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Back to School Shopping Tips

During the back to school shopping season in 2019, The National Retail Federation expects families of children from elementary to high school to spend $696.70 and families with college students to spend $976.78.  Total back to school spending is expected to reach $80.7 billion. Help your credit union members plan and budget for this expensive time of year with a prepaid card. Suggest these six simple back to school shopping tips:

  • Take stock of supplies already in your home: Have you unpacked the kids backpacks from the end of last school year?  Reuse last year’s supplies that are in good shape. Only buy what they actually need.
  • Hit the dollar store first for the essentials and save big.  Also consider buying for the mid-year restock while prices are low during back to school sales.
  • Shop on sales tax holidays. Fifteen states offer tax free sale days gearing up for back-to-school.  Check to see if your state offers a tax-free shopping day for school supplies.
  • Host an end of the summer fashion show and ask the children to create ten outfits from the clothes they have to prepare for the first two weeks of school.  Then, if it’s important to you and the children, consider getting one new “first day of school” outfit.
  • After taking stock of the essentials already in your home, supplies and clothes, create a back to school budget.  Load a prepaid card with the amount that fits into your budget to be sure not to overspend. Take into consideration school fees, beginning of the school year fundraisers, and extra-curricular startup costs
  • Shop without the children.  Print the school supply list and hit the store on your way home from work one evening.  A kid free shopping experience is faster and less stressful. Plus, when you arrive home with several bags of supplies for the children – they will be elated!
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5 Tips to Prepare Your Small Business for Tax Season

Even if you’re staying on track with your New Year’s resolutions, every small-business owner has to prepare for tax season. The major deadline may be a month or two away, but it will approach faster than you think. Here are a few tips to think about as you begin.

1. TRY BOOKKEEPING ONLINE

For all the times a cashier asked you, “Do you need a receipt?” hopefully you said yes when it was for business. Now is the time to organize all of your receipts and records from last year, whether in paper or online, and keep them all together in case of an audit. If you find paper receipts cluttering your workspace, consider storing them online using nifty apps like Shoeboxed and Neat.

When it comes to taxes and the Internal Revenue Service, it’s better to be safe than sorry, especially if your business is in its early stages.

2. SEPARATE PERSONAL AND BUSINESS DEDUCTIONS

For small-business owners especially, make sure that your personal and business expenses stay separate. As you follow the Section 179 guidelines and divide up costs, check your personal bank accounts for any business expenses or employee reimbursements.

Remember to check for any changes in the rules for deductions. For example, business rates for standard mileage deductions went up last tax year to 57.5 cents per mile, an increase of 1.5 cents from 2014. Another thing to note is the relatively new simplified option for home office deductions, in which home use for business can be calculated by square foot, not just percentage. Just be sure to know the limits of these deductions as they apply for your business.

3. APPLY FOR AN EIN

If this is the first tax season that you have employees or you recently restructured your business, you will need to get a new EIN. This is an employer identification number, a nine-digit number given by the IRS so your business can be identified consistently on taxes from you and your employees. Applying online will be the fastest way to receive your EIN.

4. KEEP TAXES FOR YOUR EMPLOYEES AND CONTRACTORS STRAIGHT

Distinguishing your employees from your independent contractors is crucial. Simply put, an employee’s work can be monitored for what and how things are done, whereas a contractor’s work can be controlled only when it’s complete. For taxes, this freedom of action makes the contractor a self-employed worker who files a Schedule SE (Form 1090), or the self-employment tax.

For employees, payroll taxes include income, Social Security, Medicare and unemployment taxes. Employers withhold the first, withhold and pay the next two, and pay the last. Then employees can file their W-2s.

Since contractors don’t have payroll taxes, mislabeling an employee as a contractor can look like tax evasion in the eyes of the IRS and result in serious repercussions. Employers can be charged with penalty fees and interest on the employee’s payroll taxes.

5. KNOW THE IMPORTANT DATES

Your deadlines will depend on your business structure. For a sole proprietorship, the deadline to fill out a Form 1040 with a Schedule C is usually April 15 (but April 18 in 2016). For an S corporation, the deadline is a bit earlier. You have to complete the Form 1120S for income taxes and pay by March 15. For any shareholders, provide them with a Schedule K-1 (Form 1120S) so they can calculate share of income, deductions and credits.

