Student loan debt is a hot topic and for good reason. Managing the burden that comes during repayment is very difficult. Fortunately, there are ways to get some relief while taking advantage of timely tax breaks at the same time. Here are four ways to help lessen the strain of repaying your student loans.
- Deduct your student loan interest. The IRS allows you to deduct up to $2,500 in student loan interest payments on your tax return each year. The great thing about this deduction is you can take it even if you don’t itemize! Each loan provider should issue you a Form 1098-E if you pay over $600 in interest for the year. If you pay less than that, and you don’t receive a Form 1098-E, save your monthly statements as back up for the interest you pay. Even if you are still in school, and you are making interest payments, you are eligible for the deduction.
- Exclude cancelled debt as income. In most cases the IRS considers cancelled debt as income. However, the IRS recently announced that students would not have to report cancelled student loans as income in the following situations:
- The school closed when you were attending, or shortly after you attended.
- The school actions are contradictory to applicable laws.
- You are a part of a successful legal settlement against the school.
If you receive a Form 1099-C for cancelled student loan debt, conduct research to determine if one of these exclusions applies to your situation.
- Refinance to lower your payments. Are you making two or more different student loan payments every month? Refinancing multiple accounts into one loan can lower your effective interest rate and your monthly payment. You can also lower your monthly payment by taking an existing loan and refinancing over a greater number of years.
- Plan for tuition costs. Utilizing student loans to finance your education is a necessity for many people. However, you can cut down on future payments with early savings. For example, parents and grandparents can create 529 college savings plans. And as soon as you start earning income, earmark a portion of every paycheck for college. Grants and scholarships are another way to reduce tuition costs, so start researching early.
College debt can seem daunting. But by combining a long-term plan while taking advantage of tax benefits, the mountain of debt can become a manageable hill.
Are you one of the now 33% of Americans who work as either an independent contractor or freelancer?
If you answered yes, you are now a participant in the gig economy, a modern term for an economy characterized by workers who earn money through short-term contracts or freelance work.
Succeeding as an independent contractor can be challenging because it requires understanding a different set key success factors than being a full-time employee. Here are some tips on developing your skill set as an independent contractor and where to turn to if you need help.
- Contract for companies with generous payment terms. The formula for companies to pay its contract workers varies from business to business. Investigate a company’s policy for paying its contract workers to make sure it’s what you’re expecting. Remember, cash is king!
- Market your services by creating an online portfolio. If being a contract worker is your full-time job, you’ll need to always be looking for your next gig. One great way to market yourself to prospective businesses is to create an online portfolio that showcases the work you can perform. You can choose to build a website using a do-it-yourself service or hire a developer to create a custom website.
- Stick to budget. As a full-time employee, you know the exact date you’ll receive your paychecks and usually the exact dollar amount. As a participant in the gig economy, however, you could earn a bunch of money in one month and hardly any money the following month. Prepare a financial budget so you can use income earned during your good months to cover costs during low income months.
- Stay one step ahead of the IRS. Paying taxes is now your responsibility. Participating in the gig economy requires more knowledge about how to meet your tax obligations. So ask for professional help. Plus use other tools at your disposal. For instance, the IRS Gig Economy Tax Center gives guidance on how to figure out what you may owe the IRS. The website is https://www.irs.gov/businesses/gig-economy-tax-center.
- Get advice from others. Working primarily by yourself can leave you isolated from fellow workers. Join a local group of self-employed workers that meets on a regular basis to network and learn what other workers are doing to be successful.
Remember you are not alone. The complex nature of tax obligations for contractors can easily be navigated with professional help.
For many folks, the lyrics of a 1960s rock song summarize the American dream: “Our house is a very, very, very fine house.” According to U.S. Census figures, about two-thirds of American families are homeowners.
But buying a house or condo may not be the best choice for every family in every situation. Renting offers the following advantages:
- Greater flexibility. When renting a house, apartment, or condo, you have the option of moving at the end of the lease term. No need to contact a realtor, no hassle with buying or selling. For those who want to keep their options open, especially in terms of job location or dwelling size, renting may prove the better choice.
- Opportunities to invest elsewhere. Instead of plowing your savings into a home, you might get a better return by contributing to mutual funds or other investments. Depending on the housing market in your city, the annual increase in your home’s value may barely outpace inflation.
- Lower cost. Apartments are often smaller than homes, so heating and cooling expenses tend to be lower. If you don’t have a lawn, you won’t incur the cost of water to keep it green. Roof leaking? Appliances on the blink? Call the landlord. Home repair and maintenance aren’t normally your responsibilities.
Of course, as many realtors and financial analysts rightly point out, homeowners also enjoy significant advantages:
- Greater flexibility. Ironically, homeowners enjoy certain freedoms denied to renters. If a homeowner wants to paint a wall or hang a picture, he or she doesn’t answer to a landlord. Installing a doggy door isn’t a problem. Hiring a remodel contractor to tear out a wall is perfectly acceptable. Don’t try this if you’re a renter.
- Increasing equity. One of the greatest advantages to buying a home is the likelihood of increased equity over time. As long as your mortgage is being whittled down by monthly payments, you’re building equity—even if your property value remains stable.
- Lower taxes. The ability to deduct mortgage interest and property taxes (if you itemize) can significantly lower your end-of-year tax bill. Renters must forgo this benefit.
