Category: Blog

Why AI Falls Short for U.S. Tax Guidance

Why AI Falls Short for U.S. Tax GuidanceThe rise of artificial intelligence tools like ChatGPT and Grok has transformed how Americans seek information. From meal planning to complex financial questions, these platforms offer instant answers to virtually any query. But when it comes to U.S. tax advice – especially international tax matters – relying on AI can lead to serious and costly mistakes.

The Allure and Limitations of AI Tax Help

The appeal of AI for tax questions is understandable. However, AI’s limitations become glaringly apparent in international tax matters. This specialized field combines extraordinary complexity with constant change, creating a perfect storm that exposes AI’s weaknesses. The landscape shifts regularly through regulatory updates, IRS interpretations, and court decisions – changes that AI systems struggle to incorporate in real-time.

Consider the IRS Practice Units, internal training materials for tax examiners that became public in 2020. From January through early May 2025 alone, the IRS released 35 new Practice Units, with 22 addressing intricate international tax topics such as foreign tax credit computations, base erosion anti-abuse tax, and treaty provisions. These rapidly evolving resources represent just one stream of constantly changing tax guidance that AI models could fail to capture, leading to outdated or incomplete advice.

How AI Gets Tax Advice Wrong

AI’s accuracy problems stem from its fundamental design. Large language models like those powering ChatGPT and Grok train on vast amounts of text from diverse sources – online forums, books, articles, websites, and public records. This training produces responses that sound authoritative and conversational, but this polish masks significant limitations.

The core issue is what experts call “simplexity” – AI’s tendency to oversimplify complex tax law. When AI presents intricate regulations as straightforward concepts, it fundamentally misrepresents the law itself. This problem has already surfaced with the IRS’s own Interactive Tax Assistant chatbot.

AI systems also suffer from interpretation errors, reliance on outdated information, and conflation of similar but distinct tax concepts. For instance, an AI might confuse the Foreign Tax Credit with the Foreign Earned Income Exclusion – similar-sounding but entirely different provisions with vastly different implications.

The Real-World Cost of AI Errors

Mistakes in international tax compliance carry severe consequences. The IRS considers international tax enforcement a top priority, and errors in reporting foreign income or assets trigger substantial penalties. A late FBAR or foreign information return like Form 8938 or 5471 carries a $10,000 penalty. Errors involving foreign assets can result in a 40 percent accuracy-related penalty on unpaid taxes.

Importantly, relying on AI advice won’t qualify as “reasonable cause” to avoid these penalties. Last year, the U.S. Taxpayer Advocate Service highlighted a Washington Post analysis showing that AI chatbots from major tax preparation companies provided incorrect advice up to 50 percent of the time on complex questions. Beyond financial penalties, taxpayers face the stress of audits and the time-consuming burden of correcting mistakes.

Why Human Expertise Remains Essential

While AI continues to advance, it currently falls far short of replacing human expertise in international tax matters. Experienced tax professionals bring irreplaceable skills that algorithms cannot match. They stay current on evolving IRS guidance, monitor treaty updates, and analyze new case law. Most importantly, they apply professional judgment to each unique situation.

International tax planning rarely follows a one-size-fits-all approach. Professionals provide strategic thinking and contextual analysis that optimize outcomes for specific circumstances. They understand when exceptions apply, how different rules interact, and what documentation requirements must be met. These nuanced judgments remain beyond AI’s current capabilities.

Conclusion

This doesn’t mean AI has no role in tax planning. It can serve as a useful starting point for understanding basic concepts or generating initial questions to discuss with a professional. However, treating AI as a substitute for qualified tax advice is a risky gamble.

The appeal of instant, free tax guidance is strong, but the cost of getting it wrong can be devastating. Until AI can match the precision, current knowledge, and professional judgment of experienced tax professionals, taxpayers would be wise to view it as a supplement to – not a replacement for – human expertise.

Understanding the Goodwill to Assets Ratio

Understanding the Goodwill to Assets RatioThe goodwill to assets ratio measures how much of a company’s total assets come from goodwill – an intangible asset like brand value or customer loyalty – and it plays a role in assessing the company’s overall value. It provides a ratio or percentage of the amount of intangible versus tangible assets. Understanding what the ratio represents, how it is calculated, and how to interpret it is essential for effectively applying it to business operations and investment decisions.

