Untitled

What Is Head of Household (HOH)?

Taxpayers may file tax returns as head of household (HOH) if they are unmarried and pay more than half the cost of supporting and housing a qualifying person. Taxpayers eligible to classify themselves as an HOH get higher standard deductions and lower tax rates than taxpayers who file as single or married filing separately.  Key Takeaways - To qualify for head of household (HOH) tax filing status, you must file a separate individual tax return, be considered unmarried, and have a qualifying child or dependent. - The qualifying person must generally be either a child or parent of the HOH. - The HOH must pay for more than one-half of the qualifying person’s support and housing costs.

Understanding Head of Household (HOH)

Head of household is a filing status available to taxpayers who meet certain qualifying thresholds. They must file separate individual tax returns, be considered unmarried, and have a qualifying dependent, such as a child or parent. Further, the HOH must pay more than one-half the cost of supporting the qualifying person and more than one-half the cost of maintaining that qualifying person’s primary home. The IRS provides a breakdown of what constitutes a qualified person in Table 4 of Publication 501. Unmarried To be considered unmarried, the HOH must be single, divorced, or regarded as unmarried. For example, married taxpayers would be regarded as unmarried if they did not live with their spouse during the last six months of the tax year. The status further requires that the HOH meet either of these two requirements: - The HOH is married to a nonresident alien whom they elect not to treat as a resident alien. - The HOH is legally separated under a divorce or separate maintenance decree by the last day of the tax year. Married taxpayers are considered unmarried if they have not lived with their spouse for the last six months of the tax year. Financially support a qualifying person An HOH must pay for more than one-half of the cost of a qualifying person’s support and housing costs. The HOH must also pay more than one-half of the rent or mortgage, utilities, repairs, insurance, taxes, and other costs of maintaining the home where the qualifying person lives for more than half of the year. The home must be the taxpayer’s own home, unless the qualifying person is the taxpayer’s parent and the home is the property of that parent.  If the qualifying person is a parent who lives at another address, it's still possible to file as head of household—provided they are dependent on you and you cover more than half the cost of keeping up their home. Personal exemption suspended The enactment of the Tax Cuts and Jobs Act of 2017 (TCJA) led the personal exemption to be suspended through 2025. Back when there was one, HOH filers had to be able to claim an exemption for their qualifying person. Taxpayers could release their exemption to a noncustodial parent in a divorce proceeding or a legal separation agreement and remain eligible to file as an HOH.

Examples of Filing as Head of Household (HOH)

Filing as an HOH can provide significant savings for taxpayers. Below we compare the tax burden for an individual earning $70,000 using the different filing statuses. HOH vs. single or married filing separately For 2021 tax returns, which are due April 2022, the HOH has a standard deduction of $18,800, reducing their $70,000 taxable income to $51,200. From that amount, $14,200 will be taxed at 10%, and $37,000 at 12%, bringing the total tax bill to $1,420 + $4,440 = $5,860. In comparison, a taxpayer filing as single or married filing separately qualifies for a standard deduction of $12,550, reducing their taxable income from $70,000 to $57,450. Of that $57,450, $9,950 will be taxed at 10%, $30,574 at 12%, and the remaining $16,926 at 22%, resulting in a total tax bill of $995 + $3,668.88 + $3,723.72 = $8,387.60. Thus, filing as an HOH saved this hypothetical taxpayer $2,527.60. For the 2022 tax year, these savings will increase even more as income limits are adjusted for inflation, and the standard deduction rises $600 for HOH to $19,400, versus $400 to $12,950 for single filers. 2022 Tax Brackets for Single Filers, Married Couples Filing Jointly, and Heads of Households 2022 Tax Rate For Single Filers For Married Individuals Filing Joint Returns For Heads of Households  10% $0 to $10,275 $0 to $20,550 $0 to $14,650  12% $10,276 to $41,775 $20,551 to $83,550 $14,651 to $55,900  22% $41,776 to $89,075 $83,551 to $178,150 $55,901 to $89,050  24% $89,076 to $170,050 $178,151 to $340,100 $89,051 to $170,050  32% $170,051 to $215,950 $340,101 to $431,900 $170,051 to $215,950  35% $215,951 to $539,900 $431,901 to $647,850 $215,951 to $539,900  37% $539,901 or more $647,851 or more $539,901 or more Source: Internal Revenue Service

Who Qualifies as Head of Household?

To file taxes as head of household, you must be considered unmarried, pay at least half of the household expenses, and have either a qualified dependent living with you more than half the year or a parent whose housing costs you cover at least half of.

Is It Better to File as Single or Head of Household?

For tax purposes, it is better to be head of household. Head of household filers have a lower tax rate and higher standard deductions than single filers.

What Is the Standard Deduction for Head of Household?

Back Taxes

When you're able to confirm your eligibility for the IRS Fresh Start Program, you’ll want to work with a trusted tax relief expert to get you through the process of applying. A single mistake in filing could be the difference between receiving the supportive relief you deserve, and a full due balance from the IRS.

What Are the Risks of Making Mistakes When Applying?

The short answer is that there’s a lot at risk when applying to the IRS Fresh Start Program. Not only can you be denied relief, but you might extend the statute of limitations (SOL) on the expiration date of your tax liability in a way that’s unfavorable to you.  It’s likely that you're eager to move past your tax trouble, but this is your second chance at getting things right. Everything needs to be perfect. After you determine your eligibility, take a look at the requisites that need to be in place alongside it, before you apply. These include: All of your tax returns filed Being compliant with estimated taxes Not being the subject of an active audit Having an assessed tax liability If you were to file with any of these conditions unmet, you’d face an automatic rejection from the program. Keep in mind that when you submit an application, you could extend the amount of time the IRS has to collect on your owing for as long as it takes the application to be reviewed and accepted or denied. This could be anything from a few months to a few years. If you make a mistake and have to resubmit, you could extend it even longer.

Common Mistakes Individuals Make When Applying to the IRS Fresh Start Program

Mistakes happen all the time, but they can’t happen here. Deserving individuals are rejected by the Fresh Start Program every year because the process was more difficult than they anticipated.  If you correctly waited for your due balance to be assessed, adding another charge might not be at the top of your to-do list — but hiring a tax professional is an investment in securing a favorable outcome with the IRS.  Here’s a look at the mistakes we see most often:  Not taking advantage of all breaks: Understanding what qualifies as a break and what doesn’t is critical when applying for the Fresh Start Program. All possible breaks need to be taken advantage of. Not having proof of hardship for a personal financial situation: A tax relief professional understands how to iterate a case of financial hardship to the IRS.  Not having adequate documentation: Providing the right documentation in the right places is paramount to the application process.  Lying to the IRS: This will result in your application being automatically disqualified from consideration. Don’t expect the IRS to work favorably with you if you are caught being dishonest. Being dishonest or not completely forthcoming with all your information is a major offense. Examples of this are feigning hardship or hiding assets (like a property or timeshare). Do not lie to the IRS. A tax professional might not be able to help you if you do.