If you miss the deadline, the IRS imposes a penalty fee of 5% monthly for late filing, up to a maximum of 25%. The total penalty is calculated from your deadline to the date you filed the tax return, so it’s in your best interest to file your taxes.

Make sure to prepare your business for the inevitable, and you will glide through tax season with minimal stress.

© Copyright 2017 NerdWallet, Inc. All Rights Reserved

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When to Consider a Small-Business Line of Credit

A small-business line of credit can come in handy when unexpected expenses pop up or revenue is slow to arrive.

When you have one, you’re authorized to borrow up to a specific amount, drawing funds as you wish. You’ll pay interest only on the money you borrow.

Here’s everything else you’ll need to know about opening one for your small business.

CREDIT LINES VS. OTHER FINANCING OPTIONS

Small businesses usually obtain financing in one of three ways: a loan, a line of credit, or a business credit card.

When you receive a loan, you borrow one lump sum and make fixed payments. Business credit cards, on the other hand, have a similar borrowing and payment arrangement to credit lines. The big difference between the two is that credit cards tend to have higher interest rates.

A loan is a smart way to finance a long-term investment in your business. A business line of credit is a better option for funding unexpected expenses ― say, fixing broken equipment ― buying inventory to fill rush orders, managing your cash flow and other short-term, occasional needs.

WHAT TO EXPECT FROM LENDERS

Because lines of credit are often unsecured, a lender might be reluctant to grant you one — or more likely to impose unfavorable terms — if your business is struggling. That’s why the best time to establish one is when you’re generating a positive cash flow and your business is in overall good health.

If you don’t already have one, start a business bank account, pay all your bills on time, and take other steps to establish your business’s creditworthiness. You might apply for a low-limit line of credit first. Keep it in good standing by making on-time payments, and you might be granted a limit increase later.

Lenders might also grant you a credit line, but require collateral. This might be the case if you’ve been in business for less than two years or can’t show consistent revenue.

LENDERS TO CONSIDER

Banks, credit unions and online lenders can all help small businesses with financing, and small, local institutions might be your best bet. A recent Federal Reserve Bank study found that small banks meet some of the financing needs of 76% of applicants, while online firms meet the needs of 71% of applicants, and larger banks meet the needs of 58%.

A business line of credit can be a useful tool for dealing with short-term issues. It’s also a good way to build your business’s credit score.

© Copyright 2017 NerdWallet, Inc. All Rights Reserved

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When Refinancing a Small Business Loan Makes Sense

Operating a business is challenging enough without having your cash flow cramped by huge loan payments. If paying your lender is becoming a struggle, refinancing your small business loan may bring welcome relief.

WHY REFINANCE?

There are many good reasons to refinance a small-business loan, provided you’re a good candidate. The major appeal generally is a reduced interest rate, which can result in significantly lower monthly payments. But this isn’t the only potential benefit. Refinancing also may give you the opportunity to get additional cash out to help with company expansion and new expenses. It also could let you extend or improve loan terms or dodge a massive upcoming balloon payment.

IS REFINANCING RIGHT FOR MY BUSINESS?

As tempting as small-business refinancing sounds, it’s not for everyone. Refinancing may be a good choice for your business if:

Rates have come down at least one point since you originally financed: Do the math to ensure your payment will go down enough to put you ahead after closing costs and fees.

Prepayment penalties won’t derail you: Expensive prepayment penalties for your current loan could defeat the whole purpose of refinancing.

You plan to keep your business long term: It takes time to recoup refinancing expenses like points and fees.

Your current payments are mostly interest: Early in a loan, you’ve barely begun chipping away at your balance. Refinancing at a lower rate during this time really cuts a chunk from your overall interest burden. By the time you’re paying mostly principal, the savings won’t be as substantial.

You have equity: While you don’t want to wait too long to refinance, having built some equity in your business helps you qualify for lower interest rates.

You have good credit: To qualify for attractive annual percentage rates, you need solid credit.

