What taxes are due when you sell an investment property?
If you buy a property for $200,000 and sell it for $300,000 five years later, then you may be required to pay capital gains taxes on the $100,000 windfall. The idea is that you have made money from an investment, and that investment gain is subject to federal taxation. This is the same sort of tax you might pay if you happen to buy stock in a company and sell it for a profit a few years later.

The current tax avoidance rules respect how investors actually deal with property
It would make little sense to require investors to constantly pay taxes on their profits when they are just going to be re-investing the money in the first place. With this in mind, the existing body of laws takes into account the way investors actually spend their money. Lawmakers understand that when you sell a property for a profit, you are probably not putting that money under your mattress. You’ll be looking to eye another property that can bring in additional gains. The rules have been written to allow you to re-invest your money to avoid the tax hit. The key, though, is doing so within the appropriate timeframe.

Avoiding tax liability through a 1031 exchange
The law allows what is known as a 1031 exchange, which allows you to buy new property with the proceeds of your sale. In order to do this, you have to close on a new property within 180 days after you close the sale on your old property. As long as you do this, you can avoid the tax hit. Keep in mind that these dates deal with closing dates. This means that you will need to initiate the purchase process on your new property well before the 180-day limit. Closing can take a month or more in some cases, so you should give yourself enough lag time. If you’re making that next purchase in cash, then your closing may be accelerated, but it is not wise to take a risk.

The smartest property investors know that tax minimization is an important part of their process. You should be intentional not only with what you buy and sell, but also when you buy and sell. This will save you a tremendous amount of money on the back end.

Jim Treebold

Jim Treebold is a North Carolina based writer. He lives by the mantra of “Learn 1 new thing each day”! Jim loves to write, read, pedal around on his electric bike and dream of big things. Drop him a line if you like his writing, he loves hearing from his readers!

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Employees may expect their employers to cover a portion, if not all, of the cost of healthcare premiums. Under the rules and guidelines of the Affordable Care Act, this is the case for companies with 50 or more employees. Large businesses must provide adequate health insurance plans. They must pay at least 60 percent of the premium. Employees must not be forced to spend more than 9.5 percent of their salary on the premium. With those rules in mind, businesses may decide to pay the 60 percent or slightly less.

These rules only apply to full-time, permanent employees. Individuals who are employed part-time may not be covered by any health insurance plan. The same is true for temporary or seasonal employees.

Another facet to how much an employer should pay for health insurance premiums concerns the need for employers to hire and retain quality employees. Companies that desire to hire the best of the best may decide to pay more of the premium and/or offer higher quality plans. Those that simply need to meet the requirement set forth by the federal government are likely to offer lower level plans with high deductibles.

Companies with under 50 employees are not required by law to provide health insurance coverage for their employees. Still, most employers know that they need to offer some type of health insurance benefit in order to attract qualified applicants to their open positions. These smaller employers have access to the Small Business Health Care Tax Credit, which covers half of the cost of the premium the employer pays. They may also have access to discounted plans through the Affordable Care Act’s SHOP program.

Those looking for hard dollars will learn that there is no set-in-stone price for healthcare coverage. The figures change depending on what percentage of the premium the employer chooses to cover as well as the type of plan. While employers are compelled to pay for 60 percent, most pay much more than that. In fact, most recent figures show that employers pay 83 percent of health insurance premiums, on average. That number drops by about 10 percent when including family plans.

Businesses deciding how much to pay for a health insurance premium should keep in mind that insurance premiums go up almost every year. On average, health insurance costs in the United States increase by about three percent each year. Employers must decide whether to cover those increases or pass them along to the employees. Because the figures changes every year, employers must constantly evaluate and re-evaluate the amount they are willing and able to spend on health insurance.

Jim Treebold

Jim Treebold is a North Carolina based writer. He lives by the mantra of “Learn 1 new thing each day”! Jim loves to write, read, pedal around on his electric bike and dream of big things. Drop him a line if you like his writing, he loves hearing from his readers!