I’m Eligible for the Fresh Start Program. Now What?

By way of eligibility requirements, if you find yourself eligible, you’re not a serious, serial offender. So, the question becomes how do you show that you deserve a Fresh Start?  As the IRS has heard all kinds of stories as to why someone should gain entrance to the Fresh Start Program, determining the facts that are most pertinent to your case is best left to a professional who works with the IRS daily. They will be able to coordinate information and take advantage of all the “breaks” available to you (e.g. high-cost medical bills) and ensure that your documentation is adequate and timely — an important factor that will reduce your chances of being garnished or levied.  If you have a feeling you’re in tax trouble and might be eligible for the Fresh Start Program, calling a tax relief professional is the best next step.

Contact a Tax Relief Professional for Help

Get out your pencils and calculators: The IRS has released a breakdown of what’s ahead for 2020 taxes. Taxpayers who’ve been paying close attention will notice that the Tax Cuts and Jobs Act overhauled the tax code. Those sweeping changes include a higher standard deduction — it’s now $12,400 for singles and $24,800 for married joint filers in 2020. Following the overhaul, individual income tax rates also went down, and personal exemptions were eliminated. For the 2020 tax year, the IRS tweaked the individual income tax brackets, adjusting them for inflation. See below for your new bracket.

The additional standard deduction for older taxpayers and those who are blind are still available. Filers who are blind or aged 65 and over can claim $1,300. Two married filers who are both over 65 can claim $2,600, unchanged from 2019. Single filers who are blind or over 65 are eligible for a $1,650 additional standard deduction. This is up $50 from 2019.

Your Retirement Savings

The taxman is also allowing you to save a few more dollars in 2020 taxes. The IRS has raised the employee contribution limit for 401(k), 403(b) and most 457 plans to $19,500, up from $19,000 in 2019. If you’re 50 or older, you can sock away another $6,500 in that workplace retirement plan. That’s up from $6,000 in 2019. The contribution limit for individual retirement accounts, whether traditional or Roth, is holding steady at $6,000, plus another $1,000 for savers 50 and over. The IRS limits high-income earners’ ability to make direct contributions to Roth IRAs — accounts in which you can save after-tax dollars, have the money grow tax-free and use it in retirement free of taxes. In 2020, if your adjusted gross income exceeds $124,000 and you’re single ($196,000 for married couples filing jointly), you won’t be able to make a full contribution directly to a Roth IRA. Instead, those savers might consider using a strategy known as the “backdoor Roth,” where they make a nondeductible contribution with after-tax dollars to a traditional IRA and then convert it to a Roth.

Health Care Savings

If you choose a high-deductible plan during the open enrollment season, you might have access to a health savings account. These accounts allow you to put away pre-tax or tax-deductible money and have it grow free of taxes. You can take a tax-free withdrawal to cover qualified health expenses. In 2020, you can save up to $3,550 if you’re an individual with self-only health coverage. That’s up from $3,500 in 2019. Account-holders with family plans can save up to $7,100 in this account (up from $7,000 in 2019). HSAs differ from health-care flexible spending accounts primarily in that you can rollover the HSA balance from one year to the next. Health-care FSAs generally must be used by the end of the plan year. The IRS also bumped up the amount you can save in a health-care FSA: It will be $2,750 in 2020, up from $2,700 in 2019.

Your Estate and Gift Taxes

The election came and went with as big of a shebang as you’d expect. Now that the dust has settled, there’s one clear winner: Joe Biden. Over the past four years, there have been changes with the federal tax code. With Biden’s Administration soon taking the lead in the White House, you might be wondering what’s in store for your taxes during the next four years.  No president has the ability to wave a magic tax wand and get all of the rules they want passed. Right now, Biden’s proposals are just that — proposals. Still, it’s handy to look at what he wants to do as an indication of what might happen. So far, here’s what’s on the negotiation table:

Key Takeaways

- Biden’s tax plan is considered “highly progressive” by the Committee for a Responsible Federal Budget (CRFB) - Tax increases will be levied on people making over $400,000 per year - Relaunch or expand tax credits for parents, first-time homebuyers, and renters - If all proposals were enacted in 2021, the lowest-income earners would see an 11% income increase immediately, versus an 11% income decrease for highest-income earners - If all proposals were enacted, it would decrease GDP by 1.6% in the long run - Child Tax Credit. Raise the child tax credit from $2,000 per child to $3,000 per child (or $3,600 for children under age 6), and make it fully refundable.  - Child and Dependent Care Credit. You could get up to 50% back from expenses you pay for childcare or dependent care, on up to $8,000 of expenses ($16,000 for multiple kids or dependents), and it would be refundable. Currently, it’s limited to a max of 35% of up to $3,000 of expenses, and is non-refundable. This would increase the maximum value of the tax credit by $5,900. 3. Renter’s Tax Credit If you’re a renter, you’re mostly out of luck when it comes to the juicy tax breaks that homeowners get. Biden proposes changing that. The details are light (as with most of these proposals), but the goal is to enact a tax credit that limits rent costs to just 30% of monthly income for low-income families. 

Don’t Make Any Plans Yet

Bookkeeping is a necessary and inevitable part of running a business, but it’s not something you have to do yourself. Many small businesses decide to outsource the task to a professional.  This post details outsourced bookkeeping services for small businesses and the benefits of delegating this task to a third party.  

The Value of Outsourced Bookkeeping

There is an old saying in business, “Do what you do best. Outsource the rest,” and there is a lot of truth to it. The thinking is straightforward: you are in business to provide a product or service to your customers; any time you spend not providing said product or service is time you could have been spending on your core business.  By outsourcing your bookkeeping to a trusted partner, you not only get your time back, you get the reassurance that your books are being handled by a professional. If your core business is not accounting or bookkeeping, it’s worth asking yourself why you have not outsourced this task to an expert.  What can a bookkeeping service do for you? Plenty. Your bookkeeping partner could be responsible for reconciliation of your accounts (both accounts payable and accounts receivable), creating financial statements needed for tax returns, such as profit and loss, balance sheets, and others. 

