Archives for January 25, 2019

Many small businesses start out with a single location or product offering and grow over time. Expanding your business is a good way to increase your long-term profitability and reach a wider audience.

But while growing your venture might be something you’d like to do eventually, now might not be the ideal time to dive in. Here are four reasons you might choose not to grow your business, and instead stick with the status quo.

1. You’re not yet profitable

Expanding your business often means taking on more financial risk — and debt. If your venture is doing well financially, you might be ready and willing to take that leap. But if you’re not yet profitable, growing might cause you to get buried more deeply in an existing hole. Of course, many folks will tell you that taking on risk and debt is part of the process of getting into new markets or opening new locations for your business. But if your personal appetite for risk isn’t there, then it might pay to hold off on growth until you’re in a more solid place financially.

If your small business is a strain now, maybe it’s not time to expand.

2. You’re understaffed

You can’t grow a business alone. You’ll need a trusted team to help you deal with the logistics of expanding, not to mention potential assistance on the financial management end. Therefore, if your business is already understaffed in its current state, you might focus on building up a solid team before attempting to broaden your customer base.

3. You don’t want to subject your business to stricter regulations

Growing your business often means expanding your staff, but that potentially introduces a world of upheaval from a compliance standpoint. Once you employ a certain number of people, you’re on the hook for different requirements — requirements that will likely cost you money — that smaller shops aren’t subject to. Think about whether you’re willing to take on that added burden before moving forward with your expansion efforts.

4. You’re already on the verge of burning out

Burnout is a problem for workers at all career levels. But as a small business owner, you’re perhaps even more at risk of falling victim to it, since you’re most likely juggling a massive workload, all the while carrying the weight of your business’ potential setbacks on your own shoulders. If you’re struggling to keep up with the demands of running your business, and are already overwhelmed by the pressure at hand, then expanding and taking on even more work could be the very thing that sets you over the edge. Before you move forward with growing your business, think about the impact it might have on your physical and mental health, and decide whether it’s really worth putting those things at risk.

There’s nothing wrong with wanting to take your small business to a new and exciting level. Just make sure the timing is right before you pursue that growth in full force. Otherwise, it could be a decision you ultimately regret.

THIS TAX-FILING SEASON, taxpayers are poised to experience the impact of the Tax Cuts and Jobs Act of 2017, which eliminated beneficial deductions and credits. Touted as the largest tax overhaul in 30 years, the law could be a mixed bag for many households as it increases the standard deduction and child tax credit, but makes more than a dozen deductions extinct.

Some filers may receive a significant tax break, while others may see their refunds shrink as a result of new deduction rules. “Most people won’t know until they fill out their tax forms,” says Shaun McClung, a Tampa, Florida-based tax managing director at the accounting firm CBIZ MHM, LLC.

While some crucial tax breaks might return after some provisions of the tax law expire in 2025, here are 12 tax deductions that disappeared this year:

• The standard $6,350 deduction.
• Personal exemptions.
• Unlimited state and local tax deductions.
• A $1 million mortgage interest deduction.
• An unrestricted deduction for home equity loan interest.
• Deductions for unreimbursed employee expenses.
• Miscellaneous itemized deductions.
• A deduction for moving expenses.
• Unrestricted casualty loss deduction.
• Alimony deduction.
• Deductions for certain school donations.
• Deductions from tax extenders.

If you typically deduct many of these items from your taxes, you could be in trouble this year, says Carla Wainwright, a certified public accountant and director of tax for finance firm MAI Capital Management, LLC in Cleveland. Read on for more information on the tax deductions that have changed or become extinct.

1. The standard $6,350 deduction. Some of the best news from the tax reform law is an increase in the standard deduction. While single taxpayers were only eligible for a $6,350 standard deduction last year, that amount nearly doubled in the 2018 tax year to $12,000 for individuals. Married couples will get a standard deduction of $24,000 for 2018, up from $13,000 for 2017. And head of household filers will see a bump in their standard deduction from $9,550 to $18,000 for 2018.

2. Personal exemptions. The increased standardized deduction will be welcome news for many households, but there’s a catch: Personal exemptions have been eliminated. While not technically a deduction, the exemption allowed taxpayers to subtract $4,050 from their taxable income for each dependent they claimed, so eliminating it is a significant loss for families. The increased standard deduction helps soften the blow of losing personal exemptions, but it might not make up for it entirely, says Mark Jaeger, director of tax development for TaxAct, a provider of tax preparation software and services.

3. Unlimited state and local tax deductions. On this year’s tax forms, deductions for state and local taxes – known as SALT deductions – are capped at $10,000. “That to me is the one (new tax code rule) that is going to impact middle class taxpayers the most,” McClung says. It will particularly affect those living in states like California and New York, which both have above-average state income tax and property tax rates.