You’re unhappy with your current loan: You may be suffering from exceptionally high rates, a looming balloon payment, oppressive late fees or other terms and conditions that are dragging your business down.

Your business is eligible for SBA refinancing: While you have lots of refinancing choices, the Small Business Administration offers some of the best rates and terms. It refinances loans from other lenders and even its own older loans under certain conditions: Your business must be SBA-eligible; the current debt terms must be unreasonable; the current creditor must not be at risk for loss; and your business must stand to truly benefit from the refinance.

HOW CAN I REFINANCE MY SMALL BUSINESS LOAN?

If you’re considering a refinance, start by exploring all the new types of small-business loans available through respectable, responsible lenders. Compare rates and terms carefully to make sure moving ahead is cost-effective. Some important questions to ask include:

Is collateral required?
What is the APR and how much will my payment go down?
What closing costs and fees are involved?
How long will I have to repay this loan?
Do prepayment penalties or late fees apply?

Once you’ve determined that refinancing is worthwhile and chosen a loan option, the application process will be much like that of your original financing. Expect a credit check and evaluation of your income, business history and business plan. As soon as you’re approved, you’ll be on your way toward a lasting improvement in your business’s cash flow and financial health.

© Copyright 2017 NerdWallet, Inc. All Rights Reserved

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How to Boost Your Small Business Credit Score

Are you a small-business owner who’s not getting the love you need from lenders? Are suppliers insisting on terms you find downright unfriendly?

The common denominator may be a poor business credit score. Here are some steps you can take to fix it.

WHAT GOES INTO YOUR BUSINESS CREDIT SCORE?

Just like a personal credit score, a business credit score measures the level of risk you pose for a lender. Unlike personal credit scores, most of which adhere to the FICO model, business credit scores don’t follow an industry standard.

The three major bureaus — Dun & Bradstreet, Equifax and Experian — use different methods to compile and monitor business credit scores. Each calculates its scores according to different criteria and uses different number ranges. Here’s an overview:

Dun & Bradstreet uses a proprietary Paydex score that is based on payment data. You can develop a respectable score by establishing credit with suppliers you are likely to have an ongoing relationship with. That way, you can build and maintain credit, assuming you pay your suppliers on time — and the earlier the better, as the highest rating is reserved for businesses that pay 30 days earlier than terms demand.

Equifax uses three assessments to rate businesses: a payment index examines your payment history, a credit risk score evaluates the likelihood your business will become severely delinquent, and a business failure score measures the chance your business will close.

In addition to examining credit history, Experian calculates its score by checking public records for liens, judgments and bankruptcies. It also considers demographic information, including how long you’ve been in business, the kind of business you’re in and the size of your business.

Unlike a personal credit report, which you can get for free, you have to pay between $35 and $100 to see your company’s credit report. It’s worth it, though, to see if you need to take steps to improve your score.

MANAGE YOUR BUSINESS CREDIT SCORE

Regardless of a particular bureau’s approach, you can take steps to beef up your business’s score.

Establish a business credit history. You probably had to start your business using personal funds and credit. As soon as you can, separate your business expenses from your personal finances. Open a commercial bank account and put your company’s bills and account in the company’s name.

Pay your bills on time. This is the most important thing you can do to boost your score. It’s the best way to prove you are not a risk to lenders or vendors.

Understand all the factors in your score. Payment history is not all that matters. Much more is involved, including the age, size and type of the business and how close to your credit limit you are.

Make sure the information in the credit reports is accurate. Monitor your reports, checking for and addressing errors and updating information as your business develops, because changes in things such as your company’s location, staff size and revenue can affect your score.

Examine the credit of your customers and vendors. The more creditworthy the people you do business with, the more smoothly your business will run and the less likely some problem with an account will ripple through and end up dinging your score.

Taking steps now to improve your business credit score is a smart idea. The better your company’s credit, the more favorable terms you’re likely to get from vendors and lenders. And should you face hard times, it can be tough to get small-business loans with bad credit.

© Copyright 2017 NerdWallet, Inc. All Rights Reserved

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Steps to Opening a Small Business

It takes more than a great idea and entrepreneurial spirit to be your own boss. But if you follow the right path, that dream can be within reach.