Good Reasons to Outsource Your Bookkeeping

If you’ve been doing your own bookkeeping, this might sound familiar.. You get set up with software like QuickBooks, Netsuite, or Xero (all great programs) and start adding data. But then at the end of the day, or week, or month, you don’t reconcile all your accounts. Even with good software, this process still takes effort and a careful eye.  Without checking to make sure the numbers add up correctly, you’ll have no reliable way to know where your money goes and when it moves. Entering data without taking the step of reconciliation creates a false sense of security. When you have an inaccurate picture of your finances, it’s easy to start spending money you don’t actually have.  Why does this happen? There are certainly some people that just might not know what to do. But more often than not, it’s a matter of time. Bookkeeping takes a lot of time to do well, and if you’re focused on your core business (what you do best), it is understandable that you don’t have tons of time to devote to keeping the best of books.  Between the time commitment and expertise required to do it properly, you have two good reasons to start outsourcing your bookkeeping.  If you want another, taxes and bookkeeping go hand in hand. Your books need to be correct in order to generate accurate financial statements needed to complete your tax returns. In 2021 the IRS announced that it will be increasing the number of small businesses it audits by 50%—so now it is more important than ever to ensure that your books are in good shape going into the next tax season.  You can be audited at any time of the year and for years going back. You don’t want to risk getting audited and not have the records to support your position.  Also consider the benefit of having a neutral third party to take a look at your books. Sometimes it’s a matter of being able to see the forest through the trees—a bookkeeping partner will be able to spot errors and irregularities a lot better than you will be able to from your position. This could be simple mistakes, or more serious instances of theft or fraud.

  How to Select a Bookkeeper You Can Trust

There are three main considerations when making a decision to outsource the bookkeeping for your small business:  Price  Expertise Fit Let’s start with price. You’re going to find a ton of options as you start looking around, and they are not all created equal.  Bookkeeping is both a service and a skill—not just anyone can do it well. Be wary of really inexpensive options. You will get what you pay for when you go with a super low cost provider. You don’t want to pay someone to do your books in Microsoft Excel or Google Sheets; if that is what’s being offered it’s a mark of low quality. Instead you’ll want to find a partner that can work within your instance of QuickBooks (or other application) and have a single source of information. So, what should you pay? You have to consider what outsourcing your bookkeeping is worth to you. It should be affordable (not completely out of your price range) and feel like a fair price for the level of quality, service, and professionalism that you expect. Expertise is a huge factor in selecting a bookkeeping partner. Because a conversation about taxes is never far behind a conversation about bookkeeping, it pays to work with a bookkeeper who is a licensed enrolled agent or CPA who knows the tax code inside and out. A bookkeeper with expert tax knowledge can help you in the event you’re audited or overtaxed. Organization is key to effective bookkeeping and is also a mark of expertise in this profession. When you’re interviewing possible partners, their sense of organization should be apparent throughout the encounter. You don’t want to work with a disorganized bookkeeper. Lastly, you and your bookkeeping partner have to fit well together. You don’t want to be just another account; you want a partner who makes a point of understanding your business and needs. If your bookkeeper is taking your data and dropping it into a template and running with it, they’re not giving you the attention or solutions your business needs. Every business operates under its own unique circumstances and the best bookkeepers recognize that and act accordingly. In addition to the personal touch, you should be aware of online bookkeeping services that entice you with promises of low cost and ease of use. While they do serve a role, it’s important to know that these services are closer to tools than they are to having a bookkeeper. People who use these tools must spend a lot of time manually entering data without a lot of contact with real people, so be aware of that as you’re looking around at your options. 

Partnering with Tax Relief USA for Bookkeeping 

What Is Cost of Capital?

Cost of capital is a company's calculation of the minimum return that would be necessary in order to justify undertaking a capital budgeting project, such as building a new factory. The term cost of capital is used by analysts and investors, but it is always an evaluation of whether a projected decision can be justified by its cost. Investors may also use the term to refer to an evaluation of an investment's potential return in relation to its cost and its risks. Many companies use a combination of debt and equity to finance business expansion. For such companies, the overall cost of capital is derived from the weighted average cost of all capital sources. This is known as the weighted average cost of capital (WACC). Key Takeaways - Cost of capital represents the return a company needs to achieve in order to justify the cost of a capital project, such as purchasing new equipment or constructing a new building. - Cost of capital encompasses the cost of both equity and debt, weighted according to the company's preferred or existing capital structure. This is known as the weighted average cost of capital (WACC). - A company's investment decisions for new projects should always generate a return that exceeds the firm's cost of the capital used to finance the project. Otherwise, the project will not generate a return for investors. Cost Of Capital  

Understanding Cost of Capital

The concept of the cost of capital is key information used to determine a project's hurdle rate. A company embarking on a major project must know how much money the project will have to generate in order to offset the cost of undertaking it and then continue to generate profits for the company. Cost of capital, from the perspective of an investor, is an assessment of the return that can be expected from an acquisition of stock shares or any other investment. This is an estimate and might include best- and worst-case scenarios. An investor might look at the volatility (beta) of a company's financial results to determine whether a stock's cost is justified by its potential return. Weighted Average Cost of Capital (WACC) A firm's cost of capital is typically calculated using the weighted average cost of capital formula that considers the cost of both debt and equity capital. Each category of the firm's capital is weighted proportionately to arrive at a blended rate, and the formula considers every type of debt and equity on the company's balance sheet, including common and preferred stock, bonds, and other forms of debt. Finding the Cost of Debt The cost of capital becomes a factor in deciding which financing track to follow: debt, equity, or a combination of the two. Early-stage companies rarely have sizable assets to pledge as collateral for loans, so equity financing becomes the default mode of funding. Less-established companies with limited operating histories will pay a higher cost for capital than older companies with solid track records since lenders and investors will demand a higher risk premium for the former.   ​Cost of debt=Total debtInterest expense​×(1−T)where:Interest expense=Int. paid on the firm’s current debtT=The company’s marginal tax rate​ The cost of debt can also be estimated by adding a credit spread to the risk-free rate and multiplying the result by (1 - T). Finding the Cost of Equity The cost of equity is more complicated since the rate of return demanded by equity investors is not as clearly defined as it is by lenders. The cost of equity is approximated by the capital asset pricing model as follows:   ​CAPM(Cost of equity)=Rf​+β(Rm​−Rf​)where:Rf​=risk-free rate of returnRm​=market rate of return​ Beta is used in the CAPM formula to estimate risk, and the formula would require a public company's own stock beta. For private companies, a beta is estimated based on the average beta among a group of similar public companies. Analysts may refine this beta by calculating it on an after-tax basis. The assumption is that a private firm's beta will become the same as the industry average beta. The firm’s overall cost of capital is based on the weighted average of these costs. For example, consider an enterprise with a capital structure consisting of 70% equity and 30% debt; its cost of equity is 10% and the after-tax cost of debt is 7%.(0.7 times 10%) + (0.3 times 7%) = 9.1% (0.7×10%)+(0.3×7%)=9.1% This is the cost of capital that would be used to discount future cash flows from potential projects and other opportunities to estimate their net present value (NPV) and ability to generate value. Companies strive to attain the optimal financing mix based on the cost of capital for various funding sources. Debt financing is more tax-efficient than equity financing since interest expenses are tax-deductible and dividends on common shares are paid with after-tax dollars. However, too much debt can result in dangerously high leverage levels, forcing the company to pay higher interest rates to offset the higher default risk The Difference Between Cost of Capital and the Discount Rate  The cost of capital and discount rate are somewhat similar and the terms are often used interchangeably. Cost of capital is often calculated by a company's finance department and used by management to set a discount rate (or hurdle rate) that must be beaten to justify an investment. That said, a company's management should challenge its internally-generated cost of capital numbers, as they may be so conservative as to deter investment. Cost of capital may also differ based on the type of project or initiative; a highly innovative but risky initiative should carry a higher cost of capital than a project to update essential equipment or software with proven performance.  

