type of return has its own penalty associated with it. For returns to be filed in 2024, the failure to file penalties is as follows.

Income Tax Returns

Failure to file within 60 days of the due date, the minimum penalty is $510 (up from $485 in 2023) and can increase depending on the circumstances – up to 100 percent of the taxes on the return.

Partnership Return

Failure to file a partnership tax return incurs a $245 penalty (up from $235 in 2023).

S-Corporation Return

Failure to file an S-Corporation return incurs a $245 penalty (up from $235 in 2023).

Beyond these simple financial penalties, things can get serious depending on the length of time a return has not been filed and the amount of past due taxes. This includes liens, levies, and passport restrictions.

Passport Revocation or Denial

In cases of serious tax delinquency, defined as a tax debt of $62,000 or more in 2024, your application for a new passport can be revoked or denied renewal.

Liens

If a taxpayer fails to pay a properly assessed tax bill, the IRS can file a Notice of Federal Tax Lien. This type of lien puts creditors on notice that the federal government has a legitimate claim over your property. This means that when you sell any of your property or assets, you can be forced to send the proceeds to the IRS.

Levies

Levies are the legal seizure of your property. Typically, any property can be levied to fulfill a tax obligation. There are exceptions for certain small amounts of personal property, such as provisions, furniture, and other household personal effects, and business property needed to carry on a trade or business, but these are negligible thresholds (less than $12,000). Further, wages can be levied and are subject to a formula that calculates a maximum weekly amount.

In any case, a levy is the last resort of the IRS but is obviously something you want to avoid.

Conclusion

Paying penalties is no fun, and no one wants to pay them. You may feel overwhelmed due to personal or business circumstances or other reasons, but the absolute worst thing you can do is to ignore your tax filing obligations. Even if you are late, the sooner you file versus burying your head like an ostrich, the better – as it’s “better late than never” when it comes to the IRS.

The main lesson is that ignoring things won’t make them better.

The 2023 Tax Planning Guide

It’s that time of year again: time for year-end tax planning. With the end of 2023 coming fast, the time to act is now. In this article, we’ll look at the moves you can make to optimize your tax situation in 2023 as an individual taxpayer.

Itemized Deductions

Flexing your timing on itemized deductions is a solid strategic move. It can help you shift to a bigger itemized deduction in 2023 versus 2024 (but not both). This can be advantageous if you expect to be in a higher tax bracket in one year compared to the other. Key itemized deductions to consider are home interest, state and local taxes, charitable deductions, and medical expenses.

Electric Vehicles

If you are in the market for a new car, consider buying an electric vehicle (EV) to save some taxes as well. Many new EVs can get you a credit of up to $7,500 and used versions up to $4,000. The credit is limited based on the cost of the vehicle, with more expensive models ineligible for the tax credit. Generally, the MSRP of a sedan cannot exceed $55,000, and SUVs, trucks, and vans cannot be more than $80,000.

In addition to the price limit on the EV itself, the credit is limited by taxpayers’ income levels. Married couples’ modified gross income cannot be more than $300,000 to get the credit on a new EV and $225,000 for a used version. Single taxpayers are capped at $150,000 for a new version or $75,000 for a used EV.

One important distinction here is that if you buy an EV in 2023, you’ll need to claim the credit via your tax return, which means you won’t get the benefit right away. In 2024, however, you can choose to transfer the credit to the car dealer when you buy the vehicle and pay less as a result immediately. So, if you plan to buy now or in early 2024, it may be better to wait if you have the choice.

Home Improvements

There are two tax credits you can get related to making “green” upgrades to your home. The first is the residential clean energy property credit, which is installing alternative energy systems such as solar, wind, geothermal, etc., giving you a credit of up to 30 percent of the materials and cost of installation. The second is the energy-efficient home improvement credit. This applies to smaller upgrades like boilers, central air-conditioning systems, water heaters, windows, etc., that meet qualifications for specific energy efficiency ratings. The credit is for 30 percent of the cost, with $1,200 yearly maximum (from all upgrades).

Charitable Donations

If you are considering making charitable donations, consider donating appreciated property, like stocks or mutual funds, where you have unrealized gains. This way, you’ll get to deduct the full amount of the fair market value without having to sell and pay taxes on the gains first.

