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Now that 2021 is more than half-way in the books, it’s time to kick your tax planning into high gear! Included in this month's newsletter are several ideas to help you reduce your tax bill.
There is also an article that provides some ideas on how to think about debt. Some of it is good, while other debt is bad. Plus, the IRS is turning up the heat on small business audits. All this and a fun article on what to expect in the future with hi-tech travel.
Please call if you would like to discuss how this information could impact your situation. If you know someone who could benefit from this newsletter, feel free to send it to them.
Now is the time to begin tax planning for your 2021 return. Here are some ideas:
Please call to discuss these and other tax planning opportunities.
How to tell the difference
Not all debt is created equal. Knowing the difference can change the way you look at your spending.
Good debt adds value
Good debt often leads to financial growth, because the product or service being purchased adds more value than the debt that comes with it. Student loans are usually an example of good debt because the related education allows you to earn more income.
Some purchases result in value more directly. Taking on a mortgage, for example, can be valuable simply by giving you access to a place to live all while building equity. Additionally, a mortgage is often considered good debt because your property can be used as collateral for other debt once you’ve made some payments on it, or your home has gained in market value. Even better, good debt often comes with a tax deduction on the interest you pay on things like your mortgage or student loans.
Bad debt adds expense
Credit card debt is almost always bad debt. Not only are interest rates on credit cards higher than most other types of debt, but most purchases made with credit cards are for things that do not contribute to personal financial growth. In fact, interest expense is so high that credit card companies are now legally required to display the cost of this debt directly on their billing statements. Auto loans are another example of bad debt, because cars usually lose value quickly, often leaving more money owed on the debt than the car is worth! But even good debt can turn bad if there is too much of it. Take out too large a mortgage and you may struggle to make payments!
Debt always means higher cost
Debt's big benefit is allowing you to pay for something over time. The cost of any purchase using debt MUST include the interest expense of taking on that debt. You can compare that with the option of saving up money and then making the purchase without interest. Is the extra interest worth the benefit? Comparing the cost of the purchase with interest, to the value you stand to gain by purchasing the asset, can help you determine whether using debt is a good or bad choice for you.
Here are some ideas on how to manage good versus bad debt.
Reach out for help if you aren’t confident whether a potential debt will lead to more good or harm. Making the right choice could save you money.
Living in the information age, we are accustomed to new and innovative tools that change the way we live. We can control everything in our homes with our voice. We can talk face-to-face, albeit digitally, with anyone, anywhere in the world. We even carry supercomputers with all knowledge known to man in our pockets.
As we celebrate summer vacations, why not explore some hi-tech travel changes that could be coming over the next few years. Enjoy!
Like all new technology, there are kinks to work out and new problems to solve, but one thing is certain - big changes are right around the corner!
In late 2020, the IRS announced that it will increase tax audits of small businesses by 50 percent in 2021. Here are several mistakes to avoid if you do get audited by Uncle Sam.
Please call if you either need help preparing for an upcoming IRS audit or would like to know how to audit-proof your financial records.
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