Here’s what you need to do to start a small business.

CREATE YOUR BUSINESS PLAN

A solid business plan helps you organize your ideas and attract potential lenders and investors. It doesn’t need to be a dissertation. Ideally, it should be about a page long and include your business’s:

  • Mission and vision.
  • Relevant copyright or patent information.
  • Target market and related research.
  • Estimated expenses and financing needs.
  • Organization and management structure.
  • Goals and objectives, along with an action plan.

GET SOMEONE IN YOUR CORNER

All entrepreneurs should have mentors, and there are many free and low-cost options. SCORE, sponsored by the U.S. Small Business Administration, offers business counseling, as do SBA Small Business Development Centers. And the SBA has a wealth of free online training tools.

Other government-backed mentoring options include Women’s Business Centers, Veterans Business Outreach Centers, and the Minority Business Development Agency. Local trade associations may also provide advice and support.

PICK YOUR BUSINESS STRUCTURE

Your business’s structure will affect your personal and tax liability, so devote some time to researching your options:

Sole proprietorship.
Limited liability company, or LLC.
C corporation.
S corporation.

Ask your mentor for help choosing and navigating the setup process. Once you’ve settled on a structure, register your business and apply for a tax ID number.

ORGANIZE YOUR BUSINESS FINANCES

It’s crucial to establish business finances separate from your personal ones. Open a business checking account, set a budget, and determine how you’ll pay for startup costs, such as property, materials, equipment, advertising and payroll.

BUILD YOUR TEAM

Unless you’re a one-person operation, you’ll need to recruit the right people. Network in person and online with potential employees and consultants.

REGISTER FOR PERMITS AND LICENSES

Apply for any required permits and licenses as well as workers compensation insurance, if applicable. Taking care of these details now could help you avoid hefty fines later.

GET THE WORD OUT

Your business can only succeed if people know about it, so launch a marketing campaign. Establish an online presence with a website and regular social media posts. Consider investing in professional advertising to help you target the right markets and separate your business from the competition.

It takes work and planning to start a new business, but the rewards of pursuing your passion can be well worth the effort.

© Copyright 2017 NerdWallet, Inc. All Rights Reserved

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Accounts to Open for Your Small Business

One of the most important decisions you’ll make when starting a business is choosing the right accounts. As an entrepreneur, you’ll want to make sure you don’t mix your personal finances with your business money: If your cash isn’t kept separate, it could be hard to meet IRS recordkeeping requirements, and that could lead to tax penalties. Opening new accounts in your company’s name is typically a better practice.

Having separate bank accounts could also help limit your personal liability. Say someone were to sue your company; your business assets might be at risk, but your personal assets would likely be protected from legal action.

Here’s a look at three common types of accounts to consider for your company.

BUSINESS CHECKING

For entrepreneurs, opening a business checking account means you don’t have to ask customers to write checks to you personally. Some customers could view checks written out to individuals as unprofessional, and that could hurt sales. With a business account, checks are made out to the company name.

Many banks offer business checking accounts for a minimal fee. Some even offer free business checking, though your company may need to agree to limit deposits and withdrawals to a set number or agree to keep a certain minimum balance.  At Northeast Community Credit Union, your account is free and there are no minimum balance requirements or transaction maximums.  Also free are our mobile apps, home banking, and most other services.

 

BUSINESS SAVINGS

You don’t have to put all your company’s cash in a checking account. It may make sense to place money you don’t need to spend right away into a business savings account, where it may earn a better rate of return.

A business savings account could also serve as an emergency fund to help pay for business operations if your company goes through a sales slump. And, as with personal accounts, your money would be protected with federal insurance up to $250,000 per depositor.

BUSINESS CREDIT CARD

Opening a credit card in your company’s name gives your business a chance to establish credit. When you first sign up, you may need to personally guarantee the debt because your company won’t have an established financial history. But your company will soon show a track record of payment as you put the card to use.

Opening bank accounts for your business can be an important step in establishing your company’s financials. By opening a separate checking account, savings account and credit card for your business, you’ll avoid the headaches that mingling personal and business money can create and you’ll make your company’s recordkeeping easier and more robust for the future.

