Although the precipitous drop in the stock market is terrible news for most, there may be a silver lining for many. This bear market may be the right time for some to convert their Regular IRA to a Roth.

Let’s remember the major difference between the two. On a Regular IRA, you get a deduction when you deposit funds but have to pay regular taxes on principal and interest when it’s distributed.

Roth IRA’s are the exact opposite. You pay tax when you deposit but don’t have to pay anything on principal or interest when the funds are distributed.

Like most retirement plans, the question is do you want to pay taxes now or later? If you’re an upper income earner, normally that answer is now given the amount that your deposits will grow over time.

Converting a Regular IRA to a Roth requires you to pay tax over time on the conversion amount. My point is that taking advantage of a down market may make this much more palatable. If you normally have $500K in an IRA and that goes down to $375 in a down market, you would only pay tax on the lesser amount.

A major consideration in this decision is the amount of time one has until retirement. If you only have five years until retirement, then why pay all of the tax now? It would be easier to spread it out over your entire retirement.

If you still have twenty years before putting in your papers and getting the gold watch, then it might be time to do some math. Please realize that tax planning is a major consideration.

You’ll owe income tax on the entire amount converted. Please make sure this is affordable before making a bad decision.

Let me leave you with this.

In the continuing task of doing tax planning for our clients, we’re finding that many who had outside payroll services just didn’t withhold enough to cover their eventual income tax. This is a common problem for business owners given the fact that we pay tax not only on our W-2’s but also on the income pass throughs from our businesses.

The lack of planning can cause some higher than normal tax bills. There are two common solutions.

First would be to pay your quarterly estimated payments. Many taxpayers get their income tax returns and pay no attention to these. Although the quarterly estimates will not guarantee anyone a refund, they will certainly estimate an eventual income tax, making sure that you have deposited at least last year’s liability.

This can be difficult. If you owe a larger amount, let’s say $20K in federal taxes, making a $5K deposit every quarter can be a hardship.

The second solution would be saving for an eventual income tax in smaller amounts by increasing the withholding on your payroll. Adding $385 to your weekly federal withholding can be easier than writing a $5K check every three months.

This is where having your accounting and payroll service at the same place can pay substantial dividends. If you allow us to do both, we can coordinate your withholding making your life substantially easier.

We’re all going to get through this. Let’s get through it together.

Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Employee Retention Credits, M&A Due Diligence, Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,

Sincerely yours,

Chris Amundson
President
Accounting Solutions Ltd.
773-267-7500
888-310-0300

www.AccountingSolutionsLtd.com

Note that the only professional services provided by Accounting Solutions Ltd. are those specified in a written communication from our office detailing the scope of services to be rendered and the terms and conditions applicable to the engagement.

By now, I’m sure you heard that the Federal Reserve Bank (Fed) raised its benchmark federal funds interest rate by 75 basis points last Wednesday. The question becomes, what does this actually mean? What are the implications? How does this change how we operate our businesses?

What the Fed actually did was raise the interest rate it charges your local bank to borrow whatever money the bank needs to handle its lending and other banking requirements. Banks don’t just lend based on their own deposits.

If they want to expand their lending portfolio and increase their income, they’ll do it through borrowing money from the Fed. By increasing that rate, in turn your local bank will also increase the rates they charge you to borrow to maintain their own margins.

The last time the Fed increased this rate by 75 basis points was 28 years ago in 1994. This big move isn’t completely unprecedented, but it just isn’t done.

If you look at a graph of the interest rate over time, the Fed normally raises it slowly in order to not “shock” the overall economy. They’ll increase it a quarter basis point every month until inflation calms down and the economy is back under control.

But that isn’t what they’re doing now. Last month they increased it by half a point and now a full three quarters in basis.

The employee counts of businesses with fewer than 50 employees have decreased in three of the last four months according to data compiled by ADP, a national payroll company. In that same period, payrolls at larger companies increased.

The Entrepreneurs of those smaller businesses are blaming inflation as the main culprit of their hiring woes in an already difficult labor market. These difficulties are affecting the bottom lines of small businesses because they’re understaffed and unable to work at full capacity.

This is either hurting or eliminating profits altogether. According to a June survey conducted by Vistage Worldwide Inc, 63% of the small business owners surveyed said that hiring challenges are affecting their ability to operate at full capacity.

In order to combat this difficulty, 76% of small businesses have increased their wages and 44% added benefits to retain or attract more workers. Others are adding monetary bonuses to incentivise better work or performance. As always, when entrepreneurs can’t find decent employees, we step in wherever necessary to fill the gaps.

What’s happening to all of the workers who are leaving smaller companies? They’re being poached by larger organizations that can afford higher wages and larger benefit packages.

Please don’t be dismayed. In time everything will even out.