Real-World Examples

Every industry has its own prevailing average cost of capital. The numbers vary widely. Homebuilding has a relatively high cost of capital, at 6.35, according to a compilation from New York University's Stern School of Business. The retail grocery business is relatively low, at 1.98%. The cost of capital is also high among both biotech and pharmaceutical drug companies, steel manufacturers, Internet software companies, and integrated oil and gas companies. Those industries tend to require significant capital investment in research, development, equipment, and factories. Among the industries with lower capital costs are money center banks, power companies, real estate investment trusts (REITs), and utilities (both general and water). Such companies may require less equipment or may benefit from very steady cash flows.

Why Is Cost of Capital Important?

Most businesses strive to grow and expand. There may be many options: expand a factory, buy out a rival, build a new, bigger factory. Before the company decides on any of these options, it determines the cost of capital for each proposed project. This indicates how long it will take for the project to repay what it cost, and how much it will return in the future. Such projections are always estimates, of course. But the company must follow a reasonable methodology to choose between its options.

What Is the Difference Between the Cost of Capital and the Discount Rate

What Is Reasonable Doubt?

Reasonable doubt is the traditional standard of proof that must be exceeded to secure a guilty verdict in a criminal case in a court of law. The phrase "beyond a reasonable doubt" means that the evidence presented and the arguments put forward by the prosecution establish the defendant's guilt so clearly that they must be accepted as fact by any rational person. Key Takeaways - Reasonable doubt is the highest standard of proof that must be exceeded to secure a guilty verdict in a criminal case in a court of law. - Clear and convincing evidence is somewhat less rigorous as it requires that a judge or jury be persuaded that the facts of the case as presented by one party represent the truth. - A preponderance of the evidence is the least rigorous standard as it requires only that one party's case be more persuasive after both parties have presented their cases. - Under U.S. law, everyone who is arrested is "innocent until proven guilty" in a court of law. - The standard of proof beyond a reasonable doubt is accepted in many global courts of law.

Understanding Reasonable Doubt

Under U.S. law, a defendant is considered innocent until proven guilty. If the judge or jury has a reasonable doubt about the defendant's guilt, the defendant cannot be convicted. Simply put, reasonable doubt is the highest standard of proof used in any court of law. It is used exclusively in criminal cases versus civil cases because a criminal conviction could deprive the defendant of liberty or even life. The standard of proof beyond a reasonable doubt is widely accepted around the world. The concept of reasonable doubt is imposed only on criminal cases because the consequences of a conviction are severe. The concept of reasonable doubt is not explicitly stated in the U.S. Constitution. However, one of the basic principles of the U.S. legal system is that it is worse to convict an innocent person than to let a guilty person go free. The person charged is considered innocent until proven guilty. As such, the burden of proof falls upon the prosecution to prove its case beyond a reasonable doubt. Proof beyond a reasonable doubt is required only in criminal cases because the potential penalties are severe.

Other Standards of Proof

Other commonly used standards of proof are clear and convincing evidence which is one step above preponderance of the evidence. - Clear and convincing evidence: The judge or jurors have concluded that there is a high probability that the facts of the case as presented by one party represent the truth. The standard of clear and convincing evidence is used in some civil cases, and it may appear in some aspects of a criminal case, such as a decision on whether a defendant is fit to stand trial. The language appears in several U.S. state laws. - Preponderance of the evidence: Both sides have presented their cases, and one side seems more likely to be true. Most civil cases require a "preponderance of the evidence," as this is a lower standard of proof.

Presumption of Innocence

In a court of law, the accused is innocent until proven guilty (i.e., there is a presumption of innocence). It is an essential component in the court system and is also considered a human right. The burden of truth falls with the prosecution team and must prove the accused is guilty beyond a reasonable doubt in a trial. The burden of truth means every factor must be proved beyond a reasonable doubt before the accused is guilty of a crime. It is better that 100 guilty persons should escape than one innocent person should suffer."—Benjamin Franklin

Real-World Example of Reasonable Doubt

The 1995 murder trial of O.J. Simpson provides an example of the concept of reasonable doubt in practice. The former football star was accused of the murder of his ex-wife, Nicole Brown Simpson, and her friend, Ron Goldman. There was substantial incriminating evidence against Simpson, including his DNA at the crime scene and blood in his car. To counter this mountain of evidence, Simpson assembled a legal “Dream Team” that set about trying to create doubt about his guilt in the jurors’ minds. Their case sought to cast doubt on the validity of the DNA evidence and the integrity of the police officers who investigated the murder. One of the trial highlights occurred in the courtroom when Simpson tried to pull on a bloody leather glove that had been recovered on his property and showed that his hand could not fit into it. In his closing arguments, lead defense counsel Johnnie Cochran famously declared that “if it does not fit, you must acquit.” Cochran listed 15 points of reasonable doubt in the case. After less than four hours of deliberations, the jury found Simpson not guilty on both counts of murder. A year later, the families of both victims filed a wrongful death civil lawsuit against Simpson. Based on the lower standard of proof, that of a preponderance of the evidence, the jury found Simpson liable for the deaths and awarded the families $8.5 million in damages.

How Do You Prove Reasonable Doubt?

You prove reasonable doubt by investigating and gathering evidence, including testimony, if appropriate, to prove that an accuser did not commit the crime they are accused of. Lawyers must use all legal avenues to pursue the truth and prove beyond reasonable doubt that their client is innocent.

How Much Doubt Is Reasonable?

It may be hard to answer how much doubt is reasonable because every court case, judge, and jury will weigh all the evidence, and outcomes can take different forms depending on the case. Reasonable doubt means a high degree or level of certainty based on the evidence provided that the accuser is innocent.

What Are the 3 Burdens of Proof?

On Sept. 21, 2021, Investopedia teamed up with another member of the Dotdash online publishing family, Verywell, to offer a unique virtual conference, "Your Money Your Health." This article presents key insights and observations from the first session of that event, "Healing the Economic Scars of the Pandemic." Participants included Investopedia's Editor-in-Chief Caleb Silver and Ethan Harris, head of global economics research at Bank of America Merrill Lynch Global Research. For background to their talk, Investopedia previously published an article on the future of fiscal policy. Key Takeaways - Disruptions to global supply chains, damaged confidence, and spiraling debt are among the big negative economic impacts of the pandemic. - However, innovations in technology and in workplace arrangements have been key positives. - Expect a "pretty robust recovery" once we are past the delta wave.