 

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6 Tips for Anyone Late to the Retirement Planning Game

“Over the hill” surprise birthday parties can be fun. But one shock you don’t want in your 50s is the realization that you’ve completely overlooked retirement or are significantly behind where you need to be.

No matter why you’re falling short, if you are, it’s time for a retirement offensive. Here are a few things to consider as you try to re-energize your savings game.

1. FIGURE OUT HOW MUCH YOU NEED

A healthy nest egg is anywhere from six to 20 times your ending salary at the time of retirement, depending on your age when you retire and the proportion of your working income you want to have available each year. If you can, include an extra cushion for emergency expenses. Research shows most Americans don’t save anywhere near enough to maintain a comfortable lifestyle in their later years.

2. SPEND ONLY WHAT YOU MUST

If you’re over 50 and your retirement fund is in the hole or nonexistent, you can’t afford a flashy new car, a boat or a vacation hideaway. Focus instead on saving by cutting unnecessary expenses such as pricey coffee drinks, restaurant meals, expensive entertainment or big-ticket vacations.

3. BEEF UP YOUR 401(K) CONTRIBUTION

Particularly if your employer matches a portion of your 401(k) contribution, put in as much as possible. Remember, time is money. The longer the money has to earn returns, most likely the better off you’ll be. Even if you start late, tacking on a few extra years of saving can make a difference.

4. TAKE ADVANTAGE OF CATCH-UP PROVISIONS

Federal law limits how much you can put into a tax-advantaged retirement account each year. After reaching 50 years old, you can make annual catch-up contributions. For 2016 and 2017, the annual catch-up contribution is up to $6,000 in a 401(k) and $1,000 in a traditional IRA or a Roth IRA. Put in as much as you can.

5. WAIT TO TAKE SOCIAL SECURITY

Holding off before starting to collect Social Security payments can make a significant difference in how much you collect. Although you can start collecting benefits at 62, your benefit can increase up to 30% if you wait to receive benefits until you’re 67.

6. REFRAME THE IDEA OF ‘RETIREMENT’

Getting a later start on saving significant cash for retirement means you might need to rethink what those years will be like. You might need to move to a smaller home, sell a car or keep working at least part-time just to stay afloat.

Depending on how little you’ve already saved compared with where you need to be, you might feel like you’re speeding toward a cliff. Don’t let that keep you from starting now to get serious and save. Every bit you put aside now will make a difference later.

© Copyright 2017 NerdWallet, Inc. All Rights Reserved

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Saving for Retirement While Paying Down Debt

When faced with two big financial priorities, such as paying off old debt and saving for retirement, it can be easier to focus on just one. For people repaying student loans for themselves or their children, for example, 38% weren’t able to put money away for retirement, according to a 2015 survey from the National Foundation for Credit Counseling and NerdWallet. But there are ways you can contribute to retirement savings even while paying off student or other debt.

Neglecting either one can be a losing proposition. If you focus just on repaying debts, you can lose out on potential investment returns from money placed in a retirement account. On the other hand, you don’t want to pay more interest on debt than you need to. So here are a some steps to help you save while reducing what you owe.

STEP 1: PAY AT LEAST THE MINIMUM ON DEBTS CONSISTENTLY

Missing a loan or credit card payment can cost you in extra interest, fees and a dip in your credit score, so make sure to pay at least the minimum required amount each month to avoid this. That said, don’t go overboard in paying at this point. If you rush to erase the debt as fast as you can, you might miss out on potential long-term gains from investing your money now.

STEP 2: SAVE IN A 401(K) UP TO ANY MATCH, OR SET UP AN ALTERNATIVE

If your employer offers a 401(k) or similar retirement savings plan and will match part of your contributions, put in at least enough to gain the maximum matching amount. Also see how you can invest the money. For example, $10,000 invested to produce an 8% annual return — the average over the past decade for the Standard & Poor’s 500 Index of large U.S. stocks — would grow to more than $100,000 over 30 years. If you’re young enough, you can let your money compound for decades.