Beware Required Minimum Distribution (RMD) Rules for IRAs

The penalty for failing to take your RMD dropped from 50 percent down to 25 percent with the Secure 2.0 Act in 2023, but it is wise to avoid the still hefty penalty. The general rule is that taxpayers 73 and older must take annual payouts, and there is a specific calculation behind it based on your age and account balance. You can also be subject to RMDs at a much younger age if you inherited an IRA. If you don’t feel comfortable making this determination, it’s best to check with your CPA or financial advisor to ensure you withdraw the right amount.

Max Out Retirement Plans

The deadline to fund workplace 401(k) plans is December 31, 2023, while 2023-year IRA contributions are allowed up until April 15, 2024. Taxpayers can contribute up to $22,500 in a 401(k) ($30,000 if age 50 or older); and $6,500 for IRAs ($7,500 if over 50).

Capital Gains and Tax Loss Harvesting

The capital markets have seen a volatile year, and interest rates are at highs not seen in quite some time. This may create situations where tax loss harvesting is advantageous.

Generally, if you have losses in some securities, understand that you can take losses against positions with gains up to the number of gains you realize, plus a maximum of $3,000 against other income. Excess losses are carried forward to future years. So, if you have a combination of winners and losers in your portfolio, consider tax loss harvesting to lower your tax bill.

Beware of the wash-sale rules, however. The wash-sale rules forbid you to sell and then repurchase “substantially identical” securities within 30 days of the sale on loss positions. One nuance here is that cryptocurrencies are not subject to the wash-sale rule as of yet.

Increase Your Withholdings

If you expect to have a hefty tax bill, then it may be wise to have additional amounts withheld from your paycheck or make an estimated payment. This can help you avoid a penalty for underpayment of taxes. As long as you prepay via tax payments or withhold a minimum of 90 percent of your 2023 total tax bill or 100 percent of what you owed for 2022 (110 percent if your 2022 AGI exceeded $150,000), you are clear of the penalty.

Conclusion

As we prepare to enter the final month of 2023, now is the time to take a look at your financial and tax situation to see if there are any moves you can make to minimize your 2023 tax liabilities and maximize your wealth.

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.

2024 Cost of Living Adjustments

In one year’s time, the U.S. inflation rate dropped by more than half, from 8.2 percent in September 2022 to 3.7 percent in September of 2023.

If there is a downside to lower inflation, it’s a lower cost of living adjustment (COLA). This year, the inflation rate plummeted from 6.4 percent in January to the current 3.7 percent. While food prices, both grocery and dining out, continue to increase. Between February 2020 and September 2023, grocery store prices rose 25%. That was slightly above the 23% increase in menu prices during the same period. But a number of consumer goods prices had decreased by midsummer, such as:

Gasoline (-26.5%)
Airline fares (-18.9%)
Car and truck rentals (-12.4%)
Major appliances (-10.7%)
Televisions (-9.9%)

The Problem with Inflation Data

Inflation data can be misleading for a number of reasons. First, while inflation statistics are quoted annually, these are compounded figures. The annual inflation figures for the past three years are as follows:

January 2022: 5.9%
January 2023: 8.7%
January 2024: 3.2%

If you add each year’s annual inflation, it comes to 17.8 percent; however, compounded prices rose by 18.8 percent over the three-year period. Now, imagine the compounding effect of inflation over many more years.

Second, when you hear that there is a decrease in inflation, it is not that prices are lowering; instead, it’s that prices are increasing but at a slower rate. For prices to drop, we would need actual deflation and not just lower inflation.

Finally, you need to remember that whether it is from a Social Security COLA increase or a raise at your job, an increase in income equal to inflation does not keep up with the actual cost of inflation. This is because of taxes. If you get a raise equal to inflation, you take home that amount less taxes, so your wages or Social Security is really not keeping up with inflation.

Take all three of these factors together, and that’s why inflation feels much worse at the grocery store than it appears on paper.

Social Security Benefits

The fluctuating inflation rate doesn’t just impact the prices of consumer goods, it also affects income. Specifically, Social Security benefits are adjusted each year based on changes in the cost of living.

More than 71 million Americans currently receive Social Security and Supplemental Security Income (SSI) benefits. One in four households of people age 65 and older depend on their Social Security check for at least 90 percent of their family income. Therefore, it is very important that COLA adjustments keep up with inflation.

