Financial Risks For Retirees

Dear Accounting Professor: I recently retired and want to know about the risks that I might encounter during my retirement years. What should I be concerned about as a new retiree? Concerned, but Retired Dear Retired, Unfortunately, retirees are very susceptible to fraud. Based on the research that I have read, those who have health issues and those who are very dependent upon one or a small group of people to meet their needs are at risk of being defrauded. Unfortunately, as we age, we are forced to trust people that we would not otherwise interact with because of our own developing health needs. My opinion is that these experiences in the medical setting condition people to let their guards down and trust unknown people more even when they are outside of the medical environment. This increase in trust levels makes us more vulnerable to becoming victims of fraud. Also, retirees who have their financial matters on autopilot are also at a higher risk of becoming victims to these

New Year's Resolution: To Become Debt Free

Dear Accounting Professor: My New Year's Resolution is to become debt free. What advice can you share with me? So Broke That I Cannot Afford to Pay Attention Dear Broke: I recommend that everyone who wants to become debt free establish a benchmark for their current financial condition. This involved creating a detailed list of all of debts and assets. Some examples of debts include credit cards, lines of credit, signature loans, student loans, mortgage payments, car loans, payroll advances, unpaid medical bills, etc. Some examples of assets include cash, checking & savings accounts, money market accounts, brokerage accounts, retirement accounts, cars, homes, etc. For asset valuations, one has to use objectively reasonable fair market valuation sources less any fees to determine a net realizable value. Examples of these sources include the most recent close price for a stock less any transaction fees,'s selling estimate for a home and then reduce that va

Should I Start a Small Business?

Dear Accounting Professor: I am contemplating starting a small business in 2023. What are your thoughts on this topic? Future Business Owner Dear Future Business Owner, Thank you for your inquiry. It is always best to do your research before undertaking any significant activity. I think the experience of operating a small business is useful for everyone. I think everyone currently in or aspiring to be in the workforce should have this experience as it helps them gain a better understanding of how businesses work and the kinds of decisions that management of any organization has to make. This experience provides career clarification by helping those (who are undecided about their career options) determine if they want to be an employee in a non-management role or be an entrepreneur or pursue leadership roles as an employee. A Brief Contrast Between Small and Large Businesses Small businesses have the potential to provide personalized interactions with their clients or custo

CPA vs. EA: What are the Differences?

Dear Accounting Professor: Can you provide me with an overview of the differences between the CPA and EA credentials? Student Dear Student: Thank you for your question. Assuming that you want to pursue one of these now, I think the table below might help you understand many of the key differences between the Certified Public Accountant (CPA) and Enrolled Agent (EA) credentials in the United States. (This will not be true outside of the United States because every country determines their own rules.) CPA EA Minimum Education Requirements 150 semester credits (including a Bachelor's degree) for most states (1) None (3) Minimum In-field Experience Requirements At least one year supervised by an actively licensed CPA (2) None (3) Minimum Age Requirements 18-21 years old depending on the licensing state (some states have no age requirements) (1) 18 years old (3) U.S. Citizenship Requirement Most states do not require U.S. citizenship (1) None (14) License Issued By Each State (1)

What is an Enrolled Agent?

Dear Accounting Professor: Can you explain what an Enrolled Agent is and what one has to do to become an Enrolled Agent? Student Dear Student: An Enrolled Agent (EA) is someone who demonstrated knowledge of the federal income tax laws by passing three exams. The first exam is primarily focused on tax matters as they relate to the individual taxpayer. The second exam focuses on tax matters related to the business environment. The third exam focuses on taxation as it relates to estates, gifts, trusts, and matters related to representing taxpayers before the Internal Revenue Service (IRS). The IRS determines the content of each exam and administers the process of obtaining the EA credential. A quick search on the Internet about Enrolled Agents suggests some confusion exists as to if this is a professional credential or a license. For example, the IRS describes its EA as being "the highest credential" available in the IRS (see

What are the Requirements to Become a CPA?

Dear Accounting Professor: What does one have to do to become a CPA? Student Dear Student: In the United States, a Certified Public Accountant (CPA) is someone who meets the education requirements (a bachelor's degree with at least 150 semester credits of college/university level coursework in specific areas of business including accounting) and passed a set of four exams covering a broad range of topics. Under the current model, these four exams cover regulatory matters (including income taxation), auditing, business environment, and financial accounting. (Please note that this exam model is expected to change in 2024.) The oversight of the CPA exams is done by the American Institute of CPAs (see ). After the education requirements are satisfied, a prospective CPA candidate is granted permission to sit for the CPA exams. That permission comes from the state accountancy board that a candidate is seeking certification and licensing from or that s

To Retain Records, or Not to Retain, That is the Question.

Dear Accounting Professor: What are my obligations for retaining records related to my tax returns? I want to dispose of them as soon as possible and do not perceive a need to retain them after I have filed my tax returns. Minimalist   Dear Minimalist: Thank you for your question. Since I do not know where you reside and your obligations to file tax returns with any particular country, I cannot provide a response that is more specific to your set of circumstances. With this in mind, I will assume that you have an obligation to file income tax returns in the United States and are a taxpayer who is not self-employed. If this is indeed correct, then you have a legal obligation according the federal tax code (Title 26 of the US Code) to retain all of your records for at least three fiscal years after the later of your actual filing date or the end of the regular filing season. For state income tax returns, the requirements range from three to five fiscal years after the later of your actua