Goodwill Defined

Goodwill can be defined as an intangible asset that comes about when the acquiring firm obtains such assets from the acquired firm at a higher value. When it comes to accounting standards, both International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP), intangible assets must be evaluated for impairment, but don’t need to be amortized. Based upon IFRS 38, goodwill is generated solely during an acquisition and is defined as the amount of the acquisition price for the acquired company over its book value. IFRS 38 does not recognize goodwill generated by the company internally.

Calculating Goodwill

Goodwill = Liabilities – Assets + Purchase Price

If a company looks at acquiring another company for $750,000, and the company being acquired has assets of $900,000 and liabilities of $450,000, the net assets would be $450,000. Based on the goodwill formula:

Goodwill = $450,000 – $900,000 + $750,000 = $300,000

Once the goodwill has been established, the Goodwill to Assets Ratio Formula is used as follows:

Goodwill to Assets Ratio = Unamortized Goodwill / Total Assets

If one company is putting itself up for sale with a selling price of $75 million, it would have to establish its book value, based on recent financial statements, along with its goodwill value. Factors that go into calculating a company’s goodwill include if the company has prime real estate, a well-known brand, a rich list of clients, or intellectual property that sets itself apart from competitors in the industry that won’t expire for years. For example, if its intangible assets are $15 million, subtracted from its selling price of $75 million, its tangible assets or book value would be $60 million.

Based on the ratio, it’s calculated as follows:

$15 million / $75 million = 20 percent

Therefore, the ratio is 20 percent for the company’s goodwill as part of the company’s valuation. Otherwise, if the purchase goes through, whoever buys the company spends 20 percent on the company’s goodwill.

Analyzing the Goodwill to Assets Ratio

This ratio gives an overview of a business’s financial health. The lower the ratio, the more tangible or physical assets that can be sold. Conversely, the higher the ratio, the fewer intangibles a company has. Much like assets that can be written down, so can a company’s goodwill.

This ratio is not one-in-all and should be measured against businesses within the same industry. Based on this analysis, if a company has a large amount of goodwill on its financial statements, if it’s written down, it could still result in a lower valuation despite the company having a large amount of assets.

Looking over time, it shows the importance of ongoing evaluations. In 1975, according to the University of California, Los Angeles, companies on the Standard and Poor’s 500 (S&P 500) had $122 billion of intangible assets and $594 billion of tangible assets, or about a 21 percent intangible to tangible assets ratio. These companies included most industrial and energy sector names like GE, Procter & Gamble, 3M, Exxon Mobil, along with IBM, based on market capitalization. However, in 2018, the ratio increased to 84 percent of intangible to tangible assets. Intangible assets accounted for $21.03 trillion and $4 trillion when looking at most of the companies on the S&P 500, which included Apple, Alphabet, Microsoft, Amazon, and Facebook, based on market capitalization.

While the growth of technology and communication services has risen and skewed the tangible to intangible ratio, it shows the importance of evaluating companies and sectors individually, not just with a broad brush.

Sources

Boom of Intangible Assets Felt Across Industries and Economy

Responsibilities of Being the Executor of a Will

Responsibilities of Being the Executor of a WillThe appointed executor of a will is the person responsible for paying the debts and taxes of the will’s owner once he dies and then distributing what is left in the estate to named beneficiaries according to instructions of the will. While it might feel like an honor to be asked to be the executor, keep in mind that the responsibilities are far more onerous than being the best man at a wedding.

An executor takes on both legal and fiduciary responsibilities that can have aggravating and even punitive ramifications if not handled properly. The following outlines the responsibilities of being the executor of a will.

Probate

Many formal assets may already have a named beneficiary (e.g., insurance policies, retirement plans, bank and investment accounts); these distribution instructions are outside of and supersede any instructions in a will. All other assets that do not have a separate beneficiary assignment and are not held in a trust must go through the probate court process. It is important to start the process as soon as possible post-death in order to have the legal authority to discharge estate assets. You may require the services of an estate attorney to enter court filings, particularly if you do not live near the departed.

Documentation

First and foremost, you must have the original copy of the will. Ensure you have this or know how to access it when you accept the responsibility as executor. Next, assemble the decedent’s documents to identify all his assets and liabilities, including real estate and personal property. You will be responsible for paying off any outstanding bills and debt, as well as filing tax returns.