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Cash notes take time to show a profit, and for that reason most individual cash note holders prefer to sell their notes rather than wait for them to become profitable. The people who buy these notes are organizations or individual investors who do have the time to wait for the notes to turn a profit. The person who facilitates the sale of cash notes from note holders to investors gets a commission, and that person can be you.

Finding Cash Notes – Research

There are several ways to find cash notes, and one of the more labor intensive methods is to research mortgage holders. You can go to your town or county office building and research properties sold using private lenders. These are usually cash notes, and you will need to write down the property address, note holder and the note holders address.

Finding Cash Notes – Advertising

If you want a steady flow of cash notes, then you will need to advertise. You can put up telephone pole flyers all over your area telling people you buy cash notes and include your phone number. You can advertise online, you can advertise in local real estate magazines and you can advertise in the local newspapers.

Finding Cash Notes – Networking

Real estate agents, mortgage brokers and escrow agents all deal with cash notes and can be excellent sources of leads. You should spend time making contact with these different professionals and make them part of your contact network.

Weeding Out Bad Notes

Any notes secured with liens or notes where the balance remaining is still close to the total amount are not going to make you any money. You want notes that are clean of liens and have a considerable amount of equity.

Establishing The Investment

Once you have your list narrowed down to the best notes, you need to hire a real estate agent to help establish the values of the properties you are considering. Any properties that have appreciated in value since the note was written will be very appealing to investors.

Send Out The Contact Letter

Once you know which notes you want, you send out a contact letter to the note holder explaining that you would like permission to sell the note. You do not actually buy the notes. You are the person who brings the seller and buyer together. You have an attorney write up a contract that states the value of the sale, which would include your commission, and then you facilitate the legal closing of the deal.

Since you do not actually buy the notes, you can start this kind of business with very little money. It can take time to build up a profitable business, but it can also be a great way to get your own company off the ground.

Jim Treebold

Jim Treebold is a North Carolina based writer. He lives by the mantra of “Learn 1 new thing each day”! Jim loves to write, read, pedal around on his electric bike and dream of big things. Drop him a line if you like his writing, he loves hearing from his readers!

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Yield To Maturity

Since bonds are long-term investments, most investors use yield to maturity (YTM) to establish a more accurate idea of the return they will get. The YTM shows how much the bond will yield if it is allowed to go to maturity and all payments are made.

To calculate the actual YTM, you would have to use a long formula that does an individual calculation for each year and then brings those numbers together into one percentage. But financial experts have created an approximate YTM formula that is widely used throughout the financial industry. That formula is:

Approximate YTM = (Monthly Payment + (Face Value – Price Paid) / Full Term)) / ((Face Value + Price Paid) / 2)

If we had an annual payment of $5.00 for the bond example we used earlier, the formula would be:

($5.00 + ($50.00 – $38.90) / 10)) / ((50.00 + 38.90) / 2) = 13.74 percent.

The YTM is much higher than the current yield because the YTM takes into account the entire yield of the bond. The YTM also shows the real reward for being able to buy a bond at such a discount off of its face value.

Why Use YTM?

The YTM takes into account price fluctuations and changes in interest income over the full life of the bond. The long-term nature of a bond investment makes calculating annual returns misleading. When an investor chooses to reinvest their interest back into their bond each year, which most do, then the annual calculations become unreliable.

For a bond, the face value is not going to change throughout its life. A bond can be a very steady and reliable investment, but investors always want to see how their money will do in the future based on current projections. The YTM offers the clearest picture for investors to show potential future performance based on the information currently known.

Investors use several complicated mathematical formulas to determine the true yield of bonds, but the YTM remains the one number that helps investors to get a better feel for how well their investment will truly do.

Jim Treebold

Jim Treebold is a North Carolina based writer. He lives by the mantra of “Learn 1 new thing each day”! Jim loves to write, read, pedal around on his electric bike and dream of big things. Drop him a line if you like his writing, he loves hearing from his readers!

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When to use the equity method of accounting for investments in common stock
The first decision is on which method to use for accounting. The key question comes down to something very simple. Does the investing company exercise significant influence and control over the financial dealings of the investee? If your company is able to control what the second company does, then it is best to use the equity method of accounting. If you company cannot control the financial dealings of that second company, then the cost accounting method is a better choice.

