by by-super-admin | Nov 14, 2019
by by-super-admin | Sep 17, 2019
Unlock your business' potential with Brammer & Yeend's Business Services.
Your Business. Your Family. Our Priority.
A company owners’ potential for personal financial security usually depends on the success of the business. Our commitment and responsibility is to help keep your business running smoothly and to help achieve your personal financial goals. Whether you are a business or an individual, our specialized staff will provide you with assistance in all your tax, reporting, financial and business affairs.
We're proud members of:
Brammer & Yeend is an independently owned and operated member firm of CPA Connect, a companion association to CPAmerica International
Financial information and reporting should not be a diversion for business owners, instead, financial information should be accurate, available, and insightful. We leverage experience and technology to provide business owners with dynamic resources and management tools.
Our personal services are designed to help busy, successful families manage their finances and grow their wealth with confidence and peace of mind. We do this by working together with our business solutions, allowing us to partner with clients and coordinate business and personal planning in order to meet their most important goals.
We strive to provide excellent service and solutions that fit our client’s specific needs and are industry appropriate. Our experienced CPAs have worked with clients in a variety of industries and understand the intricacies of each and apply the best solution possible. Over the years we have serviced clients in industries including agribusiness, retail, construction, manufacturing, food & beverage and many more. Below are some of our industries where we have specialized experience and expertise.
Small businesses often face cash flow challenges that can hinder growth and stability, but invoice financing can offer a solution that helps address cash flow gaps, meet operational expenses, and fuel growth without waiting for payment from clients. However, it comes with its own set of drawbacks. In this article, we’ll delve into the mechanics and variations of invoice financing, as well as its potential impact on a business’s financial health.
Invoice financing, also known as accounts receivable financing, is a financial solution designed to provide immediate funds by leveraging unpaid invoices as collateral. Rather than waiting for customers to pay their invoices, businesses can sell their outstanding invoices to a third-party financing company (often called a factor) at a discounted rate. The financing company then advances a portion of the invoice’s value to the business, typically around 80-90%, providing immediate cash flow. Once the customer settles the invoice, the financing company deducts their fee and transfers the remaining balance to the business.
Invoice financing encompasses two primary methods: invoice factoring and invoice discounting, each with distinct processes and implications.
Invoice Factoring
In this arrangement, your company sells control of accounts receivable to a lender at a discounted rate in exchange for immediate cash. Typically, you’ll receive an upfront payment for 70% to 90% of the invoice value, with the remaining amount, minus a fee, disbursed once customers settle their balances. However, a drawback of invoice factoring is that customers are required to pay the lender directly, impacting your control over the collection process and potentially signaling to customers that invoices are being financed through a third party.
Invoice Discounting
Unlike invoice factoring, invoice discounting involves the lender providing a loan to your business, typically around 80% to 90% of the invoice value. Once your customer pays the invoice, you repay the loan and keep the remainder of the invoice amount, minus the service fee. This approach allows you to maintain control over the collection process while offering more discretion and potentially preserving customer relationships.
The expenses of invoice financing can vary depending on several factors, including the creditworthiness of your customers, the terms of your financing agreement, and prevailing market conditions. Additionally, the size and stability of your company play a role in determining the cost of invoice financing. Established businesses with sizable, creditworthy clients often secure financing from banks at lower rates whereas smaller or newer companies with less creditworthy customers may explore options from nonbank lenders and face higher rates.
And then there’s the issue of recourse. If a customer doesn’t pay their invoice on time, typically within 90 to 120 days, the financing company can return the unpaid invoice to the business. This means the business is still responsible for the payment. It usually involves lower fees compared to non-recourse factoring because the risk to the lender is lower.
Invoice financing offers a lifeline for businesses facing cash flow challenges, but it’s crucial to weigh the pros and cons before diving in. Here’s what you need to know.
Pros
Cons
As with any financing option, make sure to thoroughly explore and compare the costs of different financing options available before making a decision.
Utilizing a 401(k) loan is a common method for navigating financial challenges. A 401(k) loan offers distinct advantages, such as lenient credit requirements and interest payments redirected back to your own account. Despite these benefits, there are notable drawbacks to consider, like missing out on potential investment growth from borrowed funds. If you’re thinking about a 401(k) loan, here are some essential factors to consider.