Mediator

If the beneficiaries are unhappy with the will’s instructions, the executor is expected to mediate disputes to represent the best interests of all beneficiaries based on the intent of the deceased.

Creditor Claims

The probate process may require or recommend a period of time, possibly six months or longer, during which you may need to place a notice in a local newspaper to alert creditors and debtors that the deceased’s estate has entered probate. This offers ample time for debtors to file claims before the estate assets are disseminated to beneficiaries.

Due Diligence

If the will instructs you to manage the estate’s invested assets, such as money held in a trust, you are required to make prudent investment decisions. For example, just because you personally invest in Bitcoin doesn’t mean that is a fiduciary responsible investment for the decedent’s assets. You must conduct due diligence and have a reasonable rationale for all investment decisions; otherwise, a beneficiary could take you to court for mismanaging the assets. One way to protect your investment decisions is to request that beneficiaries give their approval in writing for any major investment changes you make while managing the assets.

Recordkeeping

Maintain accurate and comprehensive records of all your actions and back-and-forth communications with beneficiaries, investment managers, lawyers, and judicial filings. Record keeping is not just for your benefit; it is considered part of your fiduciary duty as the executor of the will.

Be aware that should your actions as executor come under scrutiny and/or a beneficiary files a court claim that you have been negligent, you could be removed as executor and even be liable for personal restitution and/or punitive damages if a court determines you have been self-dealing. Although unfortunate, this is not an uncommon occurrence.

Responsibilities like this are why many people, particularly those with sizeable estates, choose to name an estate attorney or professional administrator as executor of their will. This allows for a degree of professional distance that can help protect beneficiaries from mismanagement of assets without the emotions associated with naming a close friend or relative as executor.

The executor for a smaller estate is more likely to be administered with ease and can give the owner peace of mind that he’s leaving this responsibility to a trusted friend or family member.

How to Navigate Money Before Saying ‘I Do’

How to Navigate Money Before Saying 'I Do', wedding finances, marriage finances,According to a Bankrate Financial Infidelity Survey, 28 percent of couples said they considered financial cheating as bad as physical cheating. Furthermore, money is one of the top reasons for divorce, says Rahkim Sabree, counselor and financial therapist with the Financial Therapy Association. With these facts in mind, it makes good sense to get all your financial cards on the table (literally and figuratively) before you tie the knot. Here are a few ways to navigate this often thorny subject and create a healthy relationship with money as a couple.

Have a Money Date

Be intentional and carve out dedicated time to discuss the big issues that you both might have questions about.

  • How will we handle student loans?
  • How many children will we have, if any? Will they go to public or private schools?
  • Where will we live? Close to or far away from family?
  • Where would we like to be in our careers in 5, 10, or 20 years?
  • When do we want to retire? How will we spend our retirement?

If talking about these things is difficult, you might consider premarital financial counseling. When you can get on the same page before you get that other page – your marriage license – you’ll be way ahead of the game.

Set Up a Financial Plan, Pre-Marriage

While this conversation probably won’t be romantic with flowers and candlelight, it’s a time where you can share the excitement of your future. While you may not see eye-to-eye on everything, set up short-term goals, long-term milestones, and seek the middle ground when disagreements arise. Remember, life happens. Goals may change. There will be job losses, health issues, and unexpected expenses like HVAC going out or plumbing problems. The idea is to remain flexible and tuned in to each other’s spending habits by using apps like YNAB (You Need a Budget), Empower, or Tiller. When you’re transparent and can see who is spending on what, you can maintain an open dialogue about your cash flow.

Decide if You Want a Prenup

Depending on your resources and if you have children from a previous marriage, you might want to consider a prenuptial agreement. Again, it’s not the most comfortable topic to discuss because it implies that there’s an end to what is ostensibly just beginning. That said, it can pre-empt future problems that might otherwise cause a divorce. It’s also important in the case of death because if you don’t have a prenup, a judge, not the couple, gets to decide who gets what, which might result in an unsatisfactory distribution.

Figure Out Your Checking Accounts

Joint or separate? This is totally up to you, but according to Bankrate, 24 percent of couples have separate accounts; 38 percent have both joint and separate; and 39 percent have a joint account. This topic should be part of your money date.

