Credit cards may offer convenience and opportunities to build credit, but they also come with terms and conditions that aren’t always advertised. Here are several credit card secrets that banks may not tell you about.
Minimum payments are a trap. Banks design minimum payments to look appealing (typically 2% to 3% of your balance). But paying only the minimum allows interest to grow on your remaining balance, which can result in you paying two or three times (or more!) of the original purchase price over time. If possible, pay your credit card balance in full each month.
Interest rates are negotiable. If you’ve been a reliable customer and consistently make payment on time, there’s a good chance your bank might lower your annual percentage rate if you ask. Simply call the customer service number on the back of your card and ask if you can lower your rate. Banks prefer to keep loyal customers rather than risk losing them to competitors.
The high cost of rewards programs. Banks design these programs to encourage spending, which increases the likelihood that cardholders will carry a balance and pay interest. Some rewards cards also have high annual fees that can erode the value of the rewards you earn. To truly benefit from rewards programs, only use your card for planned purchases and pay off the balance in full each month.
Late fees are avoidable. Many credit card issuers offer a grace period for late payments. If you miss your payment due date, call your bank immediately and explain the situation. This can often result in the bank waiving its late fee, especially if it’s your first offense. Banks don’t widely advertise this because they profit significantly from late fees.
Introductory offers have strings attached. Offers like 0% interest or bonus rewards often come with terms and conditions that are easy to overlook. For example, some rewards programs require you to spend a certain amount within the first three months to qualify for the bonus. If you don’t read the fine print, you might miss out on the offer or end up spending more than you intended. Always understand the requirements before applying for a new card.
Banks monitor your spending habits. Banks track your spending patterns and use this data to their advantage. For example, if you consistently pay off your balance in full, you might not be as profitable to them, which could result in fewer promotional offers. On the other hand, customers who carry balances and pay interest may receive more marketing for additional financial products. Being mindful of your spending habits can help you avoid falling into costly traps that are pushed by banks.
Credit cards can be a valuable financial tool, but only if you understand how they work and how to avoid the hidden pitfalls. By paying off your balance in full, negotiating fees and rates, and leveraging rewards strategically, you can take control of your credit card rather than letting it control you.
Our tax code contains plenty of opportunities to cut your taxes. There are also plenty of places in the tax code that could create a surprising tax bill. Here are some of the more common traps.
Home office tax surprise. If you deduct home office expenses on your tax return, you could end up with a tax bill when you sell your home in the future. When you sell a home you’ve been living in for at least 2 of the past 5 years, you may qualify to exclude from your taxable income up to $250,000 of profit from the sale of your home if you’re single or $500,000 if you’re married. But if you have a home office, you may be required to pay taxes on a proportionate share of the gain.
For example, let’s say you have a 100-square-foot home office located in a garage, cottage or guest house that’s on your property. Your main house is 2,000 square feet, making the size of your office 5% of your house’s overall area. When you sell your home, you may have to pay taxes on 5% of the gain. (TIP: If you move your office out of the detached structure and into your home the year you sell your home, you may not have to pay taxes on the gain associated with the home office.)
Even worse, if you claim depreciation on your home office, this could add even more to your tax surprise. This depreciation surprise could happen to either a home office located in a separate structure on your property or in a home office located within your primary home. This added tax hit courtesy of depreciation surprises many unwary users of home offices.
Kids getting older tax surprise. Your children are a wonderful tax deduction if they meet certain qualifications. But as they get older, many child-related deductions fall off and create an unexpected tax bill. And it does not happen all at once.
As an example, one of the largest tax deductions your children can provide you is via the child tax credit. If they are under age 17 on December 31st and meet several other qualifications, you could get up to $2,000 for that child on the following year’s tax return. But you’ll lose this deduction the year they turn 17. If their 17th birthday occurs in 2025, you can’t claim them for the child tax credit when you file your 2025 tax return in 2026, resulting in $2,000 more in taxes you’ll need to pay.
Limited losses tax surprise. If you sell stock, cryptocurrency or any other asset at a loss of $5,000, for example, you can match this up with another asset you sell at a $5,000 gain and – presto! You won’t have to pay taxes on that $5,000 gain because the $5,000 loss cancels it out. But what if you don’t have another asset that you sold at a gain? In this example, the most you can deduct on your tax return is $3,000 (the remaining loss can be carried forward to subsequent years).
Herein lies the tax trap. If you have more than $3,000 in losses from selling assets, and you don’t have a corresponding amount of gains from selling assets, you’re limited to the $3,000 loss.
So if you have a big loss from selling an asset in 2025, and no large gains from selling other assets to use as an offset, you can only deduct $3,000 of your loss on your 2025 tax return.
Planning next year’s tax obligation tax surprise. It’s always smart to start your tax planning for next year by looking at your prior year tax return. But you should then take into consideration any changes that have occurred in the current year. Solely relying on last year’s tax return to plan next year’s tax obligation could lead to a tax surprise.