If you don’t have access to a 401(k), consider setting up a Roth IRA. The annual maximum you can put in is $5,500, or $6,500 if you’re 50 or older. A Roth IRA lets your money grow tax-free.

STEP 3: FOCUS ON PAYING OFF DEBT

Once you have started setting aside some money for retirement, you can turn your attention back to reducing your loans or credit card balances. By paying off more than the minimum each month, you eliminate your debts faster and cut the interest you end up paying.

As you manage these two goals, remember to build an emergency fund as well, so that you have ready cash to cover unanticipated expenses. If you don’t, you might end up back in debt or draining your savings.

By following these steps, you can avoid having to choose between your retirement goals and paying off debt. Taking advantage of the opportunity to save money now and to reduce debt can help you improve your financial life for years to come.

© Copyright 2017 NerdWallet, Inc. All Rights Reserved

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How to Save For Retirement

It’s never too early to start putting away money for your future. If you’ve ever wondered how to save for retirement when you’re also dealing with day-to-day expenses, these easy tips can help.

1. GET A ROUGH ESTIMATE OF RETIREMENT EXPENSES

It may seem difficult to know how much money you’ll need in retirement, especially if it’s several decades away. Experts say that to keep your same standard of living, you’ll probably need at least 70% of your pre-retirement income.

The reason you probably won’t need 100 percent is because some costs, such as commuting expenses or child care, probably won’t be necessary in retirement. If you already have a budget for your current expenses, then it’s probably easy to get a rough idea of what you may need when you retire.

2. DECIDE ON A SAVINGS TARGET

Say you’re 25 years old and your living expenses are about $50,000 a year. Take 70% of that, and it means you’d probably need about $35,000 to retire comfortably, assuming your income remains the same until retirement. So you’d want a nest egg that provides about $35,000 annually.

Many financial experts suggest that you withdraw only about 4% of your retirement savings each year to help ensure that it lasts. That means to get $35,000 in income, you’d need a savings target of about $875,000.

It’s a lot of money, but by using a retirement calculator, you could find that there’s a good chance you could reach your goal by age 61 if you start saving 10% of your income each year. This number assumes your savings earn 7% annually. If your income increases before retirement, you’d probably also need to increase your savings target.

If you can’t quite put away 10% — or whatever your goal percentage is — while also keeping up with your regular expenses, consider starting with a smaller amount and gradually increasing the percentage of income you save until you reach your goal.

You may also have other income sources in retirement, such as Social Security or a pension plan. Look at the Social Security calculator to get an idea of what your monthly benefits might be when you retire and add that to your retirement calculations.

Bear in mind that an income of $35,000 will probably have much less spending power in 40 years than it does today because of inflation, so it’s smart to consider cost-of-living increases in your savings target. It may be a good idea to make an appointment with a certified financial planner to help you weigh your options.

3. CONTRIBUTE TO A TAX-ADVANTAGED RETIREMENT PLAN

In addition to knowing what percentage of income you should save each year, you’ll also want to decide where to put your money. If your employer offers a traditional or Roth 401(k), consider enrolling. This is especially important if your company offers an employer match, because a match is like adding free money to your retirement savings. You could also contribute to a traditional or Roth IRA.

With traditional retirement plans, you receive an upfront tax deduction for the money you contribute. You then let that savings grow and allow the interest to compound. You’d pay income tax on any money you withdraw, and you’d also have additional early withdrawal penalties if you take money out before age 59½.

With Roth plans, you pay tax on your contributions, but you don’t have to pay tax on your withdrawals if you retire after age 59½.

When you put your money in a retirement savings plan, you’ll have a number of different investment options to consider, including stocks, bonds and mutual funds.

4. PUT YOUR SAVINGS ON AUTOPILOT

Once you’ve established your retirement plan, consider setting up automatic withdrawals from your paycheck or bank account. It would be much easier to meet your savings goals when your money has a chance to grow uninterrupted over a period of years.

Learning how to save for retirement is important, but it doesn’t have to be hard. By coming up with a savings goal and contributing regularly to a retirement account, you can help make sure you’ll be able to meet your financial goals for the long term.

© Copyright 2017 NerdWallet, Inc. All Rights Reserved

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