Consolidate Debt

If you both have debt, consolidate and start paying it off. If you’re thinking about buying a home, lenders will look at debt-to-income ratio to see how much of your total income is being used to pay off debt. If your debt is too high, you might have trouble getting a mortgage. Be honest about it. Have the tough conversations before you say, “I do.” You probably don’t want to surprise your future spouse when you’re in the already emotional process of putting a bid on a house.

Bottom line, figuring out a financial plan for your marriage can be challenging, if not downright tough. But the best time to sort through all of this is before you walk down the aisle. When you have a roadmap, the chances for a successful financial future together increase exponentially.

Sources

Money And Marriage: What To Consider Before Tying The Knot | Bankrate

Quantum Computing: Separating Hype from Real-World Business Value

Quantum ComputingLately, there has been a lot of talk about quantum computing, drawing interest from many, including business leaders. Quantum computing promises to solve previously unsolvable problems and revolutionize entire industries. As a result, excitement around its potential is rapidly growing. However, it is important to first ask where the hype ends and the real business value begins.

What is Quantum Computing?

Simply put, quantum computing is a new way of processing information. Unlike classical computers that use bits that are either 0 or 1, quantum computers use qubits (quantum bits). Qubits can exist in multiple states simultaneously as enabled by the principles of superposition and entanglement. This allows quantum computers to process vast amounts of information in parallel. Hence, quantum computers can theoretically tackle certain classes of problems that would take classical computers years to solve.

The Hype: Quantum’s Promised Revolution

Quantum computing is said to have the potential to perform tasks such as cracking encryption, revolutionizing drug discovery, optimizing global supply, and transforming artificial intelligence. Forecasts like one from Boston Consulting Group (BCG) project that quantum computing could unlock up to $850 billion in economic value by 2040. As a result, major industries are investing heavily and hoping to be among the first to benefit from a potential industrial revolution.

The Reality: Technical and Practical Challenges

The reality tells a different story. Today’s quantum hardware is still in its infancy, with most of these computers having fewer than 100 reliable qubits. They face issues such as noise and error rates that make large-scale practical applications elusive. Unlike classic chips that can be stacked for scaling needs, quantum systems can’t be easily scaled and need major advances in architecture and interconnects. Specialized expertise is also required to develop software for quantum machines. Besides, the algorithms that fully exploit the quantum advantage are still being researched. McKinsey estimates that while there may be many operational quantum computers by 2030, their ability to solve complex problems will take more time to mature.

This isn’t to say there is no hope as more improvement is made to quantum computing every day. Consider Google’s Willow, a 105-qubit processor introduced in December 2024. Willow addresses the error correction challenge and performs certain computations in under five minutes, which would take a supercomputer 10 septillion years.

Real-World Business Applications

Despite these challenges, quantum computing has demonstrated potential in real-world use cases. One example is Volkswagen who partnered with quantum computing firms to optimize traffic flow in Lisbon. This demonstrated how quantum algorithms can improve urban mobility. In finance, quantum-inspired algorithms are being tested for portfolio optimization and risk analysis by companies like JPMorgan Chase. Pharmaceutical companies are also testing molecular interactions with quantum simulation to potentially accelerate drug discovery. It’s worth noting that these applications are mainly hybrid solutions that use both quantum and classical computing. Even so, it signals there is potential in future breakthroughs.

Cloud-based quantum computing availed by platforms like IBM, Microsoft and Google have greatly contributed to this venture. These resources have made experimentation possible without the need for in-house quantum hardware. Therefore, businesses have a chance to innovate solutions to complex problems more affordably.

An example of a strategic framework that can help business leaders is the “quantum economic advantage” developed by MIT and Accenture. It requires two conditions: a quantum computer capable of handling the problem’s size (feasibility) and a quantum algorithm that outperforms a similarly priced classical solution (algorithmic advantage). Only when both conditions are met does quantum computing become economically beneficial.

How Businesses Should Get Ready for Quantum Computing

Preparing for quantum computing doesn’t require immediate transformation; however, it does call for strategic foresight. Here’s how businesses can begin laying the groundwork today.