Long-Tail Effects of the Pandemic

Caleb Silver noted that the COVID-19 pandemic has produced "constant scarring" and asked Ethan Harris for his opinions on the likely "long-tail effects." Harris responded, "The whole world realizes that we have to be prepared for pandemics" and that this will require a reallocation of resources from other priorities. Harris commented later on that the pandemic story this time was not about the effects on population, as it was 1918, but on shutdowns. "This has not been written about in economics texts for decades," he said. Additionally, Harris observed that "U.S.-China relations have not improved" and that arguments about whom or what to blame for the pandemic may intensify the U.S.-China trade war. Moreover, the pandemic also is apt to create a protracted "lack of confidence" going forward. Harris also noted that "disruptions to global supply chains" have created a period of "de-globalization" that will be a big issue going forward. While increases in COVID cases will likely impair back-to-work plans, Harris expects that "we will see a pretty robust recovery" once we are past the delta wave.

Positive and Negative Outcomes From the Pandemic

"Stress and crisis are the mother of invention," Harris said, citing advances in "labor-saving technologies" and in the reorganization of the workplace. Regarding the latter, he referred to the widespread adoption of hybrid and work-at-home arrangements by organizations that previously were uncomfortable with having employees not under constant direct supervision. "Revamping the workplace is a great thing," Harris said later on. Nonetheless, he also stated that it is important to have people gather in office environments to build teams. On the negative side, Harris agreed with a comment from Silver that "the ladder has gotten steeper" for lower-income people. Harris elaborated that "high-touch jobs are a problem," involving tasks that cannot be performed remotely. Additionally, he stated that the pandemic has delivered an "uneven shock in the U.S. and globally, with lower-income workers and countries hurt the worst." Your Money Your Health Conference: Healing the Economic Scars Of the Pandemic Part 1

'Unprecedented Support From Government'

Harris stated that "unprecedented support from government" in the forms of stimulative fiscal and monetary policy has helped to mitigate the impact of the pandemic in many countries. "We are very bullish on the U.S. and Canada, which have had strong policy responses to COVID, especially the U.S.," he noted. Harris believes that the current low interest rate, low inflation environment in the U.S. will "stick for a while," calling Federal Reserve policy a "lubricant" for the economy. However, he added that it will be "a good sign when the Fed can reduce bond purchases and let interest rates rise, so they can rearm for next crisis." He expects interest rates to rise over next few years and warns that supply constraints will persist until COVID is under control. Currently, Harris notes, used cars are the hottest market precisely because of supply chain problems.

Fiscal Discipline Needed, but No Debt or Dollar Crisis Ahead

Harris warns that the U.S. government must exercise better "fiscal discipline" going forward. "As you get into a more normal recovery, there are two problems: you are hoarding resources, and massive deficits will rob Peter to pay Paul," he said. He also warns that, while over-stimulus is a problem, "a debt crisis and people abandoning the dollar are not an issue." In his opinion, the U.S. dollar is still likely to remain the dominant currency due to rule of law and open markets. By contrast, Harris says that China is too regulated and too anti-market. He sees a big equity risk premium in China due to "heavy-handed" and unpredictable shifts in regulation that are "destroying value" in various sectors. He also casts doubt on whether the euro will survive in the long term. Responding to a question about the global uptrend in debt, Harris said, "It will be hard to convince governments and individuals to cut debt" as long as high-debt advanced countries are not penalized with paying discernible interest rate premiums on their bonds. This will "make the world vulnerable to inflation and interest rate rises," he added.

'An Existential Problem'

What Are Barriers to Exit?

Barriers to exit are obstacles or impediments that prevent a company from exiting a market in which it is considering cessation of operations, or from which it wishes to separate. Typical barriers to exit include highly specialized assets, which may be difficult to sell or relocate, and high exit costs, such as asset write-offs and closure costs. A common barrier to exit can also be the loss of customer goodwill. Barriers to exit can include owning specialized equipment, the regulatory backdrop, and environmental implications.

Understanding Barriers to Exit

A company may decide to exit a market because it is unable to capture market share or turn a profit. The dynamics of a particular industry or market may change to such an extent that a company may see divestiture or spinoff of the affected operations and divisions as an option. However, circumstances, including internal and external, regulations, and other impediments, may prevent the division or inter-related business from being divested. For example, a retailer may wish to eliminate underperforming stores in certain geographic markets—particularly if the competition has established a dominant presence that makes further growth unlikely. A retailer might also wish to leave one location for another that offers potentially higher foot traffic or access to a demographic of customers with higher incomes. However, the retailer might be locked into a lease with terms that make it prohibitive to shut down or leave their current location. Tax Breaks and Regulations A company could have received certain benefits, such as tax breaks and grants from the local government that encouraged it to set up shop in a location. Those incentives may have come with high penalties if the company attempts to move its operations before fulfilling the obligations and terms outlined in the deal. Government regulations could also make it difficult for a company to exit a market. Banks are often considered necessary for lending and promoting economic growth in a region. If there are not enough banks or competition in an area, the government might block the sale of a bank to another party. Costly Equipment High barriers to exit might force a company to continue competing in the market, which would intensify competition. Specialized manufacturing is an example of an industry with high barriers to exit because it requires a large up-front investment in equipment that can only perform specific tasks. If a specialized manufacturer wants to switch to a new form of business, there might be financial constraints due to the large sum of capital or money already invested in the cost of the equipment. Until those costs have been covered, the company may not have the resources to expand into a new line of business. Impact on the Environment Industrial companies that wish to exit can face extensive cleanup costs if considering closing a factory or production facility that used or produced materials that left environmental hazards at the site. The expense of removing the material may outweigh the benefit of relocating the operation. Key Takeaways - Barriers to exit are obstacles or impediments that prevent a company from exiting a market or industry. - Typical barriers to exit include highly specialized assets, which may be difficult to sell or relocate, and high exit costs, such as asset write-offs and closure costs. - The government can be a barrier to exit if a company is highly regulated or received tax breaks for moving to a location.

Special Considerations: Barriers to Exit as an Opportunity

High barriers to exit might hurt existing companies but might also create opportunities for new companies looking to enter the sector. A new company could buy up the assets of a company wishing to exit at a favorable price. The company selling the assets might not be in a good negotiating position, due to debt or unprofitability, to garner a high price for the assets. In other situations, companies might buy distressed assets of a competitor to prevent a new company from entering the market. If a company is trying to leave an industry that had high barriers to exit, a competitor can use the high barriers to exit to their favor and negotiate a low price for the assets. Although the cost might be significant for the company making the purchase, it would eliminate a competitor and prevent a new company from entering the market by purchasing the assets.

