The Benefits of Saving Your Tax Refund

Filing your tax return may be not fun, but for millions of Americans, the task yields a tidy sum. If you’re one of the many taxpayers getting money back from the government—the average refund was $2,753 in 2023—steering those funds toward your savings is a sound move. With a little bit of planning, that inflow from Uncle Sam can be used to build financial security for you and your family. Experts generally recommend stashing between three to nine months’ worth of living expenses aside, but even a small amount will get you started toward having a financial cushion. 

Start Saving Towards a Specific Goal

If you’ve already stashed savings in an emergency fund, consider using your refund to pursue a long-term savings goal. With interest rates edging up, now is a great time to funnel money earmarked for a house down payment, new car, vacation, or other goal into a savings account that will grow over time. Putting your refund toward reaching a significant goal—or goals—can bring a more meaningful reward than the instant gratification of an impulse purchase.

Invest Your Tax Refund

Another idea is to invest your tax refund. Investing your tax refund offers a strategic path to financial stability by allocating funds into stocks, bonds, or retirement accounts. It fosters financial discipline, enhances financial literacy, and provides a safety net against unexpected expenses that life may throw your way. Overall, smartly investing your refund can significantly benefit your financial future and goals.

Fight the Urge to Splurge

While it can be tempting to use your refund toward a shopping spree or luxury vacation, there are good reasons to tamp down that urge. At a time when inflation has prices on goods, services, and travel at a relative high, you’ll pay top dollar for everything from airfare and hotels to home furnishings and entertainment. If you’ve been living on a tight budget and still want to treat yourself, there are ways to splurge responsibly. Experts suggest planning to spend 10%-25% of your refund toward leisure activities or a longed-for purchase and place the rest in savings. Limiting your reward spending will ensure that the bulk of your hard-earned money goes toward a purpose that will benefit you and your family for years to come.

Ways to Save Your Cash

What you plan to use your money for and when you’re likely to want to access it will factor into where to put your savings. For example, funds earmarked for an emergency should be relatively liquid or readily available when the need arises. When saving toward longer-term goals, however, it may make sense to trade less liquidity for a higher rate of return. If you are able to commit to setting $500 or more aside for a designated period of time, a certificate of deposit (CD) also may offer a higher rate of return while providing the same level of safety as a savings account. CD terms can range from six months to two, three, or even seven years, with longer-term commitments offering higher rates

Finally, once you’ve started your savings journey, it’s important to revisit your short- and long-term financial goals and progress toward them regularly. Your priorities may shift, or you may need to make adjustments to stay on track to reach your goals. With care and attention, using your tax refund wisely can be the first step of a savings journey that will put you in a better place financially. Source

7 Benefits of Direct Deposit

If you’re still getting paper paychecks, there are many benefits to having your paystubs automatically deposited into your bank account. In fact, 93% of employees have already enrolled in direct deposit because it makes their life simpler and their finances more streamlined. If you haven’t signed up yet, direct deposit is a way to electronically transfer money from one bank to another without having to receive a paper check, take the check to a bank or ATM, and wait for the money to clear. Direct deposit money moves between banks via a high-speed network called the Automated Clearing House, or ACH.

Most banks, including Fifth Third, offer direct deposit services for their checking account customers. Many employers prefer direct deposit because it saves them the time of issuing physical checks. But direct deposit isn’t just for paychecks. You can use it to receive Social Security checks, pensions, tax refunds, travel reimbursements, and many other types of payments. Gig workers can use direct deposit, too.

1. It’s Immediate

When you use direct deposit, the money shows up in your account on payday, ready for you to use.

2. It’s Convenient

With direct deposit, trips to the bank are a thing of the past, saving you valuable time. Even better, you don’t need to be at work to collect a paper check. If you were sick or on vacation on payday, you’d have to wait until you returned to work to get paid or ask someone to mail you the check, potentially incurring yet another delay. With direct deposit, you get paid no matter where you are.

3. It’s Safe and Secure

Despite how careful you are, there’s always the risk of losing, misplacing, or damaging a paper check and needing to wait until your employer stops payment and issues you a new check. Even worse, your paycheck could be stolen and cashed. While checks require a signature, it’s no guarantee against someone else cashing it if a bank teller or check-cashing employee doesn’t verify the identity of the person cashing the check. It would take time and effort to prove the theft before you would be able to get paid again.

4. It’s Easy to Set Up

Digital banking is here to stay, and direct deposit definitely falls within this super convenient way of banking. Typically, employers will ask you to fill out a form to set up direct deposit. You will have to provide your name, address, Social Security number, bank routing number, and account number. The bank routing number is the first set of numbers printed on the bottom left of your checks. Your account number is to the right on the bottom of the check. 