  • Create a Quantum Strategy: Identify potential long-term use cases where quantum could offer an edge, and develop a roadmap aligned with industry trends and business goals.
  • Invest in Collaboration and Research: Partner with universities, quantum startups, and industry groups to stay updated and explore early-stage innovations.
  • Start Quantum-Proofing Security: Begin evaluating quantum-resistant encryption methods to safeguard future data as quantum threats to cybersecurity emerge.
  • Experiment Safely: Use cloud-based quantum platforms to run small pilots or simulations, gaining hands-on experience without major commitments.
  • Build Internal Capability: Upskill current staff in foundational quantum concepts to ensure your team can engage with this evolving technology when the time is right.

Final Thoughts

Quantum computing is in its early stages, but its disruptive potential and rapid development give businesses a reason to start planning on its adoption, or risk falling behind. Integrating quantum has the potential to boost efficiency, cut costs, and enable innovative products and services. To stay competitive, businesses should start building a quantum-ready workforce through training, hiring, and academic partnerships.

New Tax Cut & Spending Bill, Protecting Law Enforcement, VA Benefits and Semiconductor Supply Chains

New Tax Cut & Spending BillOne Big Beautiful Bill Act (HR 1) – Introduced by Rep. Jodey Arrington (R-TX) on May 20, this tax bill supports the president’s tax and immigration agenda. The legislation includes:

  • Making permanent the income and estate tax cuts passed in the Tax Cuts and Jobs Act of 2017
  • Waiving income taxes on cash tips, overtime pay and interest on some auto loans (ends 2028). The tip waiver would be a tax deduction of up to $25,000/year on cash-only tips for workers making less than $160,000/year; FICA taxes would still apply to tips.
  • Temporarily increasing the standard deduction (ends 2028)
  • Reducing the amount of income subject to income taxes
  • Temporarily increasing the child tax credit to $2,500 (ends 2028)
  • Increase the estate tax exemption to $15 million and adjust for inflation going forward
  • Increase the SALT cap to $40,000 for incomes up to $500,000, phasing downward for higher incomes, but increasing the cap and income threshold by 1 percent a year over 10 years

To offset the tax cuts, the bill proposes the following spending cuts:

  • Repeal or phase out clean energy tax credits
  • Reduce Supplemental Nutrition and Assistance Program (SNAP) funding by $267 billion over 10 years (and shift a higher percentage of program benefits and administration costs to states)
  • For able-bodied, food-aid beneficiaries without dependents, work requirements would increase from age 54 to 64
  • Increased work requirements for aid to parents based on the child’s age, from 18 down to 7
  • Reduce funding for Medicaid by $700 million
  • Require able-bodied Medicaid beneficiaries without dependents to engage in work, education, or service for at least 80 hours a month beginning in 2026
  • Revamp the student loan program to yield $330 billion in savings
  • Repeal the regulation that allowed students to cancel loans if their college defrauded them or closed suddenly
  • Increase leasing of public lands for drilling, mining, and logging

Additional components of the bill include:

  • Imposing stricter eligibility and income verifications for ACA exchange customers
  • Shortening the ACA enrollment period by one month
  • Prohibiting Medicaid funds from going to Planned Parenthood
  • Canceling a current regulation for minimum staffing in nursing homes
  • $46.5 billion to construct a wall along the U.S.-Mexico border
  • $6.1 billion to fund Border Patrol agents, customs officers, and investigators
  • Impose a $1,000 fee on migrants seeking asylum
  • Remove 1 million immigrants a year and house 100,000 people in detention centers
  • Eliminate the $200 tax on gun silencers
  • $150 billion in new funding for the Defense Department and national security, such as building a missile defense shield (Golden Dome), restocking the nation’s ammunition arsenal and expanding the Navy’s fleet of ships
  • New parents will receive $1,000 from the federal government via a “Trump” account for each baby born during Trump’s second term. Parents may contribute an additional $5,000 a year to the account, earnings would grow tax-deferred in a broad stock index, with qualified withdrawals (higher education, starting a business or purchasing a home after age 18; any purpose after age 30) taxed at the long-term capital-gains rate; nonqualified withdrawals taxed as ordinary income.

The House bill was passed on May 22 and now undergoes scrutiny in the Senate, where there will likely be considerable changes.

