Posted on Aug 13, 2019

Does your son or daughter work during the summer or school year? A part-time job can be a great way for your child to learn about financial responsibility. It can also teach a valuable lesson about owing taxes. In addition to explaining why the government takes money from kids’ paychecks, parents may need to help their children file their taxes by April 15.

Here are answers to common questions about the tax rules that may apply to kids.

Does My Child Need to File a Tax Return?

For 2019, your dependent child must file a federal income tax return in the following situations:

  • The child has unearned income of more than $1,100. If your child has more than $2,200 of unearned income, he or she may be subject to the so-called “kiddie tax.”
  • The child’s gross income exceeds the greater of 1) $1,100, or 2) earned income up to $11,850 plus $350.
  • The child’s earned income exceeds $12,200.
  • The child owes other taxes, such as the self-employment tax or the alternative minimum tax (AMT).

Even if your child isn’t required to file a tax return, one should be filed if federal income tax was withheld for any reason and would be refunded if a return is filed. It’s also necessary to take advantage of certain beneficial tax elections, such as the election to currently report accrued U.S. Savings Bond income that would be sheltered by your child’s standard deduction.

Who’s Responsible for Filing My Child’s Return?

A child is generally responsible for filing his or her own tax return and for paying any tax, penalties and interest. If a child can’t file his or her own return for any reason, the child’s parent, guardian or other legally responsible person must file it on the child’s behalf.

If the child can’t sign the return, a parent or guardian must sign the child’s name followed by the words “By (signature), parent or guardian for minor child.” If you sign a child’s tax return, you can deal with the IRS on all matters related to the return.

In general, a parent or guardian who doesn’t sign can only provide information concerning the return and pay the child’s tax bill. The parent or guardian isn’t entitled to receive information from the IRS and can’t legally bind the child to a tax liability arising from the return.

Can I Report My Child’s Income on  My Tax Return?

For a given tax year, parents can choose to report their children’s income on their tax return if:

  • The child will be under age 19 (or under age 24 if a full-time student) as of December 31, and
  • All of the child’s income is from interest and dividends, including mutual fund capital gains distributions and Alaska Permanent Fund dividends.

So, kids with income from working part-time jobs don’t qualify. Your tax professional can tell you if this option is allowable and advisable in your specific family situation.

What’s the Kiddie Tax?

For 2018 through 2025, the Tax Cuts and Jobs Act (TCJA) revamped the kiddie tax rules. Under the TCJA, a portion of the kid’s (or young adult’s) unearned income is taxed at the higher rates paid by trusts and estates. Those rates can be as high as 37% and as high as 20% for long-term capital gains and dividends.

Under prior law, the kiddie tax rate equaled the parent’s marginal rate. For 2017, a parent’s marginal rate could have been as high as 39.6% or 20% for long-term capital gains and dividends.

Follow these steps to calculate your child’s taxable income:

  • Add the child’s net earned income and net unearned income.
  • Subtract the child’s standard deduction.

The portion of taxable income that consists of net earned income is taxed at the regular rates for a single taxpayer. The portion of taxable income that consists of net unearned income and that exceeds the unearned income threshold ($2,200 for 2019) is subject to the kiddie tax. This amount is taxed at the higher rates that apply to trusts and estates.

Unearned income for purposes of the kiddie tax means income other than wages, salaries, professional fees, and other amounts received as compensation for personal services. Some examples of unearned income are capital gains, dividends and interest. Earned income from a job or self-employment is never subject to the kiddie tax.

Important: For a given tax year, any child (or young adult) who meets the following conditions must file Form 8615,  “Tax for Certain Children Who Have Unearned Income”:

The child has more than $2,200 of unearned income (for 2019).
He or she is required to file Form 1040.
He or she is 1) under age 18 as of December 31, 2) age 18 as of December 31 and didn’t have earned income in excess of half of his or her support, or 3) between ages 19 and 23 as of December 31 and a full-time student and didn’t have earned income in excess of half of his or her support.
He or she has at least one living parent as of December 31.
He or she doesn’t file a joint return for the year.

Child-Related Tax Breaks

It can be expensive to raise a child. Fortunately, parents may be eligible for several child-related federal income tax breaks, including:

Child credit. For 2018 through 2025, the Tax Cuts and Jobs Act (TCJA) increases the maximum child credit from $1,000 to $2,000 per qualifying child. The hitch? Only kids under age 17 qualify.

Up to $1,400 of this credit can be refundable, meaning you can collect it even if you don’t owe any federal income tax. Under the TCJA, the income levels at which the child credit is phased out have significantly increased, so many more families now qualify for it.

Tax credit for over-age-16 dependents. For 2018 through 2025, the TCJA establishes a new $500 tax credit that can be claimed for a dependent child who isn’t under age 17.

The term “dependent” means you pay over half the child’s support. However, a child in this category also must pass an income test to be classified as your dependent for purposes of the $500 credit. For 2019, your over-age-16 dependent child passes the income test if his or her gross income doesn’t exceed $4,200.

Higher education tax credits. Paying college costs could qualify parents for one of two federal tax credits. First, the American Opportunity credit can be worth up to $2,500 during the first four years of a child’s college education. Second, the Lifetime Learning credit can be worth up to $2,000 annually, and it can cover just about any higher education tuition costs.

Both higher education credits are phased out at higher income levels. But the Lifetime Learning credit is phased out at much lower income levels than the American Opportunity credit. Also, you can’t claim both credits for the same student in the same year.

Deduction for student loan interest. This deduction can be up to $2,500 for qualified student loan interest expense paid by a parent. However, for 2019, the deduction begins to phase out when modified adjusted gross income is above $70,000 for single taxpayers and $140,000 for married couples filing jointly.

In addition to these tax breaks, single parents may be able to file their taxes using head of household (HOH) filing status. This is preferable to single filing status, because the tax brackets are wider and the standard exemption is bigger (if you don’t itemize deductions). HOH status is available if:

Your home was for more than half the year the principal home of a qualifying child for whom a personal exemption deduction would be allowed under prior law, and
You paid more than half the cost of maintaining the home.

Where Can I Find More Information?

The rules for kids can be complicated in certain situations, especially when the kiddie tax comes into play. Contact your tax advisor if you have additional questions about the tax consequences of working a part-time job or reporting unearned income from investments, as well as potential tax-saving opportunities that come with parenthood.


Posted on Aug 9, 2019

Most private sector employers, for better or worse, put you in the driver’s seat when it comes to saving for retirement. If you’re a genuinely savvy and diligent investor, you might prefer the flexibility of rolling over your accumulated retirement savings into an IRA. This choice assumes, however, that your next employer’s 401(k) plan allows you to move money into it from another 401(k) plan. Most, but not all, do.

