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Here’s a Roundup of Your Nontaxable Income

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Good news – there are a lot of revenue sources that aren’t taxed. Do you know what they are? Here are the most common sources of money that are generally not taxed on your federal income tax return:

  • Borrowed money, such as from banks or personal loans
  • Money received as a gift or inheritance from family or friends
  • Money paid on your behalf directly to a school or medical facility
  • Most life insurance proceeds
  • Child support payments
  • Money you receive for sustaining an injury
  • Scholarships for tuition and books
  • Disability insurance benefits from a policy purchased with after-tax dollars
  • Interest received on municipal bonds

If you would like assistance in determining what to include on your income tax return, please contact us. We are here to help you.

How to Build Your Business Credit

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Whether your firm has been operating for years, or you decided over last night’s coffee to start a new venture, you’re sure to face the need for business credit. Entrepreneurs often ask friends and family to invest in their start-up businesses, and many draw on personal funds to launch new firms. But to address ongoing business needs – such as requirements for inventory, equipment, and real estate – most firms seek additional help from credit card companies and banks.

Unfortunately, today financial institutions are more wary than they used to be about extending credit to small companies. And with many business revenues faltering because of market pressures, even well-established companies have found it difficult to obtain loans.

As a result, establishing good business credit has become more important than ever. To convince a lender that your company represents a good risk, you should first prepare a well-written business plan. It need not be as long as a Tolstoy novel, but should lay out in some detail your products, pricing, estimates, competition, and basis for cash flow projections. A clearly defined business plan will convince potential lenders that you’ve addressed the greatest obstacles to your firm’s success. Before approaching lenders, consider your business structure as well. For example, a limited liability company or corporation may be seen as less risky than a sole proprietorship. The goal is to present a professional image to convince the lender that your company will prosper in good times and bad.

To establish good business credit, you’ll also want to make sure all required licenses are current and your firm is registered with the major business credit reporting bureaus such as Experian and Equifax. Work with vendors who report to these bureaus so that your on-time payments are tracked.

Of course, the key to building good business credit is making all your payments on time. As with personal credit, your business credit score will climb as managers prove their skill at monitoring the firm’s cash flow and their commitment to honoring the firm’s obligations.

Also consider having our office review your financial statements before you send them to the bank. If you need assistance with this or other business concerns, give us a call.

What’s the Difference Between a Credit Card and a Debit Card

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When you pay for clothes in a store or dinner at a restaurant, you might use either a credit card or a debit card. In your mind, they may be the same. But there are differences to be aware of.

For example, with a credit card, the money is not immediately withdrawn from your bank account. As long as you pay back the issuer within the stated period, you won’t be charged interest on the money you owe. But you don’t want to make a late payment – interest can build up quickly on credit cards.

In contrast, debit cards are linked to your personal bank account, so you’re using your own money and the charges are automatically deducted from your account. Because you don’t carry a balance on the card, you’re more likely to stick with your budget and not overspend. However, you might be charged extra fees on top of interest for any overdrafts.

Another consideration: Federal laws protect you in the event you need to dispute credit card charges and usually cap your liability at $50. Debit cards offer fewer protections than credit cards, including a sliding scale of liability depending on when you notify your financial institution.

Which card is best for you? Generally, a mix of the two is a good compromise. You can use a credit card judiciously to bolster your credit, while still paying for everyday purchases with a debit card. Contact us for answers to your financial questions. We’re here to help.

Need money to pay bills? Raiding your 401(k) is not a good idea

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When you’re short of cash, raiding your 401(k) plan may seem like a good idea. Here are two reasons why it isn’t.

Penalties and taxes. If you’re not at least 59½ years old, you’ll be hit with a 10% penalty for early withdrawals except in certain limited cases, and the money you withdraw will be taxed at your regular tax rate.

Lost opportunity. If your 401(k) earns an annual return of 5% over the next 30 years, an account with a balance of $50,000 could grow to over $215,000. A withdrawal taken and spent today will cost you that growth.

Bottom line: If possible, find other ways to pay your bills, even if that means contributing less to your 401(k) in the short term. While it’s wise to match funds your company provides, you might consider temporarily reducing contributions that exceed the matching amount.

What about loans? A 401(k) loan also has drawbacks. Again, money that’s not in your account won’t grow. In addition, if you lose your job, you’ll have to repay the outstanding loan balance or face tax penalties.

If you need assistance with financial issues, give us a call.

Know the Tax Consequences of Borrowing From Your 401(k) Plan

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When you borrow from your 401(k), you become both a borrower and a lender. Whether that’s a good idea depends on your personal financial situation – and in the process of making the decision about lending money to yourself, you may have questions regarding the tax consequences. Read more

Tax Rules Apply to Family Loans

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There are many worthwhile reasons to lend money to a relative. For example, you may want to help a child or sibling continue their education or start their own business.  Read more

Money

What to Consider Before Lending Money to Family and Friends

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When your best friend views your nest egg as a source of start-up funds for his latest business venture, or your nephew hits you up for a car loan, your first impulse may be to reach into your bank account to help. But it’s a fact that loans to family and friends often end up straining both finances and relationships.   Read more