Posts Tagged ‘personal finance’

Debt vs. Taxes: Should You Pay Off Your Loan

Friday, October 9th, 2015
Loan Repayment - Ohio CPA Firm

Without the tax deduction, you will pay a little more in income taxes but you will be left with more money in your bank account at the end of the day.

Have you ever heard someone say they couldn’t afford to pay off their loan because they would lose the interest deduction on their tax return?

Although it’s true that the taxpayer will be able to deduct their loan interest at tax time, there’s a lot more to consider – read on to learn more about the tax treatment of loans and interest to identify a repayment strategy that works best for you.

Read Also: Don’t Let Tax Incentives Determine How You Donate

It Is Worth It To Be In Debt?

Let’s assume that you are in the 25 percent tax bracket, which means that for every dollar you pay the bank in interest, the government will give you 25 cents back in tax savings. BUT – you have to remember that you are still out of pocket 75 cents of every dollar you pay the bank in interest. From an overall cash flow standpoint, that doesn’t really sound like a winning strategy to me.

Even though it would be nice to have a tax break to look forward to in the spring, you will ultimately end up paying more over the duration of your repayment period if you choose not to pay your loan off. That being said, if you have the funds available to pay off the principal loan balance you will save yourself the cost of the interest you are being charged by the bank.

Without the tax deduction, you will pay a little more in income taxes but you will be left with more money in your bank account at the end of the day.

Possible Reasons to Hold On To Your Loan

  • Investment Opportunities

Let’s say your loan balance is $50,000. If you have $50,000 of excess funds available to pay off your loan, you may also want to consider what your investment options are if you didn’t pay that loan off. Could you earn a rate of return greater than the interest rate you are paying on your loan? If so, then you may be better off keeping the loan and investing your excess funds.

  • Liquidity

Another consideration is the liquidity. You may have the funds to pay off the loan but you may want to keep a reserve of funds for an emergency or unknown need that may arise. Everyone has their own comfort level when it comes to maintaining an excess supply of cash reserves and your decision may vary whether you are holding on to a home mortgage loan or a business loan. As a business owner, for example, you might find it to be more beneficial to keep the borrowed money readily available to cover any fluctuations pertaining to your company’s equipment or inventory needs. Or you may want to keep a reserve of funds to get through your slow season.

Depending on where you are with your business or personal finances, you’ll want to consider various factors when deciding if you should pay off your mortgage or business loan. If you are only looking at the tax savings, then paying off the loan is likely your best option. However, it may also be important to consider other factors such as alternative investment options and liquidity. If you have questions about paying off your loan, email your Rea advisor.

By Mark Fearon, CPA (New Philadelphia office)

Are you looking for more tips and tax breaks to maintain your financial security? Check out these articles for more tips and advice.

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Six Things You Can Do Now To Protect Your Loved Ones’ Assets

Tuesday, April 14th, 2015
Making Moments Count: Family Financial Challenges

Bright Idea: Make sure everyone in your family has their financial information organized in one place. The organizer you’ll find in the financial resources section of our website is a great place to start. Click here to view our Personal Financial Records Document and get started today.

The value of our existence is measured by an infinite collection of meaningful moments that have shaped our lives and the lives of those around us. Perhaps our most precious moments occur when we positively impact the lives of our loved ones. We are all capable of initiating these moments and, sometimes, a simple conversation is all that is needed to provide insurmountable relief – now and for years to come.

Find out what else you can do now to improve your personal and financial well-being.
Read: Take Control Of Your Financial Wellness In 2015.

Even if they have never expressed their concern about the realities of aging before, it is almost certain that your parents are worried about their own mortality. Because this topic doesn’t typically find its way into casual conversation, it is your responsibility to broach the subject. Your parents will be grateful you did.

Here are five things you can do now to actively protect your loved one’s assets:

1. Overcome Your Discomfort

The first conversation about your loved ones’ finances is probably the most uncomfortable one, but it’s also the most important. It’s uncomfortable to talk to our parents about their death. Mom and Dad don’t find it thrilling either because they don’t want to be a burden. But as awkward as it is to discuss, you may eventually be shouldered with responsibility of managing the affairs your parents leave behind.