4. A $1 million mortgage interest deduction. Another change that could disproportionately affect those living in states such as California and New York is the restriction on the amount of mortgage interest that can be deducted. Last year, married taxpayers could deduct interest on a mortgage of up to $1 million. For the 2018 tax year, only interest on mortgage values of up to $750,000 are deductible.

5. An unrestricted deduction for home equity loan interest. The tax law also eliminates the unlimited interest deduction for both new and existing home equity loans. Homeowners used to be able to deduct interest for loans taken out for any purpose such as debt consolidation or travel. Now, only interest on loans used to make home improvements are eligible for a deduction. Plus, the combined total of the first mortgage and home equity loan can’t exceed $750,000 for married couples filing jointly.

6. Deductions for unreimbursed employee expenses. Workers who made unreimbursed purchases related to their job were able to deduct any amount that exceeded 2 percent of their adjusted gross income in 2017. However, taxpayers won’t see that deduction available on their 2018 tax return. “I’m sure a lot of employees are going to be pushing back to get more things covered by employers now,” Wainwright says.

7. Miscellaneous itemized deductions. Unreimbursed work expenses is just one of several miscellaneous itemized deductions that have been disallowed under the new law. Fees for financial services is another example. “(Taxpayers) used to be able to deduct advisor fees and tax preparation fees,” McClung says. Other disappearing miscellaneous deductions include costs related to tax preparation services, investment fees, professional dues and a long list of other previously approved items.

8. A deduction for moving expenses. If you relocated for a new job last year, forget about deducting your moving expenses from your 2018 taxes. The deduction has been eliminated for virtually all workers. “It actually only applies (now) to military members who are required to move,” Jaeger says.

9. The unrestricted casualty loss deduction. In 2018, only those in presidentially designated disaster zones can deduct casualty losses on their tax forms. That means, for example, if your house burns down but insurance doesn’t cover all your costs, you can’t write off the loss from your federal taxes.

10. Alimony deduction. In the past, couples could set up alimony agreements that would allow the person making payments to deduct that money from their federal taxes. That won’t be an option this year. “You won’t be able to deduct alimony anymore because it’s not taxable to the recipient,” Wainwright says. And since alimony is no longer considered income, the recipient can’t deduct any of the legal fees they incurred to get it for any divorce completed after Dec. 31, 2018.

11. Deductions for certain school donations. Some colleges and universities require alumni to make donations before they are able to purchase season tickets. “That donation to the school used to be allowed as a deduction,” Jaeger says. However, donations tied to the right to purchase tickets are no longer deductible for the 2018 tax year.

12. Deductions from tax extenders. Each year, Congress passes legislation extending temporary tax breaks. Known as tax extenders, these include deductions for college tuition and fees and mortgage insurance premiums. Legislative leaders have yet to approve tax extenders for this year, and “it’s not looking like it’s going to be passed,” Jaeger says.

Bridge loan is one of those financial terms that many probably don’t understand. This may be what keeps lots of people from getting a bridge loan, which is unfortunate. Bridge loans can be extremely useful for a lot of consumers and can make buying a home easier.

This article will cover what a bridge loan is, the fees associated with one, and the benefits and the disadvantages.

What are bridge loans?

First, bridge loans are temporary loans secured by some type of asset, usually a home. The name bridge loan describes them quite well. The bridge refers to the gap between one loan and the other when you don’t have any capital.

For instance, you can place your home on the market, take out a bridge loan against the home, and use that bridge loan to pay the down payment on your new home.

Simply put, you don’t need to wait to sell your home to purchase a new home. The bridge loan allows you to purchase your new home while you wait to sell your old one.

Why do people use bridge loans?

Bridge loans have a lot of uses. We’ve already talked about how people use them for homes. They can also be used for businesses. They’re used by businesses waiting for a long-term loan to clear. If a business has a long-term loan that will pay out in six months, but they need money before then, then they can take out a bridge loan with the long-term loan as a form of collateral.

How to get a bridge loan

Getting a bridge loan isn’t always the same as getting another type of loan. Yes, some lenders do require a high credit score, tax returns, and an acceptable debt-to-income ratio. Not all lenders require that information in this situation. Some lenders will assume that if you already qualify for a home loan, then you qualify for a bridge loan.

The bridge loan lender will decide to offer you a loan on the basis of whether it makes financial sense for you to get a bridge loan.

Bridge loan lenders will also determine if you can qualify for a second mortgage. If they don’t believe you can pay a second mortgage and a bridge loan, then you probably won’t qualify.