Please call to schedule a tax planning session so you can be prepared to navigate around any potential tax surprises you may encounter on your 2025 tax return.
Your bookkeeping system is the financial heart and lifeblood of your business. When set up and operating properly, your books help you make smart decisions and seamlessly turn your financial data into useful information. Here are four key characteristics to building and maintaining a healthy bookkeeping system:
Select the proper accounting method. There are two different methods for recording transactions: cash-basis and accrual-basis. In general, the cash-basis method records a transaction when a payment is made, while the accrual-basis method books the transaction upon delivery of the good or service. Cash-basis is easier to track and a useful option for smaller businesses and sole-proprietors. Larger businesses who buy from vendors on account (accounts payable) generally use accrual-basis accounting.
Selecting the proper method affects any related financial transactions and how your financial statements are displayed. A correct approach will also include consideration of outside factors, including IRS rules (businesses with more than $25 million in gross receipts must use accrual-basis), bank covenants, and industry standards. Once a choice is made, it can be changed but it must be properly reported to the IRS.
Create an account structure that fits the company. Every business has a chart of accounts included in their bookkeeping system. These accounts sort the business’s transaction data into six meaningful groups. They are assets, liabilities, equity, income, cost of goods sold and other expenses. Each group will often have numerous accounts and sub-accounts associated with them.
Having the right mix of accounts, created and grouped in an organized fashion, will help you properly classify transactions and prepare usable financial statements. The proper account structure for your company will mesh with your specific information needs.
Enter accurate and timely transactions. The value your data provides is dependent on each transaction being recorded correctly and on time. Entering transactions in the wrong account can cause major issues down the road. Financial reporting that is delayed can hide problems that need immediate attention. Some transactions are relatively straightforward, and some are more complex (like payroll, accruals and deferrals).
It’s important to have someone who understands both your business and the accounting rules to enter your transactions in a timely fashion. In addition, a good month-end close process that involves reviewing each account will help you identify and fix mistakes from the initial entries.
Establish financial statements for decision-making. The main financial statements are the income statement (income – expenses = gross profit), the balance sheet (assets – liabilities = equity) and statement of cash flow. Each statement has a specific purpose:
Income statement. The income statement shows company performance for a select period of time, typically monthly with a full-year summary. At the end of each year the income statement restarts.
Balance sheet. The balance sheet displays a company’s overall health on a specific date. It is perpetual. This means it doesn’t end until the business is closed or sold. It includes one line that summarizes the current year and prior year results from the income statement.
Statement of cash flow. This statement summarizes the inflows and outflows of cash. It ensures you know whether you have enough cash and the pattern of your cash position over time.
If properly executed, your bookkeeping system will create accurate financial statements that can be used to make key financial decisions. Feel free to call with any questions or to discuss bookkeeping solutions for your business.
If juggling priorities were an Olympic sport, young parents would win the gold medal. Raising kids, advancing careers, paying off student loans, and saving for a home is a lot. All this makes estate planning feel like a tomorrow problem.
But estate planning puts you in charge of your family’s financial future if the unexpected happens.
Here are three ways you can protect your family’s future by starting your estate planning today.
Protect your current income
Your current income is the fuel that keeps your household going. Here are several ideas to protect your earnings:
Minimize tax liabilities using tools such as trusts or family limited partnerships can shield assets from estate or capital gains taxes.
Protect against lawsuits and creditors by structuring ownership through legal entities or trusts. These separate legal entities can make it harder for lawsuits or creditors to reach your personal income or business revenue.
Ensure income continuity if incapacitated. With powers of attorney and living trusts in place, you can tap someone you trust to manage your income and financial affairs if you’re unable to do so.
Protect your future income
Estate planning isn’t just about distributing assets—it’s a proactive way to secure financial stability down the road. Here are several ideas to protect your future income.
Preserve wealth using tax planning strategies. Trusts, retirement accounts, and gift giving can minimize your future estate and income taxes, helping you retain more of your earnings over time.
Safeguard business and investment income. Planning for succession or setting up buy-sell agreements ensures that income from businesses or investments can continue in the future, even after death or incapacity.
Provide long-term control over assets. Set specific terms in wills or trusts to dictate how and when income-generating assets are used. This can protect them from mismanagement or being wasted in short order.
Protect your children
Estate planning isn’t just about money – it’s also about protecting your kids if something happens to you. Here are several ways to protect your children.
Ensure guardianship. If you pass away or become incapacitated, a will lets you name who should raise your children. Without this, the decision goes to the courts, and a judge will choose a guardian. Naming someone in your estate plan ensures your children are raised by someone you trust, in a stable and familiar environment.
Control their inheritance. A well-structured estate plan allows you to manage how and when your children receive their inheritance. For example, you can create a trust and decide when to distribute money and for what purposes, such as education, health care, or buying a home.
Minimize conflict. When your wishes are clearly written in legal documents, it leaves less room for disagreements among family members. This can help prevent costly legal battles or emotional fights over who should care for the kids or how money should be used.