When you opt for a 401(k) loan, you’re essentially borrowing from your retirement savings temporarily. The borrowed sum, plus interest, is reimbursed into your account. IRS regulations allow borrowing up to 50% of your vested balance or $50,000, whichever is less. However, if half your vested balance is under $10,000, you may borrow up to $10,000. It’s important to note that while the IRS governs these loans, their availability ultimately rests with your employer’s discretion.
If your employer allows for 401(k) loans, the process is usually straightforward. Unlike traditional lenders, approval doesn’t hinge on credit checks or specific debt ratios. Depending on your plan’s protocol, you’ll either contact your plan administrator or fill out an online application. Upon approval, funds are typically disbursed within two to three business days. Repayment is fulfilled via automatic payroll deductions over five years. Interest rates are set by your employer, often calculated as the prime rate plus 1%. Notably, interest payments on the loan circle back into your 401(k) account, so you are effectively repaying yourself.
Before delving into a 401(k) loan application, it’s crucial to weigh these potential benefits and drawbacks.
Benefits of a 401(k) Loan
Drawbacks of a 401(k) Loan
While borrowing from your 401(k) should be a rare move, there are circumstances where it makes sense. If you are in such a scenario, your initial step should be consulting your employer to explore 401(k) loan availability.
There are situations where borrowing from your retirement account is ill-advised.
Repayment of 401(k) loans involves following IRS guidelines, while employers manage specific loan aspects. Here’s what the IRS requires:
While borrowing from your retirement savings is an option, it’s often not the only option – or even the best option. Here are some alternatives to consider:
Effective financial management is crucial for the success of small businesses, but there are numerous pitfalls that can impede growth. Read on as we delve into integral strategies to help small businesses avoid common financial mistakes and maintain financial stability.
Mastering budgeting is any small business’s first step to financial success. Take command of your finances by creating a thorough budget covering fixed and variable expenses. Knowing your budget will also help you allocate resources wisely. Additionally, you need to continuously assess and adapt your budget to accommodate shifting priorities and circumstances. Finally, monitor expenses closely and regularly review financial reports to keep your business on a financially sound path.
Unexpected costs and economic uncertainties can disrupt small business operations. Creating an emergency fund acts as a financial buffer, safeguarding against unforeseen challenges. Allocate a portion of your business’s earnings monthly into a designated savings account that can be accessed during turbulent times.
Maintain diligent oversight of your cash flow by regularly tracking both inflows and outflows. This proactive approach enables early detection of financial challenges such as cash flow constraints, declining profitability, or unexpected costs. Continuously monitoring cash flow also allows for the timely intervention of anything amiss. Additionally, you can boost cash flow by speeding up how quickly you get paid and delaying when you pay bills, whenever possible. Finally, embrace digital tools to make invoicing, receiving payments, and managing finances easier and more accurate, ultimately saving you time and effort.
Putting all your eggs in one basket can make your business susceptible to market changes. Diversifying your revenue streams can reduce this risk and make your business more adaptable. Look into expanding your range of products or services, reaching out to new customer groups, or branching into related markets to broaden your income streams.
Negotiating can lead to big savings and better profits for your business. Whether you’re talking with suppliers, contractors, or landlords, it’s important to stand up for what your business needs. By locking in favorable terms and agreements, you can cut costs and boost your bottom line.
Investing in technology can make a big difference for your business. Whether it’s accounting software or a customer relationship management (CRM) system, these tools can automate tasks, enhance decision-making, and boost team productivity. Choose technologies tailored to your business needs to see real results.
When it comes to your business finances, don’t go it alone. Reach out to specialists like accountants, financial advisors, and business consultants for expert guidance. They can provide tailored insights, expertise, and strategic advice to address your unique business challenges. Whether you need help with tax optimization, growth planning, or navigating financial regulations, their support can be crucial for avoiding pitfalls and attaining financial success.
These professionals can offer valuable insights, expertise, and strategic advice tailored to your specific business needs. Whether you’re seeking guidance to optimize tax strategies, create a growth plan, or navigate complex financial regulations, their assistance can be instrumental in helping to avert pitfalls and ultimately reach financial success.
Navigating the complexities of Social Security benefits becomes increasingly important for effective financial planning as you approach retirement. By strategizing thoughtfully and making informed decisions, you can optimize your Social Security payments, helping to safeguard your future financial security. Explore the following proven tactics to help you maximize the full potential of your Social Security benefits.