Example of Barriers to Exit

What's wrong with the American tax system? Depending on their perspectives, taxpayers complain about a wide range of features. However, a recent study by the Pew Research Center reveals that a majority express a concern that the system is unfair. They believe that it often requires low- and middle-income individuals to pay taxes on a greater share of their income than is required from individuals with higher incomes.  Despite those concerns, an Internal Revenue Service (IRS) survey published in November 2020 reports that 94% of Americans believe it's "every American's civic duty to pay their fair share of taxes." All the same, Americans’ opinion of the fairness and effectiveness of the U.S. tax system has declined markedly over recent years. Some of the change corresponds to political party affiliations. Republicans’ and Democrats’ views have diverged, with Democrats increasingly skeptical and Republicans more positive, especially since the 2017 individual and corporate tax cuts. Although most taxpayers recognize that some form and level of taxation is necessary to fund the government, differing views about the appropriate size of government and its funding level, the optimal structure of a tax system, the system’s effective rates, and its impact on different groups and interests contribute to an expansive debate that would require a tome to appraise. Accordingly, this article focuses primarily on the current U.S. income tax regime and emphasizes features and effects that raise issues for taxpayers and policymakers alike. (It does not discuss excise taxes, which apply more narrowly to specific products and activities.) Once the rules are in place, individuals and corporations will, not surprisingly, do their best to use them to their advantage. What's important is to look at the disparate impact of those rules, as well as who benefits and who doesn't. Key Takeaways - Special tax rules often allow higher-income individuals to pay lower effective rates than middle- and lower-income taxpayers. - Many corporations pay little or no tax. - Alternative minimum taxes, never wholly effective, were weakened for individuals (and eliminated for corporations) in 2017. - Lower tax rates apply to capital gains and dividends than to wages, salaries, and self-employment income—a break that favors the wealthy, who have more investments. - Sophisticated tax planning enables many wealthy individuals to minimize—or even entirely escape—estate and gift taxes.

Unfair Distribution of the Tax Burden

Most U.S. taxpayers consider an income tax system that applies graduated, higher rates on higher levels of income—commonly characterized as “progressive”—to be fair. But, currently, critics are concerned that the national tax burden is not sufficiently graduated according to income level among individuals and between individuals and businesses, particularly large corporate businesses. News reports about major corporations paying no income taxes—and alleging that former President Trump paid no more than minimal income taxes for decades—have undercut taxpayers’ confidence in the system. Many people object to a system that often imposes on middle- and lower-income individuals higher effective income tax rates than apply to many with higher incomes, which allows some higher-income taxpayers to avoid taxation entirely. Judged from this relative perspective, a large percentage of U.S. taxpayers consider the U.S. tax system unfair. Some tax breaks are broadly recognized as appropriate, even necessary. Generally approved allowances include the deduction of “ordinary and necessary" business expenses to arrive at an economically accurate calculation of income. Similarly, the standard deduction, itemized deductions for medical expenses, charitable contributions, mortgage interest, certain losses, and refundable tax credits for individuals have broad support. The tax code provision that imposes no income tax on individuals with meager incomes (for 2020, taxable income below $9,876 for single individuals and $19,751 for married couples) is considered realistic and fair. In addition, it saves administrative expense by eliminating the cost of processing many tax returns that are unlikely to produce revenue.  The Internal Revenue Code (IRC) includes individual and corporate income taxes, payroll taxes, excise taxes, estate, and gift tax, and generation-skipping transfer tax. However, criticism generally has focused on the broad-based individual and corporate income taxes. Understandably, there is little enthusiasm for paying taxes. Still, it is about the fairness and not the actual dollar amount of tax liabilities that currently generates most complaints—perhaps a tacit acknowledgment of the tax law’s current rates, which are relatively moderate compared to far higher rates in the past. As budget deficits increased beginning in 2018 when major tax cuts reduced tax revenues—a trend intensified since the COVID-19 pandemic impaired the economy—concern grew not only about the fairness but also the effectiveness and adequacy of the tax law and its administration. Let's look at some of these issues in more detail.

Higher Benefits for Higher Tax Brackets

Although the U.S. tax code increases marginal tax rates on taxable income as taxable income brackets rise—the structure of a progressive tax system—graduated rates and brackets aren't the only driving force. Progressivity is countered by: - Exemptions and exclusions for certain types of income—for example, tax-exempt interest paid on state and local government bonds - Special, lower rates for some income categories, such as capital gains and dividends - Deductions for a wide range of expenditures, including some business expenses. Such adjustments—for simplicity, referred to collectively as "deductions" going forward—can result in lower effective tax rates on the incomes of some very high-income individuals than apply to far lower incomes. These deductions sometimes enable taxpayers with extremely high earnings and investment returns to avoid any tax liability. Deductions vs. Credits Deductions that produce lower taxable incomes benefit taxpayers in a regressive, rather than progressive manner. The tax benefit for such items generally equals the amount of the reduction multiplied by the taxpayer’s marginal tax rate. Thus, if an individual taxpayer’s income falls into the top 37% tax bracket, each reduction of $100 from income that otherwise would be taxed at this rate will save the taxpayer $37. If the applicable rate is 24%, the savings for a $100 reduction in income would be only $24. This allowance of greater tax savings for higher incomes contrasts with the savings from a tax credit. A 20% tax credit generally will save all taxpayers $20 in tax liability for each $100 expended, regardless of income level and tax bracket. However, if the amount of the credit exceeds the taxpayer’s tax liability, the taxpayer will not enjoy the full $20 savings unless the credit is refundable. Many tax credits are non-refundable. Corporate Tax Avoidance Currently, the tax law generally applies a corporate income tax of 21%. However, many U.S. corporations pay far lower effective rates or no tax at all because of substantial business write-offs, carrybacks and carryforwards of losses, aggressive tax planning, and if audited, tenacious and lengthy negotiating. Even as some challenge the existence of any corporate tax regime, others debate the appropriateness and level of corporate tax benefits, particularly those enjoyed by politically influential industries. Alternative Minimum Tax Limitations Corporate and individual alternative minimum (AMT) rules were enacted to ensure that taxpayers with high income but substantial possible deductions and other tax breaks pay at least some taxes. To date, these rules have never fully accomplished that purpose, in large part because they have relied on tax law concepts and definitions rather than on economic or financial standards. Then, the 2017 Tax Cuts and Jobs Act repealed the AMT for all C corporations. It also increased the exemption amount and exemption phaseout under the individual AMT, with the result that under present law, fewer individual taxpayers are subject to the AMT today than they were before 2018.