Keep in mind, there are some important distinctions between IRAs and 401(k)s that matter to retirement investing sophisticates and novices alike:

  • One bit of flexibility 401(k) plans typically offer is that you can borrow against your plan account balance penalty-free. (You’ll need to pay your account interest on the loan.) Loans aren’t possible with an IRA. And it might take you a while to accumulate enough money in a new 401(k) that you’re starting without a rollover to make a loan worthwhile.
  • Another plus for rolling over to your new employer’s 401(k) is that assets held in qualified retirement plans — which don’t include IRAs — are generally off-limits from debt collectors. There are exceptions, such as qualified domestic relations orders, money you owe the IRS and federal criminal cases. IRA assets can enjoy some protection from creditors, but the extent varies according to state law.

“Rule of 55”

Also, under some circumstances, you can take funds out of a 401(k) plan earlier than you can from an IRA without paying the 10% early withdrawal penalty that usually applies to withdrawals prior to age 59 1/2. The “rule of 55,” as it’s known, lets you start taking money out of your current 401(k) plan the year you turn 55 if you leave that job (whether it was your decision or your employer’s). However, it only applies to dollars you put into the plan during your stint with your most recent employer. So, you wouldn’t be penalized for having rolled over 401(k) dollars from a prior employer to an IRA, but it’s still useful to know about.

If none of those considerations matters a great deal to you, you can move to the next level of comparisons — investment options and costs. Suppose you’re relatively close to retirement and want to be very conservative with your investments. “Stable value” funds are a popular option for conservative investors. These are essentially bond portfolios that provided a fixed return over a set period, backed by an insurance company guarantee. They’re available only in 401(k) plans, not IRAs.

In theory, though, you can get just about any other kind of investment in an IRA. However, your  IRA investment options will vary based on the financial institution you choose as your custodian. Also, some financial services companies give you incentives to invest in their own financial products, and penalize you if you opt for outside funds. That’s fine if you’re content with the firm’s own investments, but no one wants to feel trapped.

Focus on Fees

A broader potential hazard associated with IRAs is being stuck with “retail” class shares of mutual funds. Such shares carry higher fees than “institutional” shares generally (but not always) available to 401(k) investors. But you also need to consider differences in total expenses charged against your retirement assets, including 401(k) plan administrative costs. Often smaller employers pay higher administrative fees than larger plans, and those fees are typically borne by employees.

Even relatively small differences in combined fees can have a big impact on your retirement savings accumulation over time. For example, paying a half a percent more in annual fees on $12,000 in annual retirement savings over a 25-year period would reduce those savings by $65,000.

The quality and independence of the investment advice you’d receive in either scenario could also be an important consideration for your rollover decision. Employers generally use 401(k) advisors who are held to a “fiduciary” standard of care. The person or people within a company in charge of a 401(k) plan are also considered fiduciaries. This means they’re legally bound to act in your best interest — and vulnerable to being sued if they don’t. If you work with a traditional broker with your IRA, he or she might not be held to such a high standard.

That distinction doesn’t guarantee that one advisor will be better than the other, but it’s an important factor to take into consideration. Also, a relatively new player on the investment management scene — the “robo-advisor” — is an investment platform for IRA (and other) investors that can guide your choices with computer-generated recommendations.

Given the high stakes, don’t rush your decision on what to do with your 401(k) funds from a former employer. Chances are that your employer won’t try to force you to move your funds out of their plan — especially if you have at least $5,000 in your account. If that’s the case, you can take as long as you want to decide — including the choice of leaving the money right where it is.


Posted on Aug 5, 2019

The Tax Cuts and Jobs Act (TCJA) imposes a new limitation on deductions for business interest expense. The IRS recently issued guidance in the form of proposed regulations. The business interest expense limitation is a permanent change for tax years that began in 2018. Thankfully, many businesses are unaffected. Here’s what you need to know.

Prior Law


Before the TCJA, some corporations were subject to the so-called “earnings stripping” rules. Those rules attempted to limit deductions by U.S. corporations for interest paid to related foreign entities that weren’t subject to U.S. income tax. Other taxpayers could generally fully deduct business interest expense (subject to restrictions, such as the passive loss rules and the at-risk rules).

TCJA Change

The TCJA shifts the business interest deduction playing field. For tax years beginning in 2018, a taxpayer’s deduction for business interest expense for the year is limited to the sum of: 1) business interest income, plus 2) 30% of adjusted taxable income (as defined later), plus 3) floor plan financing interest paid by certain vehicle dealers. This new interest expense deduction limitation can potentially affect all types of businesses — corporate and noncorporate.

Business interest expense is defined as interest on debt that’s properly allocable to a trade or business. However, the term trade or business doesn’t include the following excepted activities:

  • Performing services as an employee,
  • Electing real property businesses,
  • Electing farming businesses, and
  • Businesses that sell electrical energy, water, sewage disposal services, gas or steam through a local distribution system, or transportation of gas or steam by pipeline, if the rates are established by a specified governing body.

Interest expense that’s disallowed under the limitation rules is carried forward to future tax years indefinitely and treated as business interest expense incurred in the carry-forward year.

Proposed Regulations

The IRS has issued proposed regulations on how to apply the business interest expense limitation. The proposed regulations are organized into these sections:

1. Definitions used throughout the proposed regulations.

2. General rules on how to calculate the business interest expense limitation.

3. Ordering rules and rules coordinating the limitation with other tax code provisions, such as the passive activity loss rules.

4. Rules for C corporations and tax-exempt corporations.

5. Rules on the treatment of C corporation disallowed business interest expense carry-forwards.

6. Special rules for applying the limitation to partnerships and S corporations and their owners.

7. Rules for foreign corporations and their shareholders.

8. Rules for foreign persons with effectively connected income.

9. Rules for elections by eligible real property businesses and farming businesses to be exempted from the business interest expense limitation.

10. Rules for allocating income and expenses between nonexcepted and excepted trades and businesses. Excepted trades and businesses are electing real property businesses, electing farming businesses and regulated utilities.

11. Transition rules for the limitation.

Unless otherwise stated, the proposed regs would be effective for tax years ending after the date they’re published in the form of final regulations. However, taxpayers can choose to follow the proposed rules for tax years beginning in 2018 — if they apply the proposed rules consistently.

Small Business Exception

The good news is that many businesses are exempt from the interest expense limitation rules under what we’ll call the small business exception. With this exception, a taxpayer (other than a tax shelter) is exempt from the limitation if the taxpayer’s average annual gross receipts are $25 million or less for the three-tax-year period ending with the preceding tax year.