There is no cutoff in equity that brings about the equity method of accounting. It is simply based on the perception of the investing company of how much control it has. The equity share does not need to be a controlling stake. As long as the company has some ability to exercise influence, then the equity method can be a great tool to use.

When to recognize the share of profits
When a company invests in another company, that investing company will realize some share of the profits, assuming the second company is profitable. From an accounting perspective, the big question is when the investing company recognizes its profits. The answer in the equity accounting method is that the investing company recognizes its share of the profits when the second company has the profits reflected in its accounts. This means that the investing company is basically following the second company. This is why it is important that the investing company has the ability to exercise control. Under this arrangement, it is still largely in charge of the timing of its reflected gains.

If the second company happens to post a loss, then the investing company must recognize this loss when the loss is realized by the second company. The investing company will have to put its losses or gains in its income statement in the quarter and year when the losses or gains took place. This allows investors to have a clear understanding of the company’s financial position.

Using the equity method of accounting, if there are profits, then this increases the amount of investment the first company has in the second. Any losses suffered decreases the amount of investment the first company must record. The equity method’s name suggests this sliding scale of equity that is impacted by the second company’s success or lack thereof.

Jim Treebold

Jim Treebold is a North Carolina based writer. He lives by the mantra of “Learn 1 new thing each day”! Jim loves to write, read, pedal around on his electric bike and dream of big things. Drop him a line if you like his writing, he loves hearing from his readers!

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What are FTE hours?
FTE hours are units of measure that help a company chronicle all of the work it is paying for. It is a unit of productivity that is helpful in determining whether more or less hiring needs to be done to take on more projects in the future. When a company understands its FTE, it can make important calculations on that basis. For instance, if a company has been working on 10 projects while having 400 FTE hours each week, then it will know that it needs close to 500 FTE hours if it’s going to take on 12 equivalent projects the next week.

FTE hours become critical in that situation because it may not be necessary to just hire standard full-time workers. It might make more sense to hire a combination of part-time experts, full-time standard bearers, and people who are willing to dig in with overtime hours on certain projects. When a company knows its FTE hours, it can apportion its hiring budget according to its particular needs.

How should one calculate FTE hours?
The methodology behind FTE hours is relatively easy to understand. First, one must start with the idea that the standard full-time employee works 40 hours. This means that one FTE is equal to 40 hours per week. From there, the company just has to add up all of the hours it is paying for and divide that number by 40. An example may help to illustrate this principle more clearly.

Imagine a company has two full-time employees working 40 hours each per week. It also employs three part-time employees working 20 hours each. There is another full-time employee who works 60 hours each week. The company has six employees in this example, and they combine to work 200 hours. The company would take 200 and divide it by 40. This gives the company five FTE. The calculation means that the company has the equivalent of five full-time employees, even though it gets the benefit of six different people working on projects.

Calculating FTE hours can allow a company to know just how much it is getting for its employment dollars. Some companies may favor a smaller workforce working more hours. Some may want more employees working fewer hours. Knowing FTE can help a company make that decision.

Jim Treebold

Jim Treebold is a North Carolina based writer. He lives by the mantra of “Learn 1 new thing each day”! Jim loves to write, read, pedal around on his electric bike and dream of big things. Drop him a line if you like his writing, he loves hearing from his readers!

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Spawn and Substrate

The first step is to obtain a spawn that is ready to inoculate. This can be purchased from online suppliers that offer various varieties. While producing your own spawn is an option, it won’t get you up and running as fast and involves more initial capital.

Substrate Preparation

You’ll also need a substrate. Straw is an ideal substrate to use for mushroom farming as it is inexpensive, nutritious and easy to chop. You should be able to find some at a local farm or marketplace. You can also purchase bags online that have already been cleaned, cut and pasteurized. If you do purchase straw that hasn’t been broken down, you will need to boil it to remove any contaminants.