Given that the inflation rate fluctuated between 7.1 percent and 9.1 percent last year, Social Security benefits increased by 8.7 percent in 2023. However, since inflation has dropped significantly in 2023, Social Security benefits will increase by only 3.2 percent in 2024.

To find out how much individual Social Security paychecks will increase, beneficiaries can check the Message Center of their my Social Security account. In early December, recipients will receive notification of their increased payment by mail.

How the Increase is Determined

Be aware that if there is no year-to-year increase in inflation, there is no cost-of-living adjustment for Social Security income. While inflation rates vary, it is pretty uncommon not to have some sort of increase.

Effective January 2024, the average monthly Social Security benefit for a retired worker is $1,907; for a married couple, the combined average is $3,033. The maximum amount of earnings subject to the Social Security tax is scheduled to increase from $160,200 in 2023 to $168,600 in 2024.

Health Savings Accounts

Starting in 2024, the annual contribution limit for an HSA linked to a high-deductible healthcare plan will be $4,150 for individual coverage; $8,300 for a family plan.

2025: Catch-up Contribution

Starting in 2025, people ages 60 to 63 will be able to significantly increase catch-up contributions to certain employer-sponsored retirement plans. The limit will increase to $10,000 – or 50 percent more than the regular catch-up amount – whichever is greater.

2026: Catch-up Contribution Twist

Starting in 2026, catch-up contributions made by people earning more than $145,000 will have to be contributed to an after-tax Roth account. Note that the Roth account requirement applies only to workers whose wages are subject to FICA taxes, so it does not apply to partners, the self-employed, or state and local government employees.

As of this writing, the IRS has not yet released changes to contribution limits for qualified retirement plans in 2024.

7 Smart Saving Strategies for Retirement

Next year, something called Peak 65 is happening. This moniker refers to the fact that more Americans will reach the traditional retirement age of 65 in the same year than at any time in history. Crazy, right? However, many of these people don’t feel like they’ve saved enough to live comfortably after they retire. Here are some ways to maximize your savings and cut costs so you can be prepared and retire with less financial worry.

Use a retirement calculator. This is key. You’ll be able to see if what you have in retirement so far will be enough to actually live on. Here’s the tool. Once you know where you are, you’ll be able to determine your financial goals.

Catch up on retirement savings. If you’re over age 50, you can make something called “catch-up contributions.” You can increase your 401(k) salary deferrals by up to $30,000 and up to $7,500 in your IRA. Look into this ASAP. The more you contribute, the more you’ll close the gap between what you have and what you’ll need.

Put together a sample budget. According to the U.S. Bureau of Labor Statistics, a household run by someone aged 65+ spends on average $4,345 a month, which is about $52,141 a year. Given this fact, it makes sense to take a look at your budget to see where you can cut back. Do you have numerous streaming services or magazine subscriptions? Can you use public transportation instead of driving? Must you buy name brands at the grocery store or would generic suffice? Review several months of expenses and ask yourself these types of questions. You might be surprised at what you discover and how you can save.

Utilize your Health Savings Account (HSA). This is a great tool to help you prep for health care costs when you retire. Once you enroll in Medicare at 65, you can still use your HSA investments, even if you no longer qualify to contribute. But you can get started on this early. Once you’re 55, you can contribute an extra $1,000 to your HSA each year on top of the maximum amount you’re using to catch up.

Consider part-time work. Having some supplemental income is a great idea when you retire. You’ll not only keep busy, which for some is critical, but also generate extra cash. You might even start a small business. What is it that you’ve always wanted to do? What are you passionate about? These questions are worth exploring.

Move to a less expensive city. There are some states that are simply less costly. And when you’re downsizing, which lots of people do when they retire, it makes a difference in your quality of life. For instance, Montana doesn’t have any sales tax, and state taxes are 33 percent less than the U.S. average. Here are a few others to consider.

These are just a few of the things you can do to prepare for one of the most important seasons of your life. No matter when or how you decide to retire, in the long run, it pays to start thinking about it before these years are even on the horizon.

Sources

https://www.bankerslife.com/insights/personal-finance/7-saving-strategies-for-a-secure-retirement/