Businesses that have fluctuating annual gross receipts may qualify for the small business exception for some years but not for others — depending on the average annual receipts amount for the preceding three-tax-year period. For example, if your business has three good years, it may be subject to the interest expense limitation rules for the following year. But if it’s been a bad year, it may qualify for the small business exception for the following year. If average annual receipts are typically over the $25 million threshold, but not by much, judicious planning may allow you to qualify for the small business exception for at least some years. Your tax advisor can help with that.

Interaction with Other Limitations

The rules in the proposed regs generally apply only to interest expense that could otherwise be deducted without regard to the business interest expense limitation. So interest expense that has been disallowed, deferred or capitalized in the current tax year, or that hasn’t been accrued yet, shouldn’t be taken into account when considering the limitation. However, the limitation should be applied before applying the passive activity loss rules, the at-risk rules and the new excess business loss disallowance rule.

Calculating the Deduction Limitation

Assuming your business doesn’t qualify for an exception, the business interest expense deduction for the tax year can’t exceed the sum of: 1) business interest income, plus 2) 30% of adjusted taxable income, plus 3) any floor plan financing interest expense.

Adjusted taxable income means taxable income calculated by making adjustments to factor out the following:

1. Items of income, gain, deduction or loss that aren’t allocable to a business,

2. Any business interest income or business interest expense,

3. Any net operating loss deduction,

4. The deduction for up to 20% of qualified business income from a pass-through business entity,

5. Any allowable depreciation, amortization or depletion deductions for tax years beginning before 2022, and

6. Other adjustments listed in the proposed regulations.

Deductions for depreciation, amortization, and depletion are added back when calculating adjusted taxable income for tax years beginning before 2022. For tax years beginning in 2022 and beyond, these deductions won’t be added back, which may greatly increase the taxpayer’s adjusted taxable income amount and result in a lower interest expense limitation amount.


For 2019, BB Co. has $20,000 of business interest income, $250,000 of business interest expense and $1 million of adjusted taxable income. Assume the small business exception doesn’t apply. The company can deduct all $250,000 of its business interest expense because that amount is less than the deductible limit of $320,000 [$20,000 of business interest income + $300,000 (30% of the $1 million of adjusted taxable income)].

For 2020, BB Co. has $20,000 of business interest income, $120,000 of business interest expense and only $100,000 of adjusted taxable income. The company can only deduct $50,000 of its business interest expense in 2020 [$20,000 of business interest income + $30,000 (30% of the $100,000 of adjusted taxable income)]. The $70,000 of disallowed interest expense ($120,000 – $50,000) is carried forward to future years.

This example illustrates that the business interest expense limitation is more likely to affect a business when it’s having a subpar year. The only good news is that the disallowed interest is carried forward to future years, so it can potentially be deducted when things get better.

Important: For tax years beginning before 2022, taking advantage of generous depreciation tax breaks (such as 100% first-year bonus depreciation and Section 179 deductions) will not reduce adjusted taxable income. For later years, taking advantage of such breaks will reduce adjusted taxable income, which will make the interest expense limitation more likely to come into play.

The interest expense deduction limitation rules get more complicated for businesses operating as partnerships, limited liability companies (LLCs) treated as partnerships for tax purposes and  S corporations.

Electing Out of the Limitation

Eligible real property and farming businesses can elect out of the new business interest expense limitation. However, electing to be exempt has a tax cost.

Real Property Businesses

Real property businesses can elect out of the rules if they use the Alternative Depreciation System (ADS) to depreciate their nonresidential real property, residential rental property and qualified improvement property. Using the ADS results in lower annual depreciation deductions because its depreciation periods are longer than the depreciation periods under the regular MACRS (Modified Accelerated Cost Recovery System) rules that usually apply. Real property businesses include developing, redeveloping, constructing, reconstructing, acquiring, converting, renting, operating, managing, leasing and brokering real property.

Affected real estate businesses should evaluate the tax benefit of gaining bigger interest expense deductions by electing out of the interest expense limitation rules vs. the tax detriment of lower depreciation deductions under the ADS. If the election out is made, first-year bonus depreciation that would otherwise be allowed for real property assets won’t be allowed under the ADS.

Farming Businesses

Eligible farming businesses can also elect out of the interest expense limitation rules. Farming businesses include nurseries; sod farms; raising or harvesting of tree crops, other crops, or ornamental trees; and certain agricultural and horticultural cooperatives. These businesses can elect out of the rules if they use the ADS to depreciate assets used in the farming business that have MACRS depreciation  periods of 10 years or more.

Special Partnership and S Corporation Rules

Basically, the limitation is calculated at both the entity level and at the owner level. Special rules prevent double counting of income when calculating an owner’s adjusted taxable income for purposes of applying the limitation at the owner level.

The proposed regs set forth the special rules for applying the business interest expense limitation to partnerships and S corporations and their owners. The provisions are complex and present significant compliance challenges for affected taxpayers.

Minimize the Effects

As you can see, the business interest expense limitation rules are complicated. Fortunately, many businesses are exempt from the limitation. According to one estimate, about 98% of U.S.  businesses are covered by the small business exception.

If your business is among the 98%, it’s important to properly document that fact in case the IRS comes calling. Your tax advisor can help.

On the other hand, if your business is affected by the limitation, your tax advisor may be able to suggest planning moves to minimize the ill effects.


Posted on Jul 9, 2019

If you pay for services from independent contractors, your legal obligations to those individuals are far more limited than those involving statutory employees. But the growing importance of so-called “gig” workers in today’s labor force is changing the legal landscape for some businesses.

Evolving Marketplace

The term “gig workers” refers to people who an employer would contract with directly, through agencies, or using a professional employer organization. The growth of the gig economy is fueled by variable demand for manpower and new enabling technology for some categories of work. But employment attorneys warn that aggressive plaintiffs’ lawyers are chipping away barriers to employer liability for gig workers in the areas of accidents and injuries.

Meanwhile, the Occupational Health and Safety Administration (OSHA) is also paying more attention to contract workers. On its website, OSHA has outlined employer duties to protect temporary workers. It states, “OSHA has concerns that some employers may use temporary workers as a way to avoid meeting all of their compliance obligations.” Employers “should consider the hazards it is in a position to prevent and correct.”

OSHA’s website also asserts that “Host employers must treat temporary workers like any other workers in terms of training and safety and health protections.”