What are the average fees attached to bridge loans?

Bridge loans have fees, but rates vary depending on the lender, location, and your risk. Generally, a bridge loan will have more fees than a standard loan.

For instance, you can expect to pay about $2,200 in fees with a $10,000 bridge loan. This includes a title fee, administration fee, and appraisal fee. Not to mention the interest that you have to pay on the loan if you can’t sell your home in a timely manner.

Benefits of a bridge loan

Buy a home without restrictions: Often a seller will require that a buyer sell their other home before any paperwork can be signed. This requirement exists because the seller doesn’t want to risk the borrower not having the money for a down payment and the deal falling through due to insufficient financing. A bridge loan solves this problem because it provides the money for a down payment.

No monthly payments: bridge loans don’t usually have monthly payments for the first few months. This makes the whole moving process much easier because the homeowner doesn’t have to worry about two monthly payments on top of moving expenses. More important, it also gives you time to sell your home and pay off the loan without having any monthly payments. Interest does accrue even when you don’t have any monthly payments.

Drawbacks of a bridge loan

Bridge loans sound great, but they do have some drawbacks. They’re not for everyone.

More expensive than other types of loans: the first major drawback with a bridge loan is that they are costly. Most of the expenses comes from the high amount of fees that they charge. Home-equity loans are generally much cheaper than a bridge loan.

Must qualify to own two homes: this requirement will disqualify most borrowers. The lending company will want you to have the ability to pay two mortgages at the same time before they offer a bridge loan. Unfortunately, this requirement makes most people ineligible to receive a bridge loan.

Two mortgages and interest payments on a bridge loan can get expensive: finally, if your home doesn’t sell as quickly as you anticipated, then you will have to pay two mortgages and the interest payments for your bridge loan. These expenses can add up quickly.

You should make sure that you can sell your home before taking out a bridge loan. You don’t want to be stuck with two mortgages and a bridge loan payment. That could force you to sell your home at a lower price than you want, which is something that nobody wants. Unfortunately, many homeowners get themselves into that situation.

Should you get one?

Bridge loans make an excellent choice for some people and a poor choice for other people. You simply have to evaluate the fees and how quickly you believe you can sell your home before taking out a bridge loan. You also want to look at your financial situation to determine what’s best for you.

If you’re unsure whether you qualify for one, you can always speak to a lender to help you determine whether you do or not.

Of the many taboo topics we, as members of society, feel uncomfortable talking about, money surely ranks pretty highly. But while it’s one thing to not want to discuss financial matters with your friends, neighbors, or colleagues, it’s another thing to keep your partner in the dark. Unfortunately, 22% of Americans are doing just that, according to new data from GOBankingRates. And if they don’t change that habit, they’re likely to hurt not only their relationships but their finances as well.

It’s time to come clean

Managing money as a couple isn’t easy, especially when you have different approaches and goals. But if you don’t sync up on money matters, you’ll only be hurting yourselves.

GOBankingRates reports that among the 22% of U.S. adults who have lied to their partners about money, the most common offence was not being truthful about spending habits. Next in line was debt — something Americans on a whole are more than familiar with. Other items folks lied about include salary, savings, investments, credit scores, and even gambling habits.

Here’s the problem, though: If you don’t come clean about money matters to your partner, you’re both likely to suffer financially in the long run.

Imagine you have a secret habit of hitting the mall once a week and splurging on apparel. Doing so could really throw off your household budget and thwart your joint savings goals. On the other hand, if you tell your partner that you’re loathe to give up your weekly shopping trips, he or she might agree to work that spending into your budget (within reason, of course) but cut back in other areas so that you’re able to buy the things that bring you joy without it impacting your ability to pay your bills.

Similarly, if you’re carrying a load of debt in your own name, it could come back to bite you if you and your partner decide to apply for a mortgage together (namely, you might get rejected or get stuck with a very unfavorable rate). But if you open up about that debt and your partner is in a stronger financial position than you are, he or she might offer to handle some of your joint expenses temporarily so that your earnings can be used to pay off whatever credit card balance or loan you’re burdened with.

The same holds true in all other regards. Being open about savings and investments can help you and your partner better and more realistically align your goals. Furthermore, if you’re entering an arrangement where you’re sharing the bills, but you don’t disclose your salaries to one another, you’ll have no idea what sort of budget to work with.

A better solution, therefore, is to sit down and have those open conversations. If your financial past isn’t pretty, say so. Chances are, that information will come out sooner or later, so your partner might as well hear it from you. In fact, consider talking money a solid investment in your relationship — because if you continue lying to your partner, you’re likely to not only struggle financially but wind up alone.