Myths Busted

Truth: Your accountant should be a resource, not a catch-all. While they keep track of the books and file taxes, they can–and should–do much more. The bread and butter of what we do is much more involved. By acting as consultants and small business experts, we are able to help you with business advice, guide tax plans, ensure compliance, look into financing and credit possibilities, manage cash flow, and find ways to reduce your overhead expenses while protecting assets etc. With that being said, we still want and need you to be involved firsthand in order to understand how the business is doing overall.

First of all, let's break down an annuity: ⁣⁣⁣⁣

⛔️Annuities are insurance products.⁣⁣

⛔️They are guaranteed by the insurer that underwrites the policy.⁣⁣

⛔️They are commission-based products.⁣

⛔️They're often times misunderstood and sold in confusing ways.⁣⁣⁣⁣⁣

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This is a common myth because the “bonus” that’s paid on an annuity often only applies to the “benefit base” of the policy. The benefit base is only used if the product is ever annuitized -- and most annuities never reach this stage. ⁣⁣⁣⁣Annuities are complex financial products, and there can be certain situations in which they make sense. We don't sell annuities at Lockshield Partners because they are commission-based products, and we are a fee-only firm. However, if you ever have any questions, we are here to help.⁣⁣⁣⁣

Not quite!  While your will directs assets such as real estate or personal property, it doesn’t impact accounts with a named beneficiary.  Accounts or insurance policies with a named beneficiary will be transferred to the beneficiary on that specific account or policy, regardless of what the will says. As a best practice, we recommend reviewing your estate planning documents and beneficiaries on an annual basis.  It’s also a best practice to communicate with beneficiaries regarding the steps to take in the event of a death or serious illness.

Not quite!  While owning your own home can be gratifying, it doesn’t necessarily make sense to purchase a home if you plan to own it for a short period of time (note - this is not in reference to an investment property).

As a general rule-of-thumb, it makes sense to purchase a home if you plan to live in it for five years or more.  If your time frame is shorter than that, then renting may actually make more sense.  Why is this?  When purchasing a home, there are many expenses on the front-end, especially maintenance, closing costs, and interest expense on the mortgage.  It typically takes a few years of payments (and home value appreciation) for you to cross the breakeven point.

While a home purchase is often a wise decision if the home is a long-term solution, don’t rush into buying a home because it’s something that you feel like you “should” do.  Our society tends to portray renting as negative, but renting is often the wise decision.  It can enable you to build cash for a down payment, and if you’ve moved to a new area, renting for a period of time can help you to learn the areas of town that you like and don’t like.

Market drops are no fun to be a part of, but they are a part of the normative economic cycle. In fact, we've experienced 10 bear markets over the last 40 years. While our natural human reaction is to want to decrease risk and take chips off the table during a down market, history shows us this is not a good idea.  It is impossible to perfectly time the market and know when to pull our funds out and put them back in.  Data shows us that if we miss just a few of the top-performing days, it has a drastically negative impact on our portfolio.  Although it can be difficult to watch account balances drop, the proper approach is to maintain the correct allocation for your situation over a long-term time frame.  For some people, it may even be prudent to take on more risk in a down market.  This is, of course, situation-dependent.

As a small business ourselves, our team understands your concerns and the love you have for your business. That is why we work with you, not just for you. ⁣⁣Less transactional, more relational is the Lockshield approach. We are here to help you succeed. You will still have access and control of your finances, we just keep them clean and clear to help you run your things more efficiently, while hopefully giving  you more time to focus on your expertise.

The earlier you can start working on your financial goals, the better results you will be able to have over time. Especially with things like retirement and estate planning - it is never too early to weigh out your options.That way when the force of life is directed at you and a curveball is thrown your way, you have a team standing next to you to lock shields with.

Unfortunately not!  If you have a projected tax liability, the IRS will charge penalties and interest for “underpayment.”  This projected liability is due to be paid at the tax deadline in the spring, regardless of whether or not you request an extension.  For taxpayers who expect to receive a refund, no payment must be sent in at the spring deadline.