Securing Semiconductor Supply Chains Act (S 97) – This bill would enable state-level economic development organizations to increase foreign direct investment in semiconductor-related manufacturing and production. It was introduced by Sen. Gary Peters (D-MI) on Jan. 15 and passed in the Senate on May 20. The legislation is currently under review in the House.

VA Budget Shortfall Accountability Act (HR 1823) – Introduced on March 4 by Rep. Jack Bergman (R-MI), this act would instruct the secretary of the VA and the U.S. comptroller general to report on Veterans Benefits Administration funding shortfalls for fiscal year 2024 and expected funding shortfalls of the Veterans Health Administration in fiscal year 2025. The bill passed in the House on May 19 and is under consideration in the Senate.

Improving Law Enforcement Officer Safety and Wellness Through Data Act (HR 2240) – This bill would require the attorney general to provide regular reports on violent attacks perpetrated against law enforcement officers, as well as for other purposes. Introduced by Rep. Tim Moore (R-NC) on March 21, the bill passed in the House on May 15, and its fate currently lies in the Senate.

Decoding Net Realizable Value (NRV)

Decoding Net Realizable Value (NRV)Whether it’s maintaining compliance with accounting standards or ensuring asset values are not overvalued for internal stakeholders or external existing or potential new investors, looking at net realizable value (NRV) is an important concept to understand and discuss how it’s implemented.

Defining NRV

Net realizable value examines what an asset can be sold for after accounting for selling or disposal costs. This results in the final value of inventory or accounts receivable. Used by both the International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP), it embodies the concept of accounting conservatism that compares NRV to the inventory’s cost. This notion leads accountants to value assets to produce lower profits and not overvalue assets when expert analysis is mandated for the deal review.

NRV is used in the lower-cost or market method of accounting reporting. The market method reporting approach requires a business’ inventory must be reported on the balance sheet at a lower value than either the historical cost or the market value. If there’s no known market value of the inventory, the NRV value can be used to approximate the market value.  

Calculating NRV

Step 1: The asset’s projected selling price or market value must be determined.

Step 2: The manufacturing and sales expenses connected with the asset must be determined. This also includes advertising and conveyance fees, for example, when factoring in costs.

Step 3: Determine the gap between the asset’s projected asking amount and the fees the company incurs to finish the goods and sell it.

This is calculated via the following formula:

NRV = Expected Selling Price – Total Production and Selling Costs

If a company is looking to sell a percentage of its inventory, it needs to figure out the NRV of the inventory that will be sold.

Assuming the selling price is $10,000, it needs to spend $1,500 on finishing costs and another $750 in transportation expenses. Therefore, NRV is calculated as follows:

NRV = $10,000 – ($1,500 + $750) = $7,750

When it comes to valuing current assets such as accounts receivable (AR), this approach can similarly determine the NRV of the unpaid invoices from their clients. This is accomplished by summing their ARs and then subtracting the uncollectible accounts. For example, if there’s $100,000 in outstanding invoices, but $20,000 is uncollectible due to clients’ inability to pay or otherwise cannot be collected. In this type of calculation, instead of determining the production and sales amounts, a business’ allowance for doubtful accounts is substituted. 

Conclusion

While these calculations assist investors and business owners in determining accurate costs of current assets, there are some considerations. For example, in periods of inflation or deflation, businesses must continually evaluate the net amount of the resulting calculation instead of the gross figures. Along with the increased and continual updating of NRVs, since the future price discovery of asset prices is unknown, there’s always room for uncertainty, which investors are constantly trying to determine how efficiently the market is presently pricing things.

While NRV is a single type of calculation, it’s an important one that can help businesses make the most of their inventory, accounts receivable, and similar accounting entries.

Cash Flow Available for Debt Service (CFADS)

Cash Flow Available for Debt Service (CFADS)When it comes to the risk of default, Moody’s found that during COVID-19, American businesses had a 7.8 percent chance of defaulting. This is compared to a low of 4 percent in 2021, but lower than the current 9.2 percent risk of default, according to a March 2025 report by the rating agency.

Also known as cash flow available for debt service, CFADS determines how much cash is available to service debt obligations. It looks at different cash inflows/outflows to show both internal (owners and managers) and external audiences (investors) how efficient (or not) a business is in its ability to produce cash flows and manage its debts without defaulting.