5. It Helps You Budget

Since your money is always deposited in your bank account on time, you never have to stress about having the funds available to pay your bills and expenses. You can even schedule your rent, gas bill, mobile device bill, or other payments to be deducted immediately after your paycheck hits your checking account. This supports your budget and avoids late fees, helping you reach your financial goals faster.

6. It Helps You Save Money

You can have your paycheck split into more than one account instead of going entirely into your checking account. For example, a portion can go into an emergency savings account, a down payment savings account, or a travel account. You don’t have to remember to transfer the money over, automatically putting into practice the old savings rule: Pay yourself first.

7. It’s Good for the Environment

You can shrink your carbon footprint by going paperless. Direct deposit eliminates paper waste for printing checks and the fuel needed to mail them, not to mention the gas used driving to the bank. With speed, security, and convenience, it’s easy to see why direct deposit has become such a popular way for people to get paid. It only takes a few minutes to set up to start reaping the benefits of direct deposit.

Source

Complimentary Bookkeeping Review

Limited Spots Available!

If you’ve been meaning to take a closer look at your business finances but keep pushing it down the to-do list, now’s the perfect time. For a limited time, Powers Bookkeeping Service is offering a complimentary, personalized bookkeeping review to help you feel confident about your numbers and your next steps.

This one-on-one review includes:

• A look at your current bookkeeping setup
• Recommendations to streamline and improve your process
• Insights into potential issues before they become problems

Whether you're behind, unsure, or simply want a second opinion, we're here to support your success.

Only 7 reviews available this month – schedule yours today before spots fill up!

(916) 302-9153

info@powersbookkeepingservice.com

Happy 4th of July!

 

Happy 4th of July from us at Powers Bookkeeping Service, Inc. to all of you! 

We hope you have a special holiday weekend! Stay safe! 

(916) 302-9153

info@powersbookkeepingservice.com

Challenges in Global Payroll Compliance

Modern payroll operations face increasingly complex challenges as work environments evolve and regulations multiply. Here are the primary obstacles organizations encounter:

• Regulatory landscape. The constant evolution of payroll regulations demands continuous attention, from changing tax laws to shifting compliance standards. Each jurisdiction has unique requirements that create a complex web of obligations that organizations must navigate.
• Distributed Workforce. The rise of hybrid and remote work models has transformed traditional payroll operations. Organizations now manage employees across multiple tax jurisdictions, time zones, and labor law frameworks while adhering to location-specific requirements for benefits and compensation.
• Employee classification. Proper worker classification remains a critical challenge. Misclassification affects tax withholdings, benefits eligibility, and labor law protections.
• Data management and technology. Organizations face significant challenges with payroll data accessibility and analysis. Technology integration issues create barriers to efficient operations, while outdated systems struggle to meet modern compliance requirements.
• Process inefficiency. Manual processes and fragmented workflows create significant compliance risks. Organizations frequently struggle with record-keeping accuracy, timely submissions, and maintaining consistent compliance standards across operations.

Global payroll compliance expands this scope exponentially, requiring organizations to handle multiple tax treaties, currency conversions, and country-specific labor laws. 

Source

What is Bank Reconciliation & Why Is It Important

What is Bank Reconciliation?

Bank reconciliation is an accounting process in which a company’s records are reconciled with its bank statements to make sure that the balances match. It entails tallying the transactions recorded in the company’s books (deposits, withdrawals, payments, etc.) with those listed on the bank statement.

Beyond merely matching records, bank reconciliation serves as a crucial internal control mechanism. It provides a systematic way to verify that all transactions have been properly recorded and accounted for, reducing the risk of financial misstatements. This process helps identify differences, whether they are errors, omissions, or unauthorized transactions, between the organization’s internal records and the bank records. Verification of these two independent sets of records ensures consistency and helps businesses maintain the integrity of their financial data.

What are the 3 Types of Bank Reconciliation?

Bank reconciliation is a financial procedure in which records of a company’s transactions are compared to its bank statements to ensure consistency and accuracy. To carry out this process, companies may choose different types of bank reconciliation methods. Let us look at the three primary forms of bank reconciliation below:

1.) Periodic reconciliation

Periodic reconciliation involves checking the transactions of corresponding accounts periodically, usually on a monthly basis. This approach ensures that inconsistencies are proactively detected and corrected before they become a problem. Through regular reconciliation, financial records remain accurate and up-to-date.

2.) Continuous reconciliation

Continuous reconciliation is a process that involves matching transactions in real-time or on a daily basis. This strategy enables businesses to keep their financial records consistently accurate. Continuous reconciliation is especially useful for firms with high transaction volumes since it helps to swiftly discover and rectify differences.

3.) Inter-company reconciliation

Inter-company reconciliation is a process that involves comparing and matching inter-company transactions between different companies under the same organization. This becomes critical for firms that have several subsidiaries or divisions, whereby inter-company transactions should be correctly captured to ensure accuracy in consolidated financial reporting.