If you can afford to wait, delaying your Social Security claim can lead to higher monthly payments. Each year you delay, your payments may increase by as much as 8% until you reach age 70. However, beyond age 70, there are no further benefits to delaying your claim. For instance, if you’re entitled to $1,200 per month at your full retirement age of 67, waiting until age 70 could raise your benefit to around $1,500 monthly. These payments are adjusted annually for inflation and continue for life.
Beginning Social Security payments at age 62 is an option, but it leads to reduced monthly payments. Waiting until your full retirement age (FRA) offers higher monthly benefits. Be aware that FRA varies: it’s 66 for individuals born between 1943 and 1954, increasing gradually thereafter. Those born in 1960 or later attain FRA at age 67. Opting for benefits before FRA incurs a permanent reduction in payments.
Social Security benefits are established by your top 35 earning years. To maximize your earnings, explore options like overtime, salary negotiations, side gigs, or higher-paying roles as retirement approaches. There is a maximum earnings cap set each year that is used to calculate retirement benefits ($168,600 in 2024). Income beyond this limit isn’t taxed by Social Security and won’t affect future retirement payments.
Married couples can capitalize on spousal benefits by claiming up to 50% of their spouse’s benefit amount based on their work record. This proves beneficial when one spouse earns considerably more. To secure the full 50% spousal payment, the lower-earning or nonworking spouse must apply for spousal benefits at their FRA. Starting benefits before FRA results in a reduced percentage.
Couples can optimize their total Social Security benefits by coordinating when they each claim their benefits. This strategy might entail one spouse postponing their claim while the other starts receiving benefits, allowing the deferred benefits to increase over time.
If you decide to claim Social Security before reaching FRA and continue working, a portion of your benefits may be temporarily withheld.
In 2024, individuals under FRA who earn over $22,320 will experience a reduction of $1 for every $2 earned above this threshold. Once you reach FRA, the earnings cap increases to $59,520, and the penalty decreases to $1 withheld for every $3 earned beyond this limit.
However, upon reaching full retirement age, you can work and receive Social Security benefits simultaneously without penalty. Your benefit amount will be recalculated, considering any previously withheld payments and your ongoing earnings.
Understanding the tax ramifications of your Social Security benefits is important. If the total of your adjusted gross income, nontaxable interest, and half of your Social Security benefit exceeds $25,000 for individuals or $32,000 for couples, up to 50% of your Social Security benefit might be taxable. Should these combined income sources exceed $34,000 for individuals or $44,000 for couples, income tax could apply to as much as 85% of your Social Security benefit. Note that these tax thresholds remain unchanged annually, regardless of inflation.
In the event of a spouse’s passing, the surviving partner may qualify for survivor’s benefits. The surviving spouse may be eligible to receive the deceased spouse’s higher benefit payment if it surpasses their own current benefit amount. For instance, if a husband receives $2,200 monthly from Social Security and his wife receives $1,600, the wife would receive $2,200 monthly after her husband’s passing, inheriting his higher payment.
After experiencing two years of increases in interest rates, which led to significant spikes in mortgage and credit card rates, investors and consumers alike are eager to know when the Federal Reserve intends to reduce interest rates. Simply put, the Fed is waiting for more positive indicators from the economy. Below, we discuss how soon the Fed might cut rates.
In March 2022, the Federal Reserve took action to tackle surging inflation rates by increasing interest rates. This is a tried-and-true strategy aimed at curbing excessive consumer spending and managing price spikes. Since then, the central bank has implemented 11 rate hikes, resulting in a notable decrease in the annual inflation rate. Inflation hit its peak in June of 2022 at 9.1%, but was down to 3.1% last month. However, January’s inflation figure exceeded economists’ forecasts and remains above the Fed’s target of 2%. With January’s inflation data indicating continued pressure, significant interest rate cuts are unlikely in the near future.
Following January’s higher-than-anticipated inflation figures, economists are revising their predictions, suggesting that the Federal Reserve’s first rate cut will likely occur later in 2024 than initially expected. As a result, it’s doubtful that rate adjustments will happen at the upcoming March meeting, and some experts are suggesting that even the May meeting may be premature. The consensus leans towards to possibility of the first rate cut taking place during the Fed’s June 12 meeting.
For borrowers, it seems loan terms won’t be shifting anytime soon. Credit card rates, auto loans, and similar credit products typically tied to the Federal Reserve’s benchmark rate are poised to remain stable or experience only marginal adjustments until the first rate cut.
However, mortgages paint a slightly different picture. When inflation growth is more than anticipated, mortgage rates tend to follow suit and rise. As a result, we may witness a gradual increase in mortgage rates over the coming weeks before they eventually settle around 6% by year’s end.