While one method businesses use is balancing client sales, it is also common to look at various accounting entries, including Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). The results of CFADS are often used by financial analysts when creating coverage ratios, including the project life coverage ratio (PLCR), the debt service coverage ratio (DSCR), and the loan life coverage ratio (LLCR). It can sometimes take the place of EBITDA in certain circumstances. It’s important to note that the three coverage ratios show how well a plan is able to service and not default on debt throughout the entire project’s period.

For example, the DSCR = CFADS / Scheduled Debt Service (Interest + Principal Obligations)

Once this is calculated based on the company’s project specifications, if the result is greater than 1, then it signifies and gives greater confidence to internal and external audiences that the company will be able to meet its milestones and final payments.

The most efficient formula for calculating CFADS is as follows:

EBITDA – Taxes – Positive or Negative Result of Working Capital – Capital Expenditures for Maintenance Only

$200,000 (EBITDA) – $30,000 (Taxes) + $20,000 (assuming there’s a negative $20,000 change in working capital) – $40,000 (assuming the capital expenditure investing in maintenance)

CFADS = $150,000

Sometimes the calculation includes dividends, which need to be factored into the calculation. This example assumes it is not part of the calculation.

Interpreting Results

It’s important to understand that a more detailed analysis helps all audiences determine if the projected cash flow is available for different claimants of the business. While most of the calculations are done via the waterfall model, it’s important to analyze it based upon senior and junior debt, along with equity. If a company declares bankruptcy, senior debt holders are the first priority to be made whole (or as whole as possible, depending on the circumstances). Senior debt is collateralized or secured with company assets that are sold off during bankruptcy. From there, junior debt holders are next in line, followed by convertible note holders, then preferred stockholders, and finally common stockholders.

While this calculation is only one part of the way internal and external stakeholders can measure a company’s financial health, with the chance of more firms defaulting on debt, it’s another tool in a financial analyst’s toolbox.

Financial Implications of Marriage

Financial Implications of MarriageMarriage isn’t just about two people who fall in love and choose to spend the rest of their lives together. It is also a contract. And while that contract might not be forever binding, marriage does come with certain financial and familial obligations regardless of whether the couple stays married or not.

That is why it is critical for couples to discuss their finances and goals early in the game. In fact, the best time to begin this conversation is actually before they begin making wedding plans. That’s because weddings can be very expensive. If the couple bears this expense, they will remove funds from their future plans and opportunities, which they should consider carefully before designing a wedding budget.

However, many times the parents of a couple will pay for the wedding. In this scenario, the newlyweds should consider how the cost of an expensive wedding would impact the paying party’s long-term financial situation. This is important because bankrupt parents could lead to a potential live-in caregiving situation once they are too old to take care of themselves. That’s quite a trade-off for a $100,000 wedding.

Takeaway: Regardless of who pays for the wedding, moderation is perhaps both prudent and considerate.

Partners also should share information about their earnings, assets, debts, and credit reports before getting married. They should discuss their career goals, preferences for children, type of housing, living location(s), and any big-ticket dreams, such as an expensive vacation or starting their own business. Together, the couple should consider each other’s goals and develop a plan to achieve those goals given their combined financial situation.

Takeaway: Note that while each spouse retains their own credit score and liability for debts prior to the marriage, joint debts acquired during the marriage are recorded on both credit reports.

Once married, couples often assume respective responsibilities, such as household earner and bill payer, while the other is a homemaker and primary child caregiver. From a financial perspective, this is not wise. It’s better for the marriage when each spouse takes turns managing finances, including paying bills, learning about investing and working with a financial advisor if they have one, being on all the joint accounts (home deed, insurance policies, etc.) and even each having their own retirement account (e.g., IRA, employer-sponsored retirement plan).

Takeaway: A collaborative approach to finances enables transparency so each spouse is aware of the other’s spending habits and bill-paying discipline.

The relationship tends to have more balance if each spouse has their own money, even if they do not work outside the home. If both spouses work, they could each have a checking account for their own personal expenses as well as a joint account used to pay for communal expenses like rent/mortgage, utilities, food, and upkeep.

Takeaway: A higher-earning spouse may contribute to a lower/no-earning spouse’s Roth IRA so that person has income to manage as they see fit.