Preferential Rules for Investment Returns and Business Losses

Lower rates for investment returns and certain tax write-offs for businesses also are subjects of controversy. Capital Gains and Dividends Special low rates applicable to capital gains and dividends can enable taxpayers with significant investment returns to pay effective rates far below those applicable to ordinary income, such as salaries, wages, or interest. Investor Warren Buffett, whose income is comprised mainly of investment returns, famously acknowledged that the tax law should not allow him to pay a lower tax rate than his secretary. Because these lower rates make the system less progressive and undercut perceptions of fairness, they provoke debate. Critics question the need for the rules and the size of the benefits. Proponents of these benefits, on the other hand, believe that they encourage desirable economic investment. Certain Business Losses Individuals who materially participate in a trade or business operated directly or in a pass-through entity—or who participate in a real estate business as a real estate professional—can use losses from such activities to offset earnings or investment income from other activities. The rules permitting current, carryback, and carryforward deductions for such losses by an active participant (or real estate professional, as applicable) permit eligible taxpayers to claim substantial write-offs that reduce or even eliminate their overall net taxable income.

Questions About Non-Income Taxes

In addition to income tax, the tax code imposes payroll and estate and gift taxes. Although generally less discussed than income taxes, some of these taxes present issues similar to those arising under the income tax. Payroll Taxes Payroll taxes to fund Social Security benefits are imposed at the rate of 6.2% with respect to wages on each of the employer and employee—and 12.4% on net earnings of the self-employed—on up to $142,800 for 2021, and $147,000 for 2022. In addition, the Medicare tax of 1.45% applies to covered wages, with no wage cap (tax is 2.9% for self-employed). Because these taxes are imposed at flat rates regardless of income level, they are “regressive.” All wages are subject to these taxes; there is no exclusion or zero-rate level. Thus, for individuals with low incomes, these taxes are a substantial burden.   Some policymakers advocate imposing the Social Security tax at higher income levels, the way the Medicare tax already applies—or advocate extending it to unearned income. However, policy discussions tend to weigh the need to support trust funds against the risk that higher taxes on employers might adversely impact employment levels. Estate and Gift Taxes Estate and gift taxes apply to a small portion of the population and thus do not generate the breadth of interest or concern raised by income taxation. The doubling of the estate tax exemption to $11.58 million in 2020 by the Tax Cuts and Jobs Act of 2017 significantly reduced its coverage. Because many wealthy individuals and families engage in substantial tax planning, the impact of the estate tax, currently 40% on assets in excess of the exemption amount, has been limited. In addition to the current estate tax, the tax code imposes a generation-skipping transfer tax. This is a tax on transfers of assets valued in excess of the exemption level to beneficiaries more than one generation below the transferor. The code also imposes a gift tax but provides a $15,000 annual exemption for gifts made to a single recipient. Generally, there is no actual gift tax due until the total amount of a transferor’s gifts in excess of the annual exemption level together exceed the lifetime exemption, which as of 2021, is $11.7 million. The amount of the excess over the annual exemption level reduces both the lifetime gift tax exemption and the estate tax exemption on a dollar-for-dollar basis. Because of these high exemption levels, the applicability of the gift tax to average taxpayers is limited.

Are Tax Laws Enforced Fairly?

What Is an Annuity?

The term annuity refers to an insurance contract issued and distributed by financial institutions with the intention of paying out invested funds in a fixed income stream in the future. Investors invest in or purchase annuities with monthly premiums or lump-sum payments. The holding institution issues a stream of payments in the future for a specified period of time or for the remainder of the annuitant's life. Annuities are mainly used for retirement purposes and help individuals address the risk of outliving their savings. Key Takeaways - Annuities are financial products that offer a guaranteed income stream, usually for retirees. - The accumulation phase is the first stage of an annuity, whereby investors fund the product with either a lump-sum or periodic payments. - The annuitant begins receiving payments after the annuitization period for a fixed period or for the rest of their life. - Annuities can be structured into different kinds of instruments, which gives investors flexibility. - These products can be categorized into immediate and deferred annuities, and may be structured as fixed or variable. What Is An Annuity?

How Annuities Work

Annuities are designed to provide a steady cash flow for people during their retirement years and to alleviate the fears of outliving their assets. Since these assets may not be enough to sustain their standard of living, some investors may turn to an insurance company or other financial institution to purchase an annuity contract. As such, these financial products are appropriate for investors, who are referred to as annuitants, who want stable, guaranteed retirement income. Because invested cash is illiquid and subject to withdrawal penalties, it is not recommended for younger individuals or for those with liquidity needs to use this financial product. An annuity goes through several different phases and periods. These are called: - The accumulation phase, which is the period of time when an annuity is being funded and before payouts begin. Any money invested in the annuity grows on a tax-deferred basis during this stage. - The annuitization phase, which kicks in once payments commence. These financial products can be immediate or deferred. Immediate annuities are often purchased by people of any age who have received a large lump sum of money, such as a settlement or lottery win, and who prefer to exchange it for cash flows into the future. Deferred annuities are structured to grow on a tax-deferred basis and provide annuitants with guaranteed income that begins on a date they specify. Annuity products are regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). Agents or brokers selling annuities need to hold a state-issued life insurance license, and also a securities license in the case of variable annuities. These agents or brokers typically earn a commission based on the notional value of the annuity contract. Annuities often come with complicated tax considerations, so it's important to understand how they work. As with any other financial product, be sure to consult with a professional before you purchase an annuity contract.

Special Considerations

Annuities usually have a surrender period. Annuitants cannot make withdrawals during this time, which may span several years, without paying a surrender charge or fee. Investors must consider their financial requirements during this time period. For example, if a major event requires significant amounts of cash, such as a wedding, then it might be a good idea to evaluate whether the investor can afford to make requisite annuity payments. Contracts also have an income rider that ensures a fixed income after the annuity kicks in. There are two questions that investors should ask when they consider income riders: - At what age do they need the income? Depending on the duration of the annuity, the payment terms and interest rates may vary. - What are the fees associated with the income rider? While there are some organizations that offer the income rider free of charge, most have fees associated with this service. Individuals who invest in annuities cannot outlive their income stream, which hedges longevity risk. So long as the purchaser understands that they are trading a liquid lump sum for a guaranteed series of cash flows, the product is appropriate. Some purchasers hope to cash out an annuity in the future at a profit, however, this is not the intended use of the product.

Types of Annuities

Annuities can be structured according to a wide array of details and factors, such as the duration of time that payments from the annuity can be guaranteed to continue. As mentioned above, annuities can be created so that payments continue so long as either the annuitant or their spouse (if survivorship benefit is elected) is alive. Alternatively, annuities can be structured to pay out funds for a fixed amount of time, such as 20 years, regardless of how long the annuitant lives. Immediate and Deferred Annuities Annuities can begin immediately upon deposit of a lump sum, or they can be structured as deferred benefits. The immediate payment annuity begins paying immediately after the annuitant deposits a lump sum. Deferred income annuities, on the other hand, don't begin paying out after the initial investment. Instead, the client specifies an age at which they would like to begin receiving payments from the insurance company. Fixed and Variable Annuities Annuities can be structured generally as either fixed or variable: - fixed annuities provide regular periodic payments to the annuitant. - variable annuities allow the owner to receive larger future payments if investments of the annuity fund do well and smaller payments if its investments do poorly, which provides for less stable cash flow than a fixed annuity but allows the annuitant to reap the benefits of strong returns from their fund's investments. While variable annuities carry some market risk and the potential to lose principal, riders and features can be added to annuity contracts—usually for an extra cost. This allows them to function as hybrid fixed-variable annuities. Contract owners can benefit from upside portfolio potential while enjoying the protection of a guaranteed lifetime minimum withdrawal benefit if the portfolio drops in value. Other riders may be purchased to add a death benefit to the agreement or to accelerate payouts if the annuity holder is diagnosed with a terminal illness. The cost of living rider is another common rider that will adjust the annual base cash flows for inflation based on changes in the consumer price index (CPI).