Consider these actions you can take with your money while you wait for rates to drop.
Unlike savings accounts, where Annual Percentage Yields (APY) tend to decrease when the Federal Reserve cuts rates, CDs offer fixed interest rates once opened, shielding you from fluctuations in APYs.
Strengthen your credit score to secure better terms on mortgages or personal loans once rates decrease. Your credit score heavily impacts the interest rates you’ll receive. While a score of 620 may be sufficient for a conventional mortgage, aiming for at least 750 can unlock the most competitive rates. To improve your score, ensure timely payments on credit cards and loans, aim for higher credit limits to lower your credit utilization ratio, and avoid applying for new lines of credit, which can impact your score with hard inquiries.
Eligible families may see a boost in child tax credits as a bipartisan bill known as the Tax Relief for American Families and Workers Act of 2024 progresses through the legislative process. Here’s an overview of the tax bill and what it could mean for American families.
The child tax credit (CTC) is a federal tax benefit that provides financial support for taxpayers raising children under the age of 17. This credit can directly reduce your tax liability, potentially eliminating it entirely. Additionally, some taxpayers might qualify for a partial refund of the credit through the “additional child tax credit” (ACTC). To be eligible, taxpayers and their children must meet specific criteria, including the child’s age and their relationship to the individual claiming them.
To maximize the benefits of the child tax credit, taxpayers need to meet income requirements since the credit gradually reduces for higher-income earners. If your modified gross income surpasses the threshold, you might receive a reduced credit amount or become ineligible altogether.
For 2023 (taxes filed in 2024), the child tax credit stands at $2,000 per eligible dependent child for those with a modified adjusted gross income (MAGI) below $400,000 (for married filing jointly) or $200,000 (for all other filers). The refundable portion, called the additional child tax credit, can reach up to $1,600. However, if your MAGI surpasses these thresholds, your credit decreases by $50 for every $1,000 your income exceeds the limit.
If passed in its most current form, the proposed child tax credit expansion promises to provide temporary yet substantial assistance to lower-income families and individuals who typically don’t fully benefit from this tax credit.
The House of Representatives voted 357-70 on January 31 to pass the bill, sending it to the Senate, where it will need 60 votes to pass. If it does pass, the IRS estimates that funds could be issued within six to 12 weeks. The IRS has stressed that taxpayers should not wait on the passage of this bill to complete their tax returns, noting that any additional refunds to taxpayers who have already filed will be taken care of without any additional steps needed on behalf of the taxpayer.
Keeping an open line of communication is important to us. We invite you to reach out to us either by phone, email, or this form to ask questions, request an appointment or talk about any finance-related matter that comes to your mind.
317-398-9753
8 Public Square
Shelbyville, IN, 46176
Unlock your business' potential with Brammer & Yeend's Business Services.
Your Business. Your Family. Our Priority.
A company owners’ potential for personal financial security usually depends on the success of the business. Our commitment and responsibility is to help keep your business running smoothly and to help achieve your personal financial goals. Whether you are a business or an individual, our specialized staff will provide you with assistance in all your tax, reporting, financial and business affairs.
We're proud members of:
Brammer & Yeend is an independently owned and operated member firm of CPA Connect, a companion association to CPAmerica International
Financial information and reporting should not be a diversion for business owners, instead, financial information should be accurate, available, and insightful. We leverage experience and technology to provide business owners with dynamic resources and management tools.
Our personal services are designed to help busy, successful families manage their finances and grow their wealth with confidence and peace of mind. We do this by working together with our business solutions, allowing us to partner with clients and coordinate business and personal planning in order to meet their most important goals.
We strive to provide excellent service and solutions that fit our client’s specific needs and are industry appropriate. Our experienced CPAs have worked with clients in a variety of industries and understand the intricacies of each and apply the best solution possible. Over the years we have serviced clients in industries including agribusiness, retail, construction, manufacturing, food & beverage and many more. Below are some of our industries where we have specialized experience and expertise.
Small businesses often face cash flow challenges that can hinder growth and stability, but invoice financing can offer a solution that helps address cash flow gaps, meet operational expenses, and fuel growth without waiting for payment from clients. However, it comes with its own set of drawbacks. In this article, we’ll delve into the mechanics and variations of invoice financing, as well as its potential impact on a business’s financial health.