Shared finances among married couples do offer certain benefits, such as lower costs for housing, health, long-term care, and auto insurance premiums. With particular regard to health insurance, consider if one spouse should join the other’s plan and how that might impact premiums, deductibles, and out-of-pocket expenses.

Takeaway: Find out if either spouses’ employer offers an incentive for declining coverage. This bonus income provides a good reason to join the other spouse’s plan.

Couples also have the option to compare the advantages of filing joint or separate tax returns, which may be impacted by one partner’s medical expenses or student loan debt. Also, be aware that no matter what time of year you have your wedding, as long as you are married as of Dec. 31, the IRS considers you married for the whole year for tax-filing purposes.

Takeaway: If one spouse is on an income-based student loan debt repayment plan, be aware that filing jointly with two incomes may result in higher payments than if they file separately.

Right after the wedding, there are several actions most couples should take. For example, report any name changes to the Social Security Administration; update any address changes with the Postal Service, employers, and the IRS; and supply your employers with a new W-4 withholding form.

Takeaway: If you’re taking an extended honeymoon, you might want to complete some of these tasks before your wedding day.

How New Grads Can Master Their Finances

How New Grads Can Master Their FinancesCollege graduation is a huge milestone. You’ve completed one chapter and are on the precipice of the next. While exciting, it can also be daunting – you have a whole new set of responsibilities in front of you. But take heart, we have some tips to help you navigate.

  1. Look back to look forward. Take some time to examine your money habits. Do you have a tendency to overspend? Reward yourself with dinners out or a little retail therapy after a stressful event? Neither of these things is good or bad. They’re just choices. However, if you intentionally monitor your behavior and make necessary changes, you’ll learn how to budget early in your life. This way, you’ll set yourself up for success in the future. The truth is, a little self-awareness can go a long way.
  2. Create a budget and stick to it. Don’t think of this as limiting. It’s simply a way to get a hold of your money and learn to live within your means. One smart way to begin is using the 50/30/20 rule: You allocate 50 percent of your earnings to your basic needs, 30 percent to your wants, and 20 percent to your savings. You can also set up short-term and long-term goals. Do you want to save for a vacation? New furniture? A new car? No matter what, start by listing ALL your expenses and then breaking them out into categories. See what you’re spending and make adjustments. To get started, here’s a free budgeting calculator.
  3. Start saving. Right now, you might be feeling immortal. You’re young and just beginning your life. But someday, you’ll be older and need resources to live. So instead of thinking of this as taking away from your fun, think of it as paying yourself first, your future self. Whether for a getaway, an emergency, or whatever, regularly set aside some cash. But there’s more. Take advantage of savings accounts that will help you save on taxes, such as an individual retirement account (IRA) or a 401(K). Many employers offer these and even match your contributions, so don’t miss out. You want your money to work hard for you.
  4. Pay back your student loans. It might be very tempting just to kick this to the curb. Warning: Don’t do it! Even if you have a six-month grace period. Find out what kind of loan you have: Federal or private? Subsidized or unsubsidized? If you can’t afford to pay large chunks, contact your lender and work out a plan. Another important thing is to find out whether you can deduct a portion of your student loan interest payments on your taxes. And finally, you can even investigate consolidating, refinancing, or whether you qualify for loan deferment. Just handle it. You’ll be so glad you did.
  5. Know your worth when job hunting. Do research and find out the salary range for your level in your chosen industry. You should also examine companies. What are the benefits? If the perks are exceptional, it might be worth taking a slightly lower-paying job, depending on your situation. If you can’t negotiate your salary, ask to see if they have other perks, like helping with student loans. Another exercise is to create budgets around net salaries to get a sense of what managing your money looks like.
  6. Vet your health insurance. Some of you might be covered on your parents’ policy until age 26. Or you might be covered by your employer. If you have insurance through your job and are in good health, a plan with a higher deductible may be a smart move. You’ll save on monthly payments and have more cash for after work.          

When it comes to handling your money, all it takes is a little practice. And baby steps. Sure, you’re going to make mistakes. But jump in. Learn the ins and outs. In the end, it’s going to determine whether you remain a student or become a responsible adult.

Sources

https://www.investopedia.com/top-7-finance-tips-for-new-grads-5248426