Criticism of Annuities

One criticism of annuities is that they are illiquid. Deposits into annuity contracts are typically locked up for a period of time, known as the surrender period, where the annuitant would incur a penalty if all or part of that money were touched. These periods can last anywhere from two to more than 10 years, depending on the particular product. Surrender fees can start out at 10% or more and the penalty typically declines annually over the surrender period.

Annuities vs. Life Insurance

Life insurance companies and investment companies are the two primary types of financial institutions offering annuity products. For life insurance companies, annuities are a natural hedge for their insurance products. Life insurance is bought to deal with mortality risk, which is the risk of dying prematurely. Policyholders pay an annual premium to the insurance company who will pay out a lump sum upon their death. If the policyholder dies prematurely, the insurer pays out the death benefit at a net loss to the company. Actuarial science and claims experience allow these insurance companies to price their policies so that on average insurance purchasers will live long enough so that the insurer earns a profit. In many cases, the cash value inside of permanent life insurance policies can be exchanged via a 1035 exchange for an annuity product without any tax implications. Annuities, on the other hand, deal with longevity risk, or the risk of outliving one's assets. The risk to the issuer of the annuity is that annuity holders will survive to outlive their initial investment. Annuity issuers may hedge longevity risk by selling annuities to customers with a higher risk of premature death.

Example of an Annuity

A life insurance policy is an example of a fixed annuity in which an individual pays a fixed amount each month for a pre-determined time period (typically 59.5 years) and receives a fixed income stream during their retirement years. An example of an immediate annuity is when an individual pays a single premium, say $200,000, to an insurance company and receives monthly payments, say $5,000, for a fixed time period afterward. The payout amount for immediate annuities depends on market conditions and interest rates. Annuities can be a beneficial part of a retirement plan, but annuities are complex financial vehicles. Because of their complexity, many employers don't offer them as part of an employee's retirement portfolio. However, the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, signed into law by President Donald Trump in late December 2019, loosens the rules on how employers can select annuity providers and include annuity options within 401(k) or 403(b) investment plans. The easement of these rules may trigger more annuity options open to qualified employees in the near future.

Who Buys Annuities?

Annuities are appropriate financial products for individuals seeking stable, guaranteed retirement income. Because the lump sum put into the annuity is illiquid and subject to withdrawal penalties, it is not recommended for younger individuals or for those with liquidity needs to use this financial product. Annuity holders cannot outlive their income stream, which hedges longevity risk.

What Is the Surrender Period?

The surrender period is the amount of time an investor must wait before they can withdraw funds from an annuity without facing a penalty. Withdrawals made before the end of the surrender period can result in a surrender charge, which is essentially a deferred sales fee. This period generally spans over several years. Investors can incur a significant penalty if they withdraw the invested amount before the surrender period is over.

What Are the Common Types of Annuities?

What Is Brick-and-Mortar?

The term "brick-and-mortar" refers to a traditional street-side business that offers products and services to its customers face-to-face in an office or store that the business owns or rents. The local grocery store and the corner bank are examples of brick-and-mortar companies. Brick-and-mortar businesses have found it difficult to compete with mostly web-based businesses like Amazon.com Inc. (AMZN) because the latter usually have lower operating costs and greater flexibility. Key Takeaways - Brick-and-mortar refers to a traditional business that has a physical store or stores where customers browse and make purchases in person. - These kinds of traditional stores have had a harder time in the digital economy, in which web-based retailers such as eBay or Amazon benefit from lower operating costs and more flexibility for customers. - Many traditionally brick-and-mortar companies have created simultaneous, connected web-based businesses so as to better compete with online-only firms. - Similarly, the long-standing and important brick-and-mortar model has had an impact on some previously web-only companies that have opened physical locations to realize the advantages of traditional retail.

Understanding Brick-and-Mortar

Many consumers still prefer to shop and browse in a physical store. In brick-and-mortar stores, consumers can speak with employees and ask questions about the products or services. Brick-and-mortar stores have the ability to offer experience shopping whereby consumers can test a product such as a video game or laptop at Best Buy or have lunch in Nordstrom's cafe while shopping at the store. Brick-and-mortar businesses also provide consumers with instant gratification when a purchase is made. Some consumers are wary of using credit cards or other forms of payment online. These customers often associate legitimacy with a brick-and-mortar business, as a physical presence can foster a perception of trust. However, there can be disadvantages for corporations that run brick-and-mortar stores including the costs associated with leasing the building, employees to conduct transactions, and utility expenses such as electricity, heat, and water.

Brick-and-Mortar Store Sales

On a per-store basis, publicly-traded retailers typically report same-store sales, or comparable-store sales, in their quarterly and annual SEC-regulated earnings reports. These financial metrics provide a performance comparison for the established stores of a retail chain over a specified period of time. Brick-and-mortar businesses that include restaurants, grocery stores, and general merchandise stores use these figures to evaluate their financial performance to guide corporate decision-making regarding their stores. On a macroeconomic level, the U.S. Census Bureau releases retail sales figures on a monthly basis and e-commerce retail sales figures on a quarterly basis. Non-store retailing, which takes place outside of traditional brick-and-mortar businesses, such as direct (door-to-door) selling and e-commerce posted 2019 sales of over $667 billion for the year. Many brick-and-mortar stores have found it difficult to compete with stores like Amazon.com, that are web-based; however, companies such as Costco thrive by offering its members services such as buy online and pick up in the store.

Successful Brick-and-Mortar Store Example

With all the negative press surrounding brick-and-mortar stores combined with the popularity of Amazon, one might think that the brick-and-mortar business model is dead. However, Costco is bucking the trend. Costco Wholesale Corporation (COST) is a membership retailer that charges an annual fee of between $60 and $120 to each customer. Consumers receive cost savings and service benefits for being a member. Costco has almost 100 million members and a 90% renewal rate from those members. Costco beat out Amazon as the top Internet retailer in a consumer survey done by Verint Systems, Inc. Costco sells 10,000 products on its website and offers consumers the option to buy online and pick up in the store, which helps offer its members a compelling alternative to Amazon.

Special Considerations