Know Your Banker

We thank Herman Davis, Regional Vice President for Liberty Bank, for sharing content from The Liberty Line, a publication of Liberty Bank.

There are many pieces to the puzzle when it comes to running a successful business. Often, nothing counts more than having adequate funding. That’s where your banker comes into the picture. The hope of course, is that your small business is in the black and operating at full speed ahead. However, there comes a time even when the most successful business needs additional capital to launch a new product line, expand the physical operations, or purchase additional equipment. There also comes a point when you’ll need your banker to help you through the tough times. So, what’s the best way to make the most of your banking relationship? Here are a few useful tips.

Be Attractive

Your banker needs to know you’re a good risk. Remember, you’re not the only one who’s in business to make a profit. So, make yourself an attractive banking client and communicate that fact to your banker. Know what you need before you walk in the door, whether it’s short-term financing, a term loan, mortgage financing for business or personal property, or other non-loan services.

Your banker is looking for a client that is financially secure and has collateral to back up the loan. Lenders also expect that you’re an expert in whatever business you’re running and that you have talented and capable business people behind you. That also means that if you are a novice, a prospective lender is going to give you a much closer look than a borrower who is experienced in his or her field. No matter your background, bankers will be looking for stable and reputable business people to work with on any given day. They’ll expect a workable business plan and one that will change and evolve as your business does as well.

Don’t Play Hard to Get

In good times and in bad, it’s important to keep the lines of communication open with your lender. Make sure to touch base with your bank on a regular basis so your lender knows how your business is doing, even when you’re not in immediate need of financing. It’ll be to your benefit if and when you do have banking needs. Your banker will be more likely to expedite any request if they have a clear and up to the minute picture of your business.

Always have your current financial statements at the ready. You might be surprised to know that your banker will appreciate the effort. Remember, business clients are the bedrock of any financial institution, so make sure you’re an active party in the relationship. If you’ve been contacted by the bank, get back to them ASAP. Small business owners often find it difficult to manage their time, but your banker isn’t the call to put off. When you call them back, have your financial statements and banking statements in front of you.

Be Straightforward

Your banker is certain to be full of questions. And, many business people will take that as a negative sign. But it’s par for the course. So, when you answer any and all financial and personal questions, make sure to say what you mean and mean what you say. In other words, be clear about your needs and your financial picture. Try not to go on the offensive or fall back on a defensive position either. Relax and communicate with your bankers in a straightforward way. They’ll appreciate the approach.

Honesty is the Best Policy

When it comes to banking, it’s always best to be forthcoming with information. When your banker asks for additional financial information about your business or additional details about you, make sure you respond quickly and completely. Don’t be surprised by follow-up questions. The back and forth doesn’t necessarily mean you’re going to get a “no” answer when it comes to your banker. They’re merely doing their job. Also, don’t spring a surprise on the bank. It pays to give your banker a complete and up-to-date picture of your business early and often.

Pay Attention to Your Savings

Don’t use your banker only for business transactions. Most small business owners shortchange themselves when it comes to personal savings. Your banker is there to not only help you when you’re financing your business, they can also assist you in planning for your short term and long-term savings. Whether you’re looking to build an emergency savings account or stash away cash for retirement, there’s a way to go about it all. Your banker can offer up ideas about the approach and the most appropriate investment options available.

Get Some Help

If you’re looking into more complicated investments, then you’ll probably need a bit more help. Most people are not ready, willing, and able to understand the vagaries and complexities of the market on their own. That’s where it pays to talk to professionals. But whatever you decide as far as your personal savings and investing, remember that for most people, a diversified portfolio with a moderate risk strategy is best. If you’re near or close to retirement, then you’ll probably want to consider more conservative and lower risk investment vehicles.

Keep in mind that, although lenders have to follow strict guidelines, they are people first. Keeping your lender in the loop gives him or her the chance to see over time that your company is on solid ground and that you exercise good financial practices. When time is of the essence, having an established relationship may be the difference between getting what you need on time, or being a day late and a dollar short.

What Happens to Your 529 Funds if Your Child Skips College?

We thank Herman Davis, Regional Vice President for Liberty Bank, for sharing content from The Liberty Line, a publication of Liberty Bank.

It’s a question that bothers many parents who have opened 529 college savings funds for their kids, or are considering doing so: What happens to my money if my child doesn’t go to college? Fortunately, 529 funds aren’t a “use-it-or-lose-it” proposition. Even if your child decides not to attend college, you have more options for your 529 savings funds than you might expect.

Benefits of a 529 Savings Fund

A 529 fund is a tax-advantaged account you can establish to invest money for your child’s (or other relative’s) college education. You can open 529 accounts at many banks and investment firms, and have numerous options for investing your money.

Some states offer state tax deductions for 529 account deposits. And in most cases, you won’t owe state taxes on your account withdrawals and investment earnings, either. However, the main benefit of such plans is that withdrawals and earnings are exempt from federal taxes — so long as the money is used to pay for what the IRS considers “qualified” college expenses.

“Qualified” college expenses typically include tuition, mandatory fees, books, supplies, computers, and room and board up to the amount the college lists in its “cost of attendance” list.