For pasteurization, it’s best to use a clean 55-gallon drum with a consistent source of heat. Propane burners are ideal for this step. If you are working with a large amount of straw, chop it down by using a lawnmower or wood chipper. Next, add water to the drum until it is 50 percent full. Take your straw and place it in a laundry bag and submerge it in the water. You’ll need to heat the water to a temperature that’s no lower than 160 degrees Fahrenheit. The straw will be thoroughly cleaned after one hour.

Inoculation Process

Let your straw cool so that it has a temperature that’s lower than 100 degrees Fahrenheit. Spread your pasteurized straw out on a clean surface and thoroughly mix in small pieces of mushroom spawn so that they are evenly distributed throughout the straw. After mixing, fill food grade plastic bags with the mixture — oven bags work well. When filling each bag, make sure each bag is full but not extremely tight. Push as much air out of each bag as you can and secure the opening with a twist tie. Next, take a sharp object and poke holes in the bag so that they are a couple of inches apart. This will allow mushrooms to grow out of each hole.

Incubation and Fruiting

For incubation, you’ll hang the bags in a growing area that is cool and dark. An ideal temperature is typically between 65 to 75 degrees for most species of mushrooms. The incubation period will take between 2 to 8 weeks. During this time, it’s important to not let any light enter the growing area. You should also make sure that the straw in each bag stays somewhat moist. If it gets too dry, mist it with some purified water.

Fruiting will occur when you see tiny mushrooms pop out of each hole. At that point, you can provide them with some light. After they grow to the proper size, harvest them and place each bag back in complete darkness for another round of incubation. You can continue this process until mushrooms stop growing or mold develops.

Once you’ve harvested your mushrooms, you can enjoy them yourself or sell them to restaurants or at a local farmers market.

Jim Treebold

Jim Treebold is a North Carolina based writer. He lives by the mantra of “Learn 1 new thing each day”! Jim loves to write, read, pedal around on his electric bike and dream of big things. Drop him a line if you like his writing, he loves hearing from his readers!

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The business plan is a projection of how things will happen in the coming year, or years. There will be sales plans and marketing programs the company expects to use to grow revenue. All of the new product developments and the major company changes such as expanding operations are in the business plan. Behind all of these future actions is the pro forma financial statement. This is the projected financial statement for the year that helps the company to make important decisions as each new challenge is met.

Pro Forma Revenue

If you are creating a pro forma financial statement for a start-up, then you will have to use current industry data and your own business plans to project how much revenue you will make in your first year. If you are an existing business, then you can use last year’s real financial statements to help create next year’s projections. The primary factors that will help formulate pro forma revenue include:

<ul>
<li>Performance of company investments</li>
<li>Changes in employee compensation</li>
<li>Changes in overhead costs</li>
<li>Changes in product costs or the cost of raw materials</li>
<li>Projected increases or decreases in sales</li>
</ul>

Pro Forma Expenses

Projecting expenses for the coming year requires the use of much of the same data that was used to calculate revenue. The major cost factors that are considered significant expenses include:

<ul>
<li>Repairs and maintenance to company equipment and vehicles</li>
<li>Operational expansion</li>
<li>Interest on company funding</li>
<li>Insurance and other non-revenue generating cost factors</li>
</ul>

The Format

A pro forma financial statement looks exactly like a certified financial statement that charts real activity. All of the categories and numbers are the same, but a pro forma statement looks to the future where a certified financial statement is considered a historical document. Each department manager creates their individual budgetary needs, and the executive team puts together expense and income projections for the general operations. All of that data is brought together to create the pro forma financial statement.

A pro forma financial statement is used to apply for funding from lenders, entice investors to take interest in the company and help the company to make important spending decisions. A pro forma statement is usually updated quarterly to reflect any changes in the company’s overall business plan and any changes in the industry as a whole.

Jim Treebold

Jim Treebold is a North Carolina based writer. He lives by the mantra of “Learn 1 new thing each day”! Jim loves to write, read, pedal around on his electric bike and dream of big things. Drop him a line if you like his writing, he loves hearing from his readers!

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What Is IRR?