What is the Purpose of Bank Reconciliation?

Bank reconciliation plays an important role in getting detailed visibility into cash availability, accurate reporting, fraud detection, faster financial close, and facilitating seamless audits. Regular bank reconciliations can help businesses proactively identify any conflicting items on bank statements and take prompt actions. It is imperative for businesses to be prepared for regular bank reconciliations and to adopt best practices in reconciliation, as transaction volume increases. Here are some of reasons why businesses should prioritize bank reconciliation processes:

• Accuracy: It ensures the accuracy of financial records through the identification and rectification of discrepancies.
• Fraud Detection: It helps detect unauthorized transactions and probable fraud by the regular review and transaction matching.
• Financial Control: It gives better control of cash and proper management of overall finance since all transactions are accurately recorded.
• Compliance: Ensures compliance with regulatory and audit requirements, providing detailed and accurate financial statements.
• Error Identification: Identifies errors in both the company’s records and the bank’s statements, ensuring all transactions are accurately recorded.
• Cash Flow Management: It assists in effective cash flow management by providing a clear picture of available funds and financial health.

Source

The Most Common Payroll Errors

Effective payroll management requires making sure your employees receive correct payments, on time, and in compliance with applicable laws. However, without the right tools and resources, employee payroll can be a minefield for errors that can cost employees—and your company—time and money. Follow these tips to identify and avoid the most common payroll errors...

Misclassifying employees 

Misclassifying employees can result in incorrect pay, ultimately leading to overpayment or underpayment of wages. One of the most common misclassification errors is making an incorrect determination about whether an employee should be exempt from overtime. Per the Fair Labor Standards Act (FLSA), all employees must receive overtime pay for any hours worked over 40 hours per week, unless they are classified as exempt. Classifying a non-exempt employee as exempt not only opens your organization to FLSA-related fines, but can also cause an employee to miss out on overtime earnings.

Another common payroll error happens when an individual is classified as an independent contractor rather than an employee. A misclassification error often results in having to research historical payroll records and make retroactive payments or other adjustments to employee pay. In 2019 alone, the US Wage and Hour Division of the Department of Labor recovered a record $322 million in back pay for misclassified employees. Misclassification not only creates trust issues with your employees, but it is also likely to cost your organization money.

Miscalculating pay

An incorrect paycheck can be frustrating for any employee, particularly if the error results in missed payments. Miscalculations also waste time, as you’ll need to dedicate hours or even days to investigate and correct errors outside of the regular payroll cycle. 

According to an American Productivity & Quality Center (APQC) study, organizations take between two and ten days to resolve a payroll error. In the time it takes to fix those errors, employees can grow frustrated or even have trouble paying their bills. While you want to avoid any payroll error, the least you can do is write an employee payroll error letter to let them know what happened and what you're doing to resolve the issue.

Pay miscalculations can happen with salaried or hourly employees. Common miscalculation scenarios include the following:

• Overpaying or underpaying employees
• Making erroneous retroactive payments
• Missing the first paycheck for new hires
• Deducting the wrong amount for benefits or other payroll deductions
• Improperly paying employees who are on disability or other leaves

Not tracking employee hours and overtime

Incorrectly logged overtime hours can lead to improper overtime payments, which leads to corrections possibly spanning across multiple tax years. Correcting those errors takes time and can be incredibly unsettling for employees, whether they are underpaid or overpaid and have to return money to the company. Paying overtime is not just a matter of paying employees the standard 1.5 times their normal pay rate when they work over 40 hours in a week. Overtime payment errors can arise if you miss a payment in any of the following scenarios:

• When employees work during break times
• When employees spend time traveling between work sites
• When employees are required to participate in activities outside of normal hours, for example, in training, teambuilding, or company parties

 

Not reporting all forms of taxable employee compensation

Employee pay comprises more than salary, overtime, commissions, or bonuses. In addition to reporting the more traditional forms of employee pay, you also need to report other forms of taxable compensation to the IRS, such as:

• Stock options and other equity awards
• Employee rewards such as gift cards or travel awards
• Personal use of a company car

A small gift or award to an employee may not seem like compensation, but the IRS may view it as part of your payroll. Not reporting these other forms of compensation can result in tax filing penalties for your organization and the affected employees. 

Incomplete or disorganized records

An unorganized and inefficient payroll process can be a recipe for disaster. Relying on paper processes, manual data entry, or a mass of Excel spreadsheets leads to errors that may take weeks or months to uncover. Disorganized records can also lead you to miss an employee payment or follow-up on items needing urgent attention. Also, having a manual system for managing payroll increases your reliance on one person to manage all payroll actions. Without an organized and automated payroll system, it’s harder for someone to fill in when the payroll manager is out of the office or leaves the company. It can also set you up for problems in the event of an audit or process review. Source