2. Set Up A Power Of Attorney

In order for you to assume this important role, you must be named as your parents’ power of attorney. This step gives you legal authority to pay their bills, maintain their residence, complete tax returns and review their financial investments.

If your power of attorney was established more than two years ago, verify that it was issued properly by today’s standards. Even though powers of attorney never expire, some have reported having problems with establishments that have updated their forms. The new forms no longer identify powers of attorney that were named several years ago.

Your parents can name multiple powers of attorney. But to avoid possible disputes, make sure that you and your siblings have your own, clearly defined responsibilities. Also, if your parents have decided to name a power of attorney, and it’s not you, make a point to respect their decision – even if you don’t agree with it. As long as a plan is in place, you and your family are on the right track.

3. Understand Your Responsibilities

Being a power of attorney is a big responsibility. Not only are you empowered to make tough decisions, your actions are now able to be scrutinized by everybody from the IRS to other family members. To avoid problems, carefully track how much money is coming in and going out and maintain thorough records. And call in the professionals if you feel like you’re in over your head.

4. Send In The Team

In the past, did your parents work with a team of professionals to manage their finances, legal affairs or anything else? If so, make it a priority to talk to them before moving any money or assets around. You will need to know if your parents set up a will, trusts, or anything else over the course of their lives. This team will not only be able to compile the information you need, they can answer your technical questions, which will make the entire process go smoother.

5. Compile An Inventory

To manage anything well you must have a clear picture of what it is you are managing. To that end, make it a point to compile a complete inventory of your parent’s assets and liabilities to create a clearer plan of action.

Do you know how the value of real property is determined?
Read: How Do You Value Property For An Estate In Ohio to learn more.

6. Simplify, Simplify, Simplify

Once you understand your responsibilities, simplify everything. For example, if your parents have seven or eight open bank accounts throughout the county or state, consolidate them into one – and don’t stop there. From assets to investments, consolidating these affairs will make your job easier and less confusing as you try to track expenses.

It’s not easy to manage your loved ones finances, but with the right approach, plan and team of advisors, you can do it – and do it well. Once you get your ducks in a row, you can focus on other, more important things – like making every moment with your loved ones count.

By: David K. McCarthy, CPA, CSEP (Medina office) and Frank L. Festi, Jr. CPA, CFP (Medina office)

This article was originally published in The Rea Report, a Rea & Associates print publication, Winter 2015. If you don’t already receive The Rea Report, our quarterly print newsletter, in your mailbox, click here and start your subscription today!


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Which Life Insurance Policy Is Right For You?

Monday, March 17th, 2014

Back in January, I shared some insight about six common stages of life where you should review your life insurance policy. Today I want to provide some insight about how you can know what the right life insurance plan is for you.  (more…)

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What Are Ways You Can Ensure You’re Ready for Retirement?

Wednesday, March 5th, 2014

Yes, yes. You have a million things going on, and retirement planning may be the furthest thing from your mind. But it really shouldn’t be. In order to be well-prepared for retirement, you need to start now regardless of where you’re at in your career. Here are five financial requirements you should focus on as you prepare for retirement: (more…)

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Need Some Cash Now?

Friday, July 19th, 2013

Are you in the market for a new home? Or maybe you’re looking to purchase a new car for your daughter or son? Don’t have enough cash for a down payment? No problem. There’s a nice workaround that can provide short-term relief for your immediate need.  (more…)

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How Does Getting Divorced Impact Your Taxes?

Friday, March 15th, 2013

Like so many Hollywood couples these days, maybe you are finding yourself a newly divorced person. With all the legal shenanigans that can happen during a divorce proceeding, have you taken the time to consider some of the more practical matters related to your finances? There are several tax-related items and helpful advice tidbits to be discovered after a change in your marital status. (more…)

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Have You Reviewed Your Life Insurance Lately?

Monday, February 4th, 2013

You’re used to discussing your financial assets with your CPA. You talk to your accountant about your income, your business and your estate plan. But there’s one financial asset that doesn’t always come up in discussions of your financial situation: your life insurance policy. Insurance might seem more like a safeguard than an asset, but it’s an important part of your financial portfolio. And, it’s important to review it regularly with the same diligence that you devote to your income, your business and your estate.

Why review your life insurance? Three reasons: to save money, reduce risk and ensure policy suitability. (more…)

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