Warning Shot

OSHA’s policy statement is focused on employers’ use of temp agencies in “joint employment” arrangements, rather than the standard gig worker/independent contractor relationship. But it appears that a warning shot has been shot across employers’ collective bow.

A study recently published by the Journal of Occupational and Environmental Medicine notes “increased rates of fatal and non-fatal injuries” among “traditional contingent workers,” and explores potential causes. Differences in training was a potential culprit.

As a result, one employment law firm warns that “safety, training, culture, practices, supervision and enforcement must be adapted to meet the new economy.” Even without the threat of litigation, only the rare employer would be indifferent to potential hazards facing anybody performing work for them. Besides, accidents caused by independent contractors at your worksite can also hurt regular employees and your customers.

Naturally, hazards faced by gig workers vary according to the nature of the work they perform. “On-demand jobs are among the most dangerous in the country,” asserts the worker legal advocacy group National Employment Law Project. This organization wants states to mandate workers compensation coverage for all “on-demand workers.” It lists the three most common job categories — transportation, delivery and home services — as “among the most hazardous in the country.”

Vulnerability to Injury

Outside of the transportation, delivery and home services sectors, attention generally focuses on gig workers who spend a lot of time on your company’s premises, where they might be vulnerable to accidents or injuries. Worksite injuries don’t always involve hazardous equipment or materials.

Experts calling attention to the safety issue point to the demographics of gig workers, particularly the fact that they tend to be young. “Younger age is a well-known independent risk factor for occupational injury,” according to a recent study by the Journal of Occupational and Environmental Medicine.

In addition to their relative youth, gig workers often work for a relatively short time periods for one company or in one industry sector. That inexperience also can put them at greater risk for accidents.

Protecting Workers

Meanwhile, OSHA has recently focused on worksite risks for younger workers. It’s identified the following steps to employers should take to protect full-time and temporary workers under age 30:

  • Ensure that young workers receive training to recognize hazards and are competent in safe work practices.
  • Implement a mentoring or buddy system.
  • Encourage young workers to ask questions about tasks or procedures that are unclear.
  • Explain to young workers what they need to do if they’re hurt on the job.

In addition, OSHA has informed employers of their duties to try to protect workers from workplace violence. The agency highlighted a case in which a social services contractor was held responsible for ignoring safety concerns expressed by a worker who traveled outside the workplace to visit clients and, while conducting a visit, was killed by a client.

The worker was an employee of the contractor. However, the case highlights employers’ obligations to provide for the safety of individuals who provide services in a gig-like environment.

Toeing a Fine Line

In attending to the safety needs of independent contractors, employers should avoid tipping the scales toward establishing an employer-employee relationship with individuals who it classifies as independent contractors.

The law in this evolving area of employment law involves subjective assessments, and the nature of gig work arrangements varies widely. So, the advice of an employment attorney could prove invaluable as you weigh your workplace safety maintenance obligations.

Posted on Jul 8, 2019

Does your business need to add one or more vehicles? If so, the purchases may qualify for tax breaks under current tax law. Here are the details.

First-Year Depreciation Breaks

The Tax Cuts and Jobs Act (TCJA) allows unlimited 100% first-year bonus depreciation for qualifying new and used assets (including eligible vehicles) that are acquired and placed in service between September 28, 2017, and December 31, 2022. However, for a used asset to be eligible for 100% first-year bonus depreciation, it must be new to the taxpayer (you or your business entity).

Spotlight on Leased Vehicles

Business use of a leased vehicle may be   tax deductible. If a leased vehicle is used 100% for business purposes, the full cost of the lease is deductible as an ordinary business expense. However, lessees of more expensive vehicles must include a certain amount in income for each year of the lease to partially offset the lease deduction.

The income inclusion amount varies based on the leased vehicle’s initial fair market value and the year of the lease. The IRS recently published a table to help taxpayers determine the inflation-adjusted lease inclusion amounts for vehicles with lease terms starting in 2019.

For example, suppose your business leases a light truck with a fair market value of $66,500 on January 1, 2019, for three years. It’s used for business purposes only. According to the IRS table, your income inclusion amounts for each year of the lease would be as follows:

  • $72 in 2019,
  • $160 in 2020, and
  • $236 in 2021.

The lease inclusion table is designed to help balance out the tax benefits of leasing a luxury car compared to purchasing it and taking the expanded first-year depreciation tax breaks.

Contact your tax advisor to discuss the pros and cons of leasing vs. buying a business vehicle. Taxes are just one consideration in this critical decision.
The TCJA also permanently increased the Section 179 expensing limit for qualifying asset purchases from $500,000 in 2017 to $1 million for tax years beginning in 2018 and beyond. However, this break is phased out for qualifying purchases over $2.5 million in 2018 (up from $2 million in 2017).

For tax years after 2018, these amounts will be adjusted annually for inflation. The inflation-adjusted figures for 2019 are $1.02 million and $2.55 million, respectively.

Sec. 179 expensing for qualifying asset purchases is phased out on a dollar-for-dollar basis for purchases that exceed the threshold amount. So, no Sec. 179 deduction is available if your total investment in qualifying property is above $3.57 million for 2019.

Heavy Vehicles

Heavy SUVs, pickups and vans are treated for  tax purposes as transportation equipment. So, they qualify for 100% first-year bonus depreciation and Sec. 179 expensing if used over 50% for business. This can provide a huge tax break for buying new and used heavy vehicles.

However, if a heavy vehicle is used 50% or less for business purposes, you must depreciate the business-use percentage of the vehicle’s cost over a six-year period.

To illustrate the potential savings from these first-year tax breaks, suppose you buy a new $65,000 heavy SUV and use it 100% in your business in 2019. You can deduct the entire $65,000 in 2019 thanks to the 100% first-year bonus depreciation privilege. If you use the vehicle only 60% for business, your first-year deduction would be $39,000 (60% x $65,000).

To qualify as a “heavy” vehicle, an SUV, pickup or van must have a manufacturer’s gross vehicle weight rating (GVWR) above 6,000 pounds. You can verify the GVWR of a vehicle by looking at the manufacturer’s label, which is usually found on the inside edge of the driver’s side door where the door hinges meet the frame. Examples of suitably heavy vehicles include the Audi Q7, Buick Enclave, Chevy Tahoe, Ford Explorer, Jeep Grand Cherokee, Toyota Sequoia and lots of full-size pickups.

Garden-Variety Passenger Vehicles

The tax breaks for passenger automobiles (defined to include light SUVs, pickups, and vans) are less generous than for heavy vehicles. The inflation-adjusted depreciation limits for passenger vehicles that were acquired before September 28, 2017, and placed in service during 2019 are:

  •  $10,100 for the first year ($14,900 with bonus depreciation),
  • $16,100 for the second year,
  •  $9,700 for the third year, and
  •  $5,760 for each succeeding year.