Clearly, the choice to rent or buy a home depends on individual circumstances and tastes. If you’d like help with this important decision, give us a call.
The recently passed Coronavirus Aid, Relief, and Economic Security (CARES) Act provides individuals and businesses significant financial relief from the financial strain caused by the coronavirus epidemic.
Here is a snapshot of the unemployment benefits section of the bill and how it affects individuals and businesses.
- WHO QUALIFIES TO RECEIVE STATE UNEMPLOYMENT BENEFITS? In addition to full-time workers who are laid off or furloughed, the Act provides individuals who are not already eligible for state and federal unemployment programs, including self-employed individuals and part-time workers, a set amount of unemployment compensation.
- HOW MUCH WILL I RECEIVE? There are two different components to the new law’s unemployment benefits:
- Each worker will receive unemployment benefits based on the state in which they work, and
- In addition to their state unemployment benefits, each worker will receive an additional $600 per week from the federal government.
- HOW WILL BENEFITS FOR SELF-EMPLOYED WORKERS BE CALCULATED? Benefits for self-employed workers are be calculated based on previous income and are also eligible for up to an additional $600 per week. Part-time workers are also eligible.
- HOW LONG WILL THE STATE UNEMPLOYMENT PAYMENTS LAST? The CARES Act provides eligible workers with an additional 13 weeks of unemployment benefits. Most states already provide 26 weeks of benefits, bringing the total number of weeks that someone is eligible for benefits to 39.
- HOW LONG WILL THE FEDERAL PAYMENTS OF $600 LAST? The federal payment of $600 per week will continue through July 31, 2020.
- HOW DO I APPLY FOR UNEMPLOYMENT BENEFITS? You must apply for unemployment benefits through your state unemployment office. Most state applications can now be filled out online. Workers who normally don’t qualify for unemployment benefits, such as self-employed individuals, need to monitor their state’s unemployment office website to find out when they can apply, as many states need to update their computer systems to reflect every type of worker who is eligible to collect unemployment benefits under the CARES Act.
What to do NOW!
If you have lost your job, you must file for unemployment with your state as soon as possible. State offices and websites are being slammed, so the sooner you get in the queue the better for you and your loved ones.
The Families First Coronavirus Response Act is a new program that offers COVID-19 assistance for both employees and employers.
This new law provides businesses with fewer than 500 employees the funds to provide employees with paid leave, either for the employee’s own health needs or to care for family members.
Here is a summary of the new law’s benefits for employees and employers:
- Paid sick leave for workers. The new law provides employees of eligible employers two weeks (up to 80 hours) of paid sick leave at 100% of the employee’s pay ($510 daily limit applies) where the employee can’t work because the employee is quarantined and/or experiencing COVID-19 symptoms and seeking a medical diagnosis.
- Paid leave for workers. Employees can receive two weeks (up to 80 hours) of leave at two-thirds of the employee’s pay ($200 daily limit applies) if they need to care for someone in the following situations: The need to care for an individual subject to quarantine, to care for a child whose school is closed or childcare provider is unavailable for reasons related to COVID-19.
- Extended leave. In some instances, an employee may receive up to an additional ten weeks of expanded paid family and medical leave at two-thirds the employee’s pay ($12,000 overall twelve week payment limit applies).
- Companies will get paid back. Businesses who pay employees the mandatory sick and childcare leave according to the new law will get reimbursed through a payroll tax credit.
What it means for you
- Employees can take the necessary time to recover from being infected with COVID-19, or to care for a loved one, without fear of losing their job or salary.
- Employers can help their employees financially while navigating COVID-19 related shutdowns.
What you need to do now
EMPLOYEES. To take advantage of the Act’s paid leave provisions, you must provide your employer with documentation in support of your paid sick leave. There is yet no official application that needs to be completed. If you believe that your employer is required to provide paid leave but is not making paid leave available, or for other questions or concerns, you may call the Department of Labor’s Wage and Hour Division at 1-866-4US-WAGE or visit www.dol.gov/agencies/whd.
EMPLOYERS. While the details are being worked out on how to implement these new rules, here is what you need to do now:
- Keep detailed records – Be prepared to defend your request for federal assistance. Keep good records of who’s asked for paid time off because of COVID-19 related circumstances. Ask your employee to provide a doctor’s note when appropriate, along with a narrative written by the employee describing who in their family is infected or suspected of being infected with COVID-19 along with symptoms. Make sure the note is dated and relates to an approved reason for leave.
- Talk to your payroll provider – If you have someone doing your payroll, they are often the first ones who will know how you will receive reimbursement. This new law will take time to fully roll out. Payroll companies will eventually issue guidance on how to report paid leave provided under the Families First Act and which forms need to be completed to obtain the corresponding tax credits.
- Post this notice! – Employers MUST post a notice of the Families First labor requirements in a conspicuous place on its premises. Click here to download and print this notice.
- E-mail the notice! – An employer may satisfy the posting requirement by e-mailing or direct mailing the notice to employees, or by posting this notice on an employee information internal or external website. If your employees are working from home, this may be the only way to let them know the benefit exists.
Remember, there are upper limits to compensation that you may need to review and there are many other federal programs being rolled out. It will take time to implement them. Be patient, be safe and stay alert for any updates.