5 Other Ways to Use 529 Savings Funds

If you’re worried that your child may follow a path that doesn’t include college, here are several options for the money in your 529 account:

1. Let another college-bound relative use it. This entails changing your plan’s beneficiary — the person who will use the money to pay education expenses — to another family member. This could be another child (such as your niece or grandson) or a close adult relative, or his or her spouse (such as your sister or brother-in-law).

2. Use the money yourself. Have you or your spouse considered returning to college or getting an advanced degree? If you name yourself or your spouse as the new 529 fund beneficiary, you can use the money for qualified higher-education expenses.

3. Be patient. Your child may still decide to go to college after first spending some time in the workforce. Unless your plan restricts how long the account may remain open, you typically can leave the funds invested for years. They’ll be ready to use if your child has a change of heart later on.

4. Think outside the box. Higher education includes more than traditional colleges and universities. Your child can also use 529 funds to pay for technical and other qualifying professional schools — as long as the institution participates in financial aid programs sponsored by the U.S. Department of Education. You may be surprised to learn that professional golf academies and other unusual programs sometimes qualify!

5. Withdraw the money — at a price. You’re always allowed to take out the money and close your 529 account. The catch is that you’ll pay federal and state taxes on any account contributions, plus a 10% tax penalty on any earnings. (The penalty is for not using the money for higher education.)

If withdrawal is your only viable option, consider removing the money in a year when you’re in a lower tax bracket (such as during retirement). In the unfortunate event that your beneficiary dies or becomes disabled and can’t use the funds for college, you can withdraw the money without paying the extra 10% penalty. However, you’ll still owe taxes on contributions and earnings.

As you can see, 529 plan account holders never “lose” money because their child decides against college. Ask your banker or a college financial aid representative if you have more questions about 529 college savings funds.

Miscellaneous Itemized Deductions: What You can and can’t Deduct

We thank Herman Davis, Regional Vice President for Liberty Bank, for sharing content from The Liberty Line, a publication of Liberty Bank.

Most taxpayers are very familiar with itemized deductions related to home ownership, medical expenses and charitable donations. But many are less familiar with miscellaneous itemized deductions. If, for example, you must belong to a trade or professional association to carry out your job responsibilities, yet your employer doesn’t cover the dues, you may be able to claim a deduction on your tax return.

This is just one of a number of available miscellaneous itemized deductions.

Miscellaneous itemized deductions are divided into two broad categories. The first includes those that can be deducted to the extent that the total exceeds 2% of your adjusted gross income (AGI). The other group, not surprisingly, consists of deductions that aren’t subject to the 2% floor. Do you know what miscellaneous expenses you can deduct — and what you can’t?

Deductions Subject to the 2% Floor

The IRS further classifies deductions subject to the 2% floor into three groups. One is unreimbursed employee expenses. To qualify for the deduction, the expenses must be ordinary and necessary, such as business liability insurance premiums and dues to chambers of commerce, trade and professional associations or
civic organizations.

Home office expenses incurred by employees can also qualify, so long as the space is used regularly and exclusively for work and is a requirement of your employment. (Self-employed taxpayers can deduct qualified home office expenses directly from their self-employment income; the expenses aren’t treated as a miscellaneous itemized deduction and thus aren’t subject to the 2% floor.)

The second group of expenses subject to the 2% floor consists of fees for tax preparation and tax advice. You can deduct these expenses for the year in which you pay them. So, on your 2016 return, you can deduct fees paid in 2016 for preparing your 2015 return. This can include the costs of tax preparation software as well as any charges for filing your return electronically.

The third group that’s subject to the 2% floor includes a variety of “other expenses.” Among them are:

  • Expenses you might have incurred to produce or collect the income that’s included in your gross income,
  • Costs incurred to determine, contest, pay or claim a refund of any tax,
  • The cost of any help — whether professional or clerical — needed to care for your investments, and
  • Any fees you were charged to collect interest and dividends.

Keep in mind that you’ll need to keep track of such expenses in order to get a deduction on your tax return.

What’s not Subject to the 2% Rule

There’s a range of expenses that can be taken as miscellaneous itemized deductions regardless of whether they exceed 2% of your AGI. These expenses can include casualty and theft losses from income-producing properties, such as stocks, bonds, works of art and vacant lots.

They also include the federal estate tax attributable to “income in respect of a decedent.” This is gross income a deceased person would have received if he or she hadn’t passed away and that you, as a beneficiary, include in your gross income.

Expenses that can’t Be Deducted

Some expenses that you might think would qualify as miscellaneous itemized deductions actually don’t, such as:

  • Brokers’ commissions,
  • Burial or funeral expenses,
  • Commuting expenses,
  • The cost of meals eaten while working late or with co-workers,
  • Personal legal expenses, and
  • Professional accreditation fees.

The Best Source for Guidance

Determining which miscellaneous expenses are deductible and which aren’t can get confusing. For instance, license and regulatory fees you pay to state and local governments for your trade, business or profession are deductible, subject to the 2% limit. However, professional accreditation fees, such as bar exam fees paid to secure initial admittance to the bar, aren’t deductible.

Your tax attorney is the best source for guidance on what miscellaneous itemized deductions you may be eligible to claim.