Many people believe estate planning is only for the very wealthy. But as you can see, managing an estate is important for everyone, regardless of income level. Consider reviewing your situation with a qualified expert and help create peace of mind for yourself and your loved ones.
Lowering your tax bill next year works best as a planned event. So if you are interested in breathing a sigh of relief come next April, consider a review of these four areas as you create and implement your tax plan for 2025.
#1 – Your Home
Your home can create unexpected tax liabilities. Property value appreciation, home improvements, and refinancing your mortgage influence how much tax you pay.
When your home’s value increases substantially, you might pay higher property taxes. Selling a home can also lead to capital gains taxes if you’ve lived in the property for less than two years or exceed the home sale exclusion amounts.
Tax Planning Tips for Your Home:
Get a professional property assessment to ensure you’re not overpaying property taxes. If so, know your location’s time frame and process to amend your property’s value in their formula.
Consider timing home improvements to manage potential tax consequences by being smart about when assessments are applied in your location’s property value.
If selling, understand capital gains exclusion rules ($250,000 for single taxpayers, $500,000 for married couples)
#2 – Your Investments
Review your refinance closing disclosure to identify deductible mortgage points or fees
Investment income can impact your tax bill. Capital gains, dividend distributions, and frequent trading can all cause tax consequences.
Different investments also face different tax rates: Short-term capital gains get taxed at higher ordinary income rates and long-term gains typically receive more favorable treatment.
Tax Planning Tips for Your Investments:
Implement tax-loss harvesting to offset capital gains
Hold investments for more than a year to qualify for long-term capital gains rates
Consider tax-efficient investments like index funds or ETFs
Maximize contributions to tax-advantaged accounts like 401(k)s and IRAs
#3 – Your Retirement
Retirement accounts offer financial opportunities. But they can also cause tax pitfalls. Required minimum distributions (RMDs), early withdrawal penalties, and the tax treatment of different retirement account types influence your tax bill.
Tax Planning Tips for Your Retirement Accounts:
Understand RMD rules and plan withdrawals strategically. Sometimes the most cost-effective plan withdrawals occur long before the RMD rules come into play!
Consider tax-efficient Roth conversions to manage future tax liability
Maximize health savings account (HSA) contributions as an additional retirement account
Explore catch-up contributions if you’re age 50 or older
#4 – Your Life Events
Major life changes can dramatically change your tax situation. Marriage, divorce, having children, changing jobs, or experiencing significant income shifts can all reshape your tax liability.
Tax Planning Tips for Life Changes:
Reassess your filing status as life changes may affect your tax bracket and deductions
Track new deductions and credits as life events like adoption or education expenses may qualify for specific tax breaks
Understand the age triggers built into the tax code and plan accordingly. This is especially important to understand as your children get older.
Sometimes your tax plan will show you an unavoidable, upcoming tax event, but you can plan for it to avoid a surprise. But other times your plan can help lower your tax liability, so it is best to begin as soon as possible.
Here are several ideas to help your business grow and thrive this year.
Understand your cash flow. One of the biggest causes of business failure is lack of understanding cash flow. At the end of the day, you need enough cash to pay your vendors and your employees. If you run a seasonal business you understand this challenge. The high season sales harvest needs to be ample enough to support you during the slow, non-seasonal periods.
Recommendation: Create a 12-month rolling forecast of revenue and expenses to help understand your cash needs.
Know your pressure points. When looking at your business, there are a few big items that drive your business success. Do you know the top four drivers of your financial success or failure? By staying focused on the key drivers of your business, success will be easier to manage.
Recommendation: Look at your most recent tax return and identify the key financial drivers of your business. Do the same thing with your day-to-day operations and staffing.
Inventory matters. If your business sells physical products, you need a good inventory management system. This system doesn’t have to be complex, it just needs to help you keep control of your inventory. Cash turned into inventory that becomes stuck as inventory can create a major cash flow problem.
Recommendation: Develop an inventory system with periodic counts to ensure you do not have shrink or theft issues. These periodic counts can help identify when you need to take action to liquidate old inventory.
Know your customers. Who are your current customers? Are there enough of them? Where can you get more of them? How loyal are they? Are they happy? Several large customers can drive your company’s growth or create tremendous risk should they take their business to a competitor.
Recommendation: Know who your target audience is and then cater your business toward them and what they are looking for in your offerings.
Know your point of difference. Once you know who your target customer is, understand why they buy your product or service. What makes you different from other businesses selling a similar item?
Recommendation: If you don’t know what makes your business better than others, ask your key customers. They will tell you. Then take advantage of this information to find new customers.
Develop a great support team. Successful small business owners know they cannot do it all themselves. Do you have a good group of support professionals helping you? You need accounting, tax, legal, insurance, and employment help, along with your traditional suppliers.
Recommendation: Conduct an annual review of your resources. Be prepared to review your suppliers and make improvements where necessary.
Sometimes focusing on a few basic ideas can help improve your business’s outlook. Please call if you wish to discuss your situation.