Interest rates have certainly been a hot topic recently.  In September, the Federal Reserve raised interest rates 75 basis points (or 0.75%) for the third consecutive meeting.  This has been a historic rise in rates.  Before we explore whether interest rate increases are good or bad, it may be helpful to understand why interest rates are going up.  By increasing interest rates, the Federal Reserve makes borrowing more expensive.  If it’s more expensive to borrow, less money will be spent, which cools down the economy.  This is sometimes referred to as “tight” money policy.  Cooling down the economy helps to lower inflation.So, are rising interest rates a negative thing?  It depends on your situation.  If you were preparing to purchase a new home, then rising interest rates can be difficult to deal with.  It can cause you to pay thousands of dollars in additional interest over the life of the loan, and it increases your monthly payment by several hundred dollars as well.  On the flip side, rising interest rates can be positive for households who have cash in the bank.  CD rates, high-yield savings accounts, and newly-issued bonds will all pay a higher interest rate.

All companies big or small could benefit from accounting services, but especially small. A lot of the time small businesses are a team of less than 5, trying to do everything themselves. ⁣
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Not only does having an accountant take tasks off your to-do list, it gives you unlimited access to expertise in all things accounting which could end up saving you late fees and penalties.⁣

A true financial advisor will have the heart of a teacher. ⁣⁣At Lockshield Partners, we work to be a guide, a resource, for you so that you can navigate the world of finances as easily as possible.

Gifting to family and friends isn’t a deduction from your taxable income. The only potential deduction for gifting would be to a charitable organization.

While technology and accounting software is great, it doesn't have the personal touch and expertise an accountant has. Our team is made up of experts in the field and are Quickbooks Advisors as well. We work to help you best utilize those softwares while also being there for any questions or concerns that arise along the way.⁣⁣

Far from it! While putting in at least what your employer matches is a must, it is far from maxing out your retirement savings.

A standard Rule of Thumb is to save 15% of your gross income for retirement - in an 401k, 403b, or IRA for example. If your employer throws some on top that’s great! But you should have a savings goal rate of 15% on your end.

Depending on your cash flow that may be a hard change to do right away. But, if done gradually over several years, it’s not as hard as you think.

Not true at all. Our firm isn’t concerned with earning our revenue during the few months of filing season. Since we work year-round and provide other services to compliment tax preparation, you aren't be charged fees for things like peace of mind. In our opinion, those things should always be free and included. ⁣

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PRO-TIP:

But wait there's more!! On top of not paying more when going with an accounting firm, your return will be prepared by a certified annual tax season preparer - not someone that has had a six-week crash course.⁣

While this is possible, it’s very unlikely. Individuals are only able to use their interest as a deduction if they use itemized deductions.

In order to use itemized deductions, they must be greater than the standard deduction (and nearly all Americans use the standard deduction). Interest deductions often don’t save you as much in taxes as you may think.

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PRO-TIP:

Consider this - if your marginal tax bracket is 12%, you are only decreasing your actual tax liability by 12% of your overall interest paid.

For example, assume that John Doe pays $5,000 in mortgage interest in 2021, and he is able to utilize itemized deductions on his tax return.  Since he is in the 12% marginal tax bracket, this interest deduction saves him a total of $600 on his tax return ($5,000 * 12%). Is it worth it to spend $5,000 to save $600?

False! Expenses or deductions would need to be reported in the year they were paid for most individuals. If expenses or deductions were left off your prior return you might consider filing an amended return to correct it.

Not so fast! While it’s true that interest rates are near all-time lows, it is still recommended to keep some funds in the bank.

As a general rule-of-thumb: it’s wise to keep 3-6 months of household expenses in the bank, along with cash for major purchases that are upcoming in the next year or two.