The depreciation limits for passenger autos acquired after September 27, 2017, and placed in service during 2019 are:

  •  $10,100 for the first year ($18,100 with bonus depreciation),
  • $16,100 for the second year,
  •  $9,700 for the third year, and
  •  $5,760 for each succeeding year.

If the vehicle is used less than 100% for business, these allowances are cut back proportionately.

Important: For a vehicle to be eligible for these tax breaks, it must be used more than 50% for business purposes, and the taxpayer can’t elect out of the deductions for the class of property that includes passenger automobiles (five-year property).

Limited-Time Offer

The Sec. 179 limits were permanently expanded by the TCJA. But the first-year bonus depreciation program will gradually start phasing out 20% per year, beginning with tax years starting in 2023. And the bonus depreciation program will expire after 2026, unless Congress extends it. If you have questions about depreciation deductions on vehicles, contact your tax advisor.

Posted on Jun 18, 2019

Estate planning isn’t just for the rich and famous. Many people mistakenly think that they don’t need an estate plan anymore because of the latest tax law changes. While it’s true that the Tax Cuts and Jobs Act (TCJA) provides generous estate tax relief, even for well-to-do families, the need for estate planning has not been eliminated. There are still numerous reasons to develop a comprehensive estate plan and regularly update it.

How the Estate Tax Has Evolved

Several recent tax law changes, including certain provisions of the TCJA, may help you shelter all or a large portion of your estate from estate and gift tax.

At the turn of the century, the unified estate and gift tax exemption was a mere $675,000. It was increased to $1 million in 2002, while the top estate tax rate was 55%. Then legislation gradually increased the estate tax exemption to $5 million for 2011, indexed annually for inflation, and lowered the top estate tax rate to 35%. (There was a one-year moratorium on federal estate tax for people who died in 2010.)

Along the way, the unified estate and gift tax exemptions were severed and then reunified, as they remain under current law. Therefore, any amounts used to cover lifetime gifts erode the remaining estate tax shelter.

Notably, subsequent legislation also created and then preserved a “portability” provision. This allows the estate of a surviving spouse to use the unused portion of the deceased spouse’s exemption. So, it effectively “doubled” the $5 million exemption for married couples to $10 million.

Starting in 2018, the TCJA officially doubled the estate exemption per individual from $5 million to $10 million, with annual indexing for inflation. For 2019, the exemption is $11.4 million for an individual or $22.8 million for a married couple. However, these provisions are scheduled to expire after 2025. For 2026 and thereafter, the law will revert to pre-2018 levels, unless Congress takes further action.

Why Estate Planning Still Matters

Given the dramatic increase in the unified estate and gift tax exemption over the last 20 years, there’s a common misconception that federal estate planning is a concern of only the wealthiest individuals. But here are four valid reasons for people with estates below the unified exemption threshold to devise a plan — or revise an existing plan to take advantage of current tax law.

1. Family changes.

Most mature adults have created a will. Some also have set up trusts to maximize each spouse’s exemption and protect assets from creditors and spendthrift family members.

However, circumstances change over time. Is your old list of beneficiaries still complete and accurate? You may need to update your will and estate plan to reflect births and (unfortunately) deaths and divorces in the family.

Who’s listed as the executor of your estate? The executor is the quarterback of your estate planning team. Maybe your children were minors when you originally drafted your plan, and now your grown children may be better suited to serve as executors than your aging parents.

Carefully select your executor and successor (to serve as a backup executor in case the appointed executor predeceases you or is otherwise unable to fulfill the duties). To prevent problems after you die, consider meeting with the successor to iron out any potential problems and discuss the challenges that must be met. Even if your first choice is still on board, you may periodically want to “check in” and review matters.

Your estate plan also may need an overhaul if you’ve divorced, especially if you’ve remarried and your new spouse has children of his or her own. Along the same lines, one or more of your children may have divorced, requiring adjustments to your estate plan. The need to update your plan could even extend to pets that need care if you should unexpectedly pass away.

2. Changes to assets and liabilities.

It’s a good idea to review your estate plan any time there’s a significant change in the value of your estate, including the value of any business interests, real estate or securities you own. A major increase or decrease in the value of one asset could cause you to rethink how your holdings will be allocated among your beneficiaries. Similarly, the sale or purchase of an asset may require adjustments to your plan.

3. Change in residence.

State law generally controls estate matters. Therefore, the state where you legally reside can make a big difference. The differences may range from the number of witnesses required to attest to a will to the minimum amount a spouse must inherit from an estate. Furthermore, the legal state of residence may affect other estate planning documents besides your will, such as a power of attorney, living will or advance medical directive.

If you’re moving to another state, or you’ve already moved, meet with a local estate planning advisor to review your current plan and determine whether changes are needed. This is especially important when you have a substantial estate for tax purposes. Sometimes, an old home state may assert that a person didn’t change his or her legal residence and continue to pursue state death tax obligations.

4. Estate tax changes.

If you haven’t updated your estate plan since the TCJA passed, it’s worth checking in with your estate planning advisor to ensure your plan reflects current tax law. The wealthiest individuals may still set up complex estate planning strategies to shield their estates from federal estate tax. But simple trusts may still be used to protect assets from creditors and guard against spendthrift family members.

Also, beware that the estate tax provisions of the TCJA are in effect only through 2025 — and there are no guarantees the current estate tax levels will remain in effect until then. Congress could change the law again before 2026 — or make it permanent.

Moreover, the federal tax law changes don’t provide protection on the state level. So, it’s important for your estate plan to take any applicable state death taxes into account.

Time to Update

Too often, well-intentioned taxpayers create an estate plan, including a will, and then stick it in a drawer or safe deposit box where it gathers dust. This can potentially leave a legacy of estate tax complications and frustrations for your family members when they can least afford it, financially and emotionally. To ensure your final wishes are kept and your assets are preserved, work with an estate planning professional to devise a flexible, comprehensive plan and then review it on a regular basis.

Posted on Jun 14, 2019

By 2026, nearly one in four workers will be 55 and older. That’s compared to about one in five today, according to the U.S. Bureau of Labor Statistics.

So, the proportion of younger workers in the overall labor pool will shrink. Does that mean your business will have to settle for workers that are less capable in some ways?