Invoice financing, also known as accounts receivable financing, is a financial solution designed to provide immediate funds by leveraging unpaid invoices as collateral. Rather than waiting for customers to pay their invoices, businesses can sell their outstanding invoices to a third-party financing company (often called a factor) at a discounted rate. The financing company then advances a portion of the invoice’s value to the business, typically around 80-90%, providing immediate cash flow. Once the customer settles the invoice, the financing company deducts their fee and transfers the remaining balance to the business.
Invoice financing encompasses two primary methods: invoice factoring and invoice discounting, each with distinct processes and implications.
Invoice Factoring
In this arrangement, your company sells control of accounts receivable to a lender at a discounted rate in exchange for immediate cash. Typically, you’ll receive an upfront payment for 70% to 90% of the invoice value, with the remaining amount, minus a fee, disbursed once customers settle their balances. However, a drawback of invoice factoring is that customers are required to pay the lender directly, impacting your control over the collection process and potentially signaling to customers that invoices are being financed through a third party.
Invoice Discounting
Unlike invoice factoring, invoice discounting involves the lender providing a loan to your business, typically around 80% to 90% of the invoice value. Once your customer pays the invoice, you repay the loan and keep the remainder of the invoice amount, minus the service fee. This approach allows you to maintain control over the collection process while offering more discretion and potentially preserving customer relationships.
The expenses of invoice financing can vary depending on several factors, including the creditworthiness of your customers, the terms of your financing agreement, and prevailing market conditions. Additionally, the size and stability of your company play a role in determining the cost of invoice financing. Established businesses with sizable, creditworthy clients often secure financing from banks at lower rates whereas smaller or newer companies with less creditworthy customers may explore options from nonbank lenders and face higher rates.
And then there’s the issue of recourse. If a customer doesn’t pay their invoice on time, typically within 90 to 120 days, the financing company can return the unpaid invoice to the business. This means the business is still responsible for the payment. It usually involves lower fees compared to non-recourse factoring because the risk to the lender is lower.
Invoice financing offers a lifeline for businesses facing cash flow challenges, but it’s crucial to weigh the pros and cons before diving in. Here’s what you need to know.
Pros
Cons
As with any financing option, make sure to thoroughly explore and compare the costs of different financing options available before making a decision.
Utilizing a 401(k) loan is a common method for navigating financial challenges. A 401(k) loan offers distinct advantages, such as lenient credit requirements and interest payments redirected back to your own account. Despite these benefits, there are notable drawbacks to consider, like missing out on potential investment growth from borrowed funds. If you’re thinking about a 401(k) loan, here are some essential factors to consider.
When you opt for a 401(k) loan, you’re essentially borrowing from your retirement savings temporarily. The borrowed sum, plus interest, is reimbursed into your account. IRS regulations allow borrowing up to 50% of your vested balance or $50,000, whichever is less. However, if half your vested balance is under $10,000, you may borrow up to $10,000. It’s important to note that while the IRS governs these loans, their availability ultimately rests with your employer’s discretion.
If your employer allows for 401(k) loans, the process is usually straightforward. Unlike traditional lenders, approval doesn’t hinge on credit checks or specific debt ratios. Depending on your plan’s protocol, you’ll either contact your plan administrator or fill out an online application. Upon approval, funds are typically disbursed within two to three business days. Repayment is fulfilled via automatic payroll deductions over five years. Interest rates are set by your employer, often calculated as the prime rate plus 1%. Notably, interest payments on the loan circle back into your 401(k) account, so you are effectively repaying yourself.
Before delving into a 401(k) loan application, it’s crucial to weigh these potential benefits and drawbacks.
Benefits of a 401(k) Loan
Drawbacks of a 401(k) Loan
While borrowing from your 401(k) should be a rare move, there are circumstances where it makes sense. If you are in such a scenario, your initial step should be consulting your employer to explore 401(k) loan availability.
There are situations where borrowing from your retirement account is ill-advised.
Repayment of 401(k) loans involves following IRS guidelines, while employers manage specific loan aspects. Here’s what the IRS requires:
While borrowing from your retirement savings is an option, it’s often not the only option – or even the best option. Here are some alternatives to consider:
Effective financial management is crucial for the success of small businesses, but there are numerous pitfalls that can impede growth. Read on as we delve into integral strategies to help small businesses avoid common financial mistakes and maintain financial stability.
Mastering budgeting is any small business’s first step to financial success. Take command of your finances by creating a thorough budget covering fixed and variable expenses. Knowing your budget will also help you allocate resources wisely. Additionally, you need to continuously assess and adapt your budget to accommodate shifting priorities and circumstances. Finally, monitor expenses closely and regularly review financial reports to keep your business on a financially sound path.