At the same time however we can see where you might think this myth to be true. Your $100 bill does not buy you nearly as much as it did 10 years ago - this is referred to as “purchasing power risk.”⁣⁣

When the interest rates are low, the funds in the bank don’t generate enough return to keep up with the place of inflation therefore it can also be unwise to keep too much cash in the bank due to inflation risk. ⁣

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PRO-TIP:

Try to keep your emergency savings in the bank, but it’s likely wise to deploy those additional assets elsewhere.⁣⁣

All advisors are in fact not the same and you need to be very aware of this when selecting yours.  If you remember, Jeremiah did a great job covering this topic in his “Selecting a Financial Planner” blog article. Our firm is set up a little differently. With two CERTIFIED FINANCIAL PLANNERs (CFP®*), an Attorney and an accounting firm at your disposal, we can provide expert opinions on the complex world of Financial Planning. The planners at Lockshield Partners are also what is called Fiduciaries, meaning we are legally held to a higher standard that requires us to give you advice that is best for your situation. Financial Advisors that are not “Fiduciaries” only have to recommend something that is “suitable” for you. There is a big difference in these standards.

While this isn't necessarily untrue, it is more than just handing it all over to your accountant and expecting everything to be easily fixed. Our team is here to provide advice and clarity on money issues, we can put your tax affairs in order, and help you find ways to cut costs, BUT it is ultimately up to you whether your business succeeds or fails. Our advice? Put in the time and effort now, and have an accountant supplement your success.

The best financial planners will save you more money than what you pay them in fees.⁣⁣ If you could have a security blanket in place, that was a long-term investment, to ensure you do not make any costly financial mistakes, why wouldn't you do so?⁣⁣We are here to plan together not just today or tomorrow, but for months and years to come. ⁣⁣

False! Tax planning can be a year-round process.⁣⁣

The goal of tax planning is twofold:⁣⁣

1. Be as tax efficient as possible. ⁣Although we realize that taxes are symptomatic of God’s provision, we don't want to have to pay more tax than we have to. Tax planning throughout the year can help to identify tax efficiency opportunities.⁣⁣

2. Surprises are no fun at tax time. ⁣Ideally, taxpayers are close to breakeven when their return is filed in the spring. Receiving a large refund means that we could have had more monthly cash flow instead, and a large payment is never fun.⁣⁣

Here at Lockshield Partners, we understand the struggles and needs that life throws at you. We want you to use your money wisely but we also understand that life is for living! Our goal is to not make you miserable until you retire, but to instead utilize your money so that you can enjoy your life in every stage.

If there is anything these last two years have shown us it is that everything can change on the turn of a dime. While you may have a solid grip on your finances, having a trained, qualified financial advisor making sure all your goals are talking to each other, short and long-term alike, keeps you protected and aware when those changes happen. ⁣

While we do handle tax returns for individuals and businesses, we also handle a wide variety of other tasks.⁣⁣

✔️Monthly, Quarterly, and Annual Payroll Tax Reporting⁣

✔️Bookkeeping and Reconciliation of Bank Accounts⁣

✔️Bill Paying/Accounts Payable⁣

✔️Accounting Software Assistance and Consulting (QuickBooks)⁣

✔️New Entity Setup⁣

✔️Retirement Reporting⁣⁣⁣Just to name a few.

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Having someone to keep up with your business’ finances, payroll, and taxes year-round is what we are here to do.

While spending and savings are one of the major areas included in a financial plan, it is only one part to the bigger plan. A budget is specifically designed to track your spending and savings habits, helping you become more efficient with your personal cash flow. A financial plan on the other hand, encompasses all of the areas of your financial life—savings, spending, income, and housing, to insurance, estate plans, and retirement.

Although this is true for some, we operate a little different. Our accounting team works with clients year-round, taking a proactive approach to payroll, bookkeeping, and tax planning for individuals and small businesses.⁣⁣

By being available when you receive correspondence from various governmental agencies throughout the year, we can help ease the stress and worry from dealing with responding to any requests from the IRS or state. ⁣⁣

Outside of peak season for taxes, our team also provides a great amount of consulting and tax planning advice which can be proven vital for those in business, about to retire, or having a life changing event occur. ⁣⁣

Knowledge is power and the more we can empower our clients the better decisions they can make.

It is not only important to have separate bank accounts for personal and business expenses, it is essential. By separating the two, you make yourself less likely to be audited and even if your business does go through an audit, separate business finances provide a clear audit trail that will make the whole process much smoother.