Research suggests that this isn’t the case. As workers age, their levels of agility and skills is unlikely to diminish, according to the Gerontological Society of America (GSA). In fact, the GSA estimates that 85% of the U.S. population in the 65 to 69 age bracket has no health-related impediments to work. That proportion only drops to 81% for the 70 to74 age bracket. And the majority (56%) of Americans aged 85 and over have no such limitations — although that percentage might be smaller for heavy manual labor.

“Longevity Economics”

The GSA recently published a report entitled, “Longevity Economics: Leveraging the Advantages of an Aging Society.” It offers some insight about the working world through the eyes of older employees. The report states, “While previous generations may have viewed their 50s and early 60s as their most productive and financially rewarding years, older Americans view their 70s or 80s as ages for making some of their greatest contributions.”

The report highlights a series of “myths” (with some underlying elements of truth) concerning older workers, while also offering tips on making the most out of this growing workforce sector. Here are some examples:

Myth: Older workers expect to earn more.

Reality: Many older workers have already paid for their homes and other major life expenses, such as children’s education. So, they’re often content to take jobs with less responsibility and, accordingly, lower pay.

Myth: The cost of health benefits for older workers is higher  than for younger ones.

Reality: While older workers may individually incur more health claims, they typically don’t use family coverage. And they also may qualify for Medicare coverage. So, they may be less expensive to cover than younger employees.

Myth: Older workers are harder to motivate because they aren’t as financially ambitious or as interested in getting a promotion as younger workers are.

Reality: Compared to their younger counterparts, older workers might be less motivated by financial rewards. But they might find nonfinancial benefits, such as flexible work hours or extra vacation time, more rewarding — and employers can satisfy these needs at little or no cost.

Different Motivations

According to GSA research, “Older workers are more motivated to exceed expectations than younger workers” and are more deeply engaged in their work than their younger colleagues. In addition, the report highlights older workers for their “willingness to contribute to company success through discretionary activities such as working longer hours, being dedicated to the company, and putting more energy into their jobs correlated with lower staff turnover and better company performance.”

So, what inspires older employees to become engaged? A survey of job seekers over age 50 performed by shows that older workers aren’t indifferent to what they are paid in salary and benefits. But they are particularly interested in flexibility, security and stability, independence, autonomy and pure challenge. Even the term “retirement jobs” suggests that, while some people call themselves retired, they may view working as more of a retirement activity than a job.

Just as employers have had to learn how to maximize the productivity of new generations of workers, with policies such as “casual Fridays,” they must do the same for older workers. “Employers just need to recognize the differences in motivators at various points across the years of employment,” the report states. “HR innovations can be very effective in supporting longer working lives.”

The Long View

One “innovation” is simply taking a long-term view of your company’s workforce needs. Don’t try to precisely forecast specific jobs from year to year. Instead, focus on your long-term goals over the next five or ten years. It’s nearly impossible to predict specific job skills that will be required in the future. Also, think in terms of how you’ll fill and retain workers in broad “job families” and where older workers will fit into the big picture.

The GSA report suggests these tactical approaches to consider:

Invest in older workers today to maintain their productivity through training, workplace adaptations and internal transfers.
Recognize the shift of careers from upward to horizontal, such as into an advisory capacity, or downward as people want to contribute in less demanding positions.
Create performance-based compensation structures that are independent of age.
The GSA concludes, “By leveraging an aging population in the ‘longevity era,’ economic growth can be enhanced now and continued into the future.” Contact your HR and payroll advisors to help your business capitalize on today’s older (and possibly wiser) workforce.


Posted on May 7, 2019
If your small business is unincorporated, you may be fed up with paying the federal self-employment (SE) tax. This tax is how the federal government collects Social Security and Medicare taxes from self-employed individuals. However, you may be able to lower your exposure to these taxes if you structure your business as a subchapter S corporation for federal tax purposes. Here are the details on how this tax-saving strategy can work.

Employment Tax on Salary Income

First, let’s review how federal employment taxes are collected for regular W-2 employees. If a taxpayer earns salaries and wages as an employee, Social Security tax will be incurred at a 12.4% rate on the first $132,900 you earn in 2019. The taxpayer’s employer will withhold half (6.2%) from his or her paychecks. The other half will be paid by the employer directly to the U.S. Treasury. No Social Security tax is incurred on any salary above the $132,900 ceiling for 2019.

Medicare tax on salary income is incurred at a 2.9% rate before rising to 3.8% at higher salary levels. (See “What is the Additional Medicare Tax?” below.) Part of the Medicare tax is withheld from the employee’s salary, and part is paid by the employer. There’s no income ceiling on the Medicare tax or the 0.9% Additional Medicare Tax.

Employment Tax on SE Income

How does the situation differ if you’re self-employed? For 2019, you’ll pay the maximum 15.3% SE tax rate on your first $132,900 of net SE income. That includes 12.4% for the Social Security tax component and 2.9% for the Medicare tax component.

No Social Security tax is incurred on SE income above the Social Security tax ceiling of $132,900 for 2019. But the Medicare tax component continues at a 2.9% rate before rising to 3.8% at higher levels of SE income. There’s no income ceiling on the Medicare tax component or the 0.9% Additional Medicare Tax.

For example, suppose your unincorporated small business generates SE income of $216,567 for you in 2019. To calculate your SE tax bill, the net SE income figure is multiplied by 0.9235 to equalize the overall tax impact of federal employment taxes on SE income and salary income.

Your business generates $200,000 of SE income after applying the 0.9235 factor. So, you’ll owe $16,480 of Social Security tax ($132,900 × 0.124), plus $5,800 of Medicare tax ($200,000 × 0.029). That’s a grand total of $22,280 in SE tax for 2019.

To make matters worse, your SE tax bill is likely to increase every year due to inflation adjustments to the Social Security tax ceiling (the “wage base”) and the growth of your business.

Tax on Salary Income for S Corp Shareholder-Employees

Salaries paid to employees of S corporations — including an employee who’s also a shareholder — are subject to federal employment taxes just like salaries paid to a regular W-2 employee. That is, the employee owes 6.2% Social Security tax on the first $132,900 for 2019 and 1.45% Medicare tax on all salary income. These amounts are withheld from the employee’s paychecks. The employer pays in matching amounts of Social Security tax and Medicare tax directly to the U.S. Treasury.

At higher salary levels, an employee (including an S corporation shareholder-employee) must pay the 0.9% Additional Medicare Tax out of his or her pocket. So, the combined federal employment tax employer rate for the Social Security tax is 12.4%, and the combined rate for the Medicare tax is 2.9%, rising to 3.8% at higher salary levels. These rates are effectively the same as the SE tax rates.