The IRR is an interest rate that represents the best possible return for any investment. If you are not an accounting expert, then it is best just to trust the formulas when determining IRR because it can be difficult to understand. For example, while calculating the IRR you may find that a return of six percent is much better than 10 percent. It would take years of accounting and economics classes to truly understand how it works, but it is not nearly as difficult to show someone how to calculate IRR.

Present Value (PV)

Calculating IRR starts with calculating present value (PV). The present value determines how much an investment that is completed months or years later is worth in today’s dollars. This gives investors or business owners a good idea as to the strength of their investment.

As an example, let us say that you get the chance to invest $100.00 now to get $115.00 in return in one year. As a control, you use an interest rate of 10 percent. The formula for PV is:

PV = Return / (1 + Interest Rate) ^ Number of Years

In this case, it would be:

PV = 115 / (1 + 0.10) ^ 1
PV = $104.55

Net Present Value (NPV)

The net present value (NPV) is the difference between the initial investment and the PV. A good investment is one that makes the NPV zero. The formula for NPV is:

NPV = PV – Initial Investment

In this case, the NPV would be:

NPV = $104.55 – $100.00
NPV = $4.55

When you get a positive number, then it is a decent investment. If you get a negative number, then it is a terrible investment. But when you get zero, then you are getting the ideal investment.

Determining IRR

The IRR is the interest rate that makes the NPV zero. In this example, we know that 10 percent is not the IRR because it did not make the NPV zero. To find the IRR that works for you, it is just a matter of replacing the interest rate until you find one that makes the IRR zero.

If we try nine percent, we get an NPV of $105.50. Lowering the interest rate makes the NPV higher. If we try an interest rate of 12 percent, we get an NPV of $102.68. While that gets us closer to zero, you might not think it is close enough. One more calculation using a 14 percent interest rate gets us an NPV of $100.88, which we determine to be close enough. In this instance, our IRR is 14 percent. You may choose to add some decimals until you get to exact zero, or you can go with 14 percent.

The IRR is a subjective interest rate that can vary depending on the situation. Calculating the IRR shows business owners how different interest rates affect their investments and can help to project a more accurate return on investment.

Jim Treebold

Jim Treebold is a North Carolina based writer. He lives by the mantra of “Learn 1 new thing each day”! Jim loves to write, read, pedal around on his electric bike and dream of big things. Drop him a line if you like his writing, he loves hearing from his readers!

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A Quick Intro Into Price Markup

There are several ways to calculate price markup and we will start with the most basic. Lets say we have a product that costs $100 and we want to mark it up to sell for $125. In this instance, the $100 is the cost of the item, the $125 is the selling price and the $25 is the price markup. If we put it into a formula, it would be:

Price Markup = Selling Price – Cost

Profit Margin Percentage

When we calculate profit margin percentage, we are using the price markup as our guide. In the simple example we used earlier, the profit margin percentage would be 25 percent. As a formula, this would be:

Profit Margin Percentage = ((Selling Price – Cost)/Cost) x 100

Selling Price As A Function Of Profit

To get the price markup, businesses normally calculate how much profit they want to make on a product based on the cost. For example, if a product cost $50 and the business wanted to make a 15 percent profit, then the selling price would be $57.50.

To get that number, you first have to turn the profit margin into a decimal number and add one to it. In this example, the profit is 15 percent. That means we would turn 15 percent into .15 and add 1 to it to get 1.15. We will call this profit plus one. The rest of the formula would be:

Selling Price = Cost x Profit Plus One

In this example, our cost was $50 and the profit plus one would be 1.15. When you use them in the formula, you get $57.50.

The price markup is how much the business gets for its product or service on top of the cost. Businesses are constantly trying to maximize their price markup without sacrificing sales, and it is a balancing act that goes on forever. A great deal of research goes into determining the price markup for products, and much of that research is geared to determine what consumers consider to be a fair purchase price.

Jim Treebold

Jim Treebold is a North Carolina based writer. He lives by the mantra of “Learn 1 new thing each day”! Jim loves to write, read, pedal around on his electric bike and dream of big things. Drop him a line if you like his writing, he loves hearing from his readers!

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