So, the bad news is that salary income for S corporation shareholder-employees is subject to federal employment tax. The good news is that S corporation taxable income passed through to a shareholder-employee and S corporation cash distributions paid to a shareholder-employee generally are not subject to federal employment taxes.

As a result, S corporations may potentially be in a more favorable position than sole proprietorships, single-member limited liability companies (LLCs) that are treated as sole proprietorships for tax purposes, partnerships and multimember LLCs that are treated as partnerships for tax purposes.

Tax Reduction Strategy

How can you lower the burden of federal employment taxes if you’re interested in this strategy? First, structure your business as an S corporation. Then pay modest salaries to yourself and any other shareholder-employees. Finally, pay out the remaining corporate cash flow (after you’ve retained enough in the company’s accounts to sustain normal business operations) as federal-employment-tax-free cash distributions.

For example, let’s suppose you own an S corporation that generates net income of $200,000 before paying your $60,000 salary for 2019. Only the $60,000 salary is subject to federal employment taxes of $9,180 ($60,000 x 0.153). That’s significantly less than the $22,280 federal employment tax bill in the previous example.


Operating as an S corporation and paying yourself a modest salary will work if you can prove that your salary is “reasonable” based on market levels for similar jobs. Otherwise you run the risk of the IRS auditing your business and imposing back employment taxes, interest and penalties. That said, the risk of the IRS successfully doing that is minimal if you can demonstrate that an unrelated third party would agree to perform the same work for that same amount. Your tax advisor can help with that.

There are also some unfavorable side-effects of paying modest salaries to S corporations shareholder-employees. First, modest salaries could limit contributions to certain tax-favored retirement accounts. If the corporation maintains a SEP or garden-variety profit-sharing plan, the maximum annual deductible contribution is limited to 25% of the shareholder-employee’s salary. So, the lower the salary, the lower the maximum contribution to your account. But, if the S corporation offers a 401(k) plan, generous contributions can still be made to your account while paying modest annual salaries.

In addition, paying modest salaries could reduce Social Security benefits that shareholder-employees receive at retirement. And S corporation status can trigger some tax complexities.

For example, a separate business tax return must be filed for an S corporation, and transactions between S corporations and shareholders (including transfers of business assets to the new corporation) must be evaluated for potential tax consequences. Corporations also may be subject to various formalities under state law, such as conducting board of directors’ meetings and keeping minutes. Before choosing to operate as an S corporation, you’ll have to consider whether the additional paperwork is worth the federal employment tax savings.

Need Help?

Contact your tax advisor if you think converting an existing unincorporated business into an S corporation could help reduce your federal employment taxes. He or she can help with the mechanics of making the initial conversion under applicable state law and then handle the post-conversion tax issues. Although the March 15 deadline for electing S status has already passed for 2019, it can still be made for 2020 and beyond.

What is the Additional Medicare Tax?

For tax years beginning after December 31, 2012, the 0.9% Additional Medicare Tax potentially applies to wages, compensation and self-employment (SE) income. You must pay the Additional Medicare Tax if your wages, compensation or SE income (together with that of your spouse if filing a joint return) exceed the following threshold amounts:

Filing Status Threshold Amount
Single or head of household $200,000
Married filing jointly $250,000
Married filing separate $125,000

Your employer must withhold Additional Medicare Tax from wages if it pays you more than $200,000 in a calendar year, without regard to your filing status or wages paid by another employer. An individual may owe more than the amount withheld by the employer, depending on the individual’s filing status and wages, compensation and SE income from all sources.

Posted on May 6, 2019

Every year, thousands of elderly Americans fall victim to elder abuse and financial exploitation scams, sometimes at the hand of their spouses or adult children. In fact, suspicious Activity Reports (SARs) related to elder financial exploitation have quadrupled the last four years, according to the Consumer Financial Protection Bureau (CFPB).

Acknowledging the scope of this problem, in 2018, Congress passed the Senior Safe Act. It defines elder financial exploitation as “the fraudulent or otherwise illegal, unauthorized, or improper actions by a caregiver, fiduciary, or other individual in which the resources of an older person are used by another for personal profit or gain.”

The Senior Safe Act gives financial advisors and institutions some protection against lawsuits if they sound the alarm on suspicious activity in their elder clients’ accounts. Previously, many financial advisors and institutions didn’t report suspicious activity, because they were afraid of being sued by implicated individuals.

While the law provides added measures of protection, friends and family members are often the first line of defense against elder abuse and financial exploitation. Here’s how you can help your loved ones.

Learn the Categories of Abuse

The first step in preventing fraud against elders is to familiarize yourself with the different types of financial abuse. The CFPB has compiled this list of common ploys:

  • Exploitation by someone who can act on the victim’s behalf when armed with a power of attorney (POA) or in a fiduciary relationship,
  • Theft of money or property,
  • Investment fraud and scams, such as deceptive “free-lunch seminars” selling unnecessary or fraudulent financial services or products,
  • Lottery and sweepstakes scams,
  • Scams by telemarketers, mail offers or door-to-door salespersons,
  • Computer and Internet scams, including identity theft, and
  • Contractor fraud and home improvement scams.

Discuss this list with older friends and family members. And reassure them that if they’ve been exploited, there’s no shame in admitting it. Older people are often embarrassed about being victimized — especially when the abuser is a family member or trusted caregiver — so, they may be reluctant to bring it to the attention of another person who can help.

Get the Scoop

The more you know about your loved ones’ finances and intentions, the better. Having remote access to their bank and investment accounts allows you to monitor transactions for unusual patterns that warrant investigation. It’s also helpful to meet their advisors, including tax accountants, bankers and lawyers.

Be aware that financial and health care POA instruments can provide opportunities for dishonest caretakers to commit fraud. If you’re not the one with that legal authority, it’s important to stay connected to that person. And suggest options that offer safeguards for the elderly person. For example, a “springing” POA goes into effect only under circumstances described in the document, such as mental incompetence.

The CFPB cautions against appointing a hired caregiver or other paid helper as a POA agent. If there’s no other choice, consider requiring the POA agent to regularly report to you (or another trusted individual) about any major financial transactions taken on your loved one’s behalf.

Some POA instruments allow the agent to make routine purchases, using an account that’s funded with only enough money to cover monthly expenses. Or you might require two signatures for checks over a certain dollar threshold.

The CFPB and FDIC have created the “Money Smart for Older Adults Resource Guide” to help educate seniors about this issue. This free publication emphasizes that not all financial abuse of elderly people crosses the line to theft.

For example, a free-lunch seminar might not explicitly require participants to purchase products or services. Instead, it might entail listening to an aggressive, unrealistic sales pitch or imply that the participant owes the salesperson something in exchange for receiving a free lunch.

The resource guide also offers the following helpful tips:

  • Take your time when making investment choices. The phrase “act now before it’s too late” should raise a red flag.
  • Always request a written explanation of any investment opportunity; then get an educated second opinion.
  • Make checks payable to a company or financial institution, never to an individual.
  • Document all conversations with financial advisors and consider bringing another person to help recall the details and ask relevant questions.

When a problem occurs, it’s important to act quickly. Time is critical to resolve matters and, if possible, achieve financial restitution.

For More Information

You can’t always protect elderly loved ones from financial abuse and exploitation. But you can help minimize opportunities for them to become victims. Your financial and legal advisors can answer any questions you may have about this issue and provide ideas to fortify your loved one’s defenses.

Posted on May 1, 2019

Congratulations to the graduating class of 2019! As soon as a new graduate switches his or her tassel to the other side of the cap, it’s time to plan for the future — and there’s more to do than finding a good-paying job.Smart financial planning in the first few years after graduation can make a big difference in the years ahead. Here are five tips to help new grads prosper.

Watch Out for ID Theft

The conventional wisdom is that most identity theft scams are targeted at vulnerable senior citizens. But that’s not actually true. In fact, Millennials may be at an even greater risk. According to data recently released by the Federal Trade Commission (FTC), 43% of people in their 20s reported a loss due to fraud, while only 15% of those in their 70s did so.To avoid ID theft, the FTC advises you to be suspicious and use common sense before providing information or funds to unknown parties. Visit the FTC’s website for more prevention tips or to report a scam.

1. Make (and Follow) a Budget

You don’t have to be an economics major to know that you shouldn’t spend more than what you earn. However, if you really want to get ahead, do an inventory of your income and expenses. Differentiate needs from wants. For example, eating is a necessity, but eating out at restaurants should only be an occasional splurge.  When drawing up your budget, figure out how much you need to live on. Give yourself an “allowance” for discretionary items and set a monthly savings goal. Beware: You don’t want to overextend yourself and then live paycheck to paycheck. This can cause stress if you unexpectedly lose your job, become disabled or incur a major medical bill or car repair.Allocate a predetermined amount from each paycheck to go directly to a separate savings account. By keeping your savings separate, you won’t be tempted to spend that amount on discretionary items, like a new jacket, concert tickets or a trip to Europe.As a rule of thumb, you should have a “rainy day fund” of three to six months of net take-home pay. If an emergency happens, you’ll be grateful for your savings.

2. Build Your Credit

Following a budget doesn’t mean you have to live an austere lifestyle. It should include a little “mad money” for fun and for discretionary spending, such as vacations, dining out, pets, clothing and personal pampering. Credit cards can be a convenient way to pay for these items and track the expenditures. Plus, credit cards often accrue rewards points that can be redeemed in the future.Most college students already have a credit card in their names. If you don’t have a card yet, sign up for one immediately and pay the charges on time every month. Doing so puts you on the road to establishing a solid credit score, which will come in handy when you apply for a car loan or mortgage.Never let your credit card balances spiral out of control. If you continue to pay off your balance every month, you’ll avoid high interest charges on outstanding amounts.You can also establish credit by:

  • Renting an apartment or home (instead of living with your parents),
  • Paying monthly bills (such as utilities, phone and cable Internet), and
  • Buying or leasing a vehicle.

Another financially savvy way to save money and build credit is to take advantage of interest-free financing offers on large purchases. These are often available for furniture, electronics and major appliances. But there’s a catch: Pay off the balance in full before the deal expires or you’ll likely incur high interest charges going back to the date of purchase.

3. Save for Retirement

How soon should new grads start saving for retirement? The sooner, the better. So, when you start your full-time job, take advantage of any employer retirement program as soon as you’re eligible. If you’re lucky, your employer might also contribute funds to your retirement up to a predetermined matching limit.Most employers allow workers to participate in a qualified retirement plan, such as a SEP or 401(k) plan. These programs allow you to contribute pretax dollars to the account and allow them to grow, tax free, until you withdraw funds during retirement. You also may supplement your company’s plan with IRAs and other tax-favored retirement accounts and investments.

4. Find a Place to Live

Deciding where to live is tied to many variables, including your job, family and personal preferences. But finances are the top consideration.Depending on where you live and how much you earn, you probably can’t move into your dream home right away. This is especially true if you work in a high-cost area. For instance, the cost of a studio apartment in a major city could be the same or even more than that of a 3-bedroom, single-family home out in the country.Be realistic about how much you can afford. As a rule of thumb, you generally can spend up to a third of your monthly net pay on housing. If your starting income is modest, you may have to pay a higher percentage of your take-home pay.When you have enough money for a down payment, consider buying a condominium, townhouse or single-family home. Interest rates are currently near historic lows. Plus, home ownership still offers tax benefits, especially if you expect to itemize deductions on your tax return after a purchase.Warning: The Tax Cuts and Jobs Act (TCJA) limits itemized deductions for mortgage interest and property taxes for homeowners for 2018 through 2025. The state and local tax (SALT) limit is most likely to affect taxpayers in states with high tax rates and/or those who have significant taxable income.  Other options, such as sharing an apartment with a roommate, may allow you to save more money until you can afford a place of your own. Alternatively, if you can, you might live with your parents for a while and accumulate even more savings until you’re ready to move out.

5. Get Your Wheels

Depending on where you live and work, a vehicle may be a necessity or a discretionary purchase if you can get from place to place by walking, bicycling or using public transportation. Often, recent grads can’t afford their dream cars right away. So, some may lease; others choose an economical vehicle that they can finance at a reasonable interest rate. To facilitate a car loan application, follow these steps:

  • Check your credit to ensure that you’re entitled to a favorable rate.
  • Obtain quotes for loans. Get at least three rates at banks, credit unions and car dealerships.
  • Find a willing co-signer, such as a parent or grandparent, if your credit rating is subpar or you haven’t established any credit yet.

If you end up financing through a dealership, mainly because it’s convenient, you may decide to pay off the original loan rate later with a loan at a lower rate. If you choose this path, make sure the original loan doesn’t include any prepayment penalties.When budgeting for a new or used vehicle, remember that expenditures extend beyond the original purchase price. That is, you’ll have to pay for auto insurance, gas, maintenance and repairs. These costs can quickly add up — and may eat away at your savings.

Need Help?

From credit scores and retirement to housing and transportation, there are a lot of major decisions to make soon after graduation. Fortunately, your financial advisors can mentor you as you enter the workforce and later as you progress in your career and personal life.