Unexpected costs and economic uncertainties can disrupt small business operations. Creating an emergency fund acts as a financial buffer, safeguarding against unforeseen challenges. Allocate a portion of your business’s earnings monthly into a designated savings account that can be accessed during turbulent times.
Maintain diligent oversight of your cash flow by regularly tracking both inflows and outflows. This proactive approach enables early detection of financial challenges such as cash flow constraints, declining profitability, or unexpected costs. Continuously monitoring cash flow also allows for the timely intervention of anything amiss. Additionally, you can boost cash flow by speeding up how quickly you get paid and delaying when you pay bills, whenever possible. Finally, embrace digital tools to make invoicing, receiving payments, and managing finances easier and more accurate, ultimately saving you time and effort.
Putting all your eggs in one basket can make your business susceptible to market changes. Diversifying your revenue streams can reduce this risk and make your business more adaptable. Look into expanding your range of products or services, reaching out to new customer groups, or branching into related markets to broaden your income streams.
Negotiating can lead to big savings and better profits for your business. Whether you’re talking with suppliers, contractors, or landlords, it’s important to stand up for what your business needs. By locking in favorable terms and agreements, you can cut costs and boost your bottom line.
Investing in technology can make a big difference for your business. Whether it’s accounting software or a customer relationship management (CRM) system, these tools can automate tasks, enhance decision-making, and boost team productivity. Choose technologies tailored to your business needs to see real results.
When it comes to your business finances, don’t go it alone. Reach out to specialists like accountants, financial advisors, and business consultants for expert guidance. They can provide tailored insights, expertise, and strategic advice to address your unique business challenges. Whether you need help with tax optimization, growth planning, or navigating financial regulations, their support can be crucial for avoiding pitfalls and attaining financial success.
These professionals can offer valuable insights, expertise, and strategic advice tailored to your specific business needs. Whether you’re seeking guidance to optimize tax strategies, create a growth plan, or navigate complex financial regulations, their assistance can be instrumental in helping to avert pitfalls and ultimately reach financial success.
Navigating the complexities of Social Security benefits becomes increasingly important for effective financial planning as you approach retirement. By strategizing thoughtfully and making informed decisions, you can optimize your Social Security payments, helping to safeguard your future financial security. Explore the following proven tactics to help you maximize the full potential of your Social Security benefits.
If you can afford to wait, delaying your Social Security claim can lead to higher monthly payments. Each year you delay, your payments may increase by as much as 8% until you reach age 70. However, beyond age 70, there are no further benefits to delaying your claim. For instance, if you’re entitled to $1,200 per month at your full retirement age of 67, waiting until age 70 could raise your benefit to around $1,500 monthly. These payments are adjusted annually for inflation and continue for life.
Beginning Social Security payments at age 62 is an option, but it leads to reduced monthly payments. Waiting until your full retirement age (FRA) offers higher monthly benefits. Be aware that FRA varies: it’s 66 for individuals born between 1943 and 1954, increasing gradually thereafter. Those born in 1960 or later attain FRA at age 67. Opting for benefits before FRA incurs a permanent reduction in payments.
Social Security benefits are established by your top 35 earning years. To maximize your earnings, explore options like overtime, salary negotiations, side gigs, or higher-paying roles as retirement approaches. There is a maximum earnings cap set each year that is used to calculate retirement benefits ($168,600 in 2024). Income beyond this limit isn’t taxed by Social Security and won’t affect future retirement payments.
Married couples can capitalize on spousal benefits by claiming up to 50% of their spouse’s benefit amount based on their work record. This proves beneficial when one spouse earns considerably more. To secure the full 50% spousal payment, the lower-earning or nonworking spouse must apply for spousal benefits at their FRA. Starting benefits before FRA results in a reduced percentage.
Couples can optimize their total Social Security benefits by coordinating when they each claim their benefits. This strategy might entail one spouse postponing their claim while the other starts receiving benefits, allowing the deferred benefits to increase over time.
If you decide to claim Social Security before reaching FRA and continue working, a portion of your benefits may be temporarily withheld.
In 2024, individuals under FRA who earn over $22,320 will experience a reduction of $1 for every $2 earned above this threshold. Once you reach FRA, the earnings cap increases to $59,520, and the penalty decreases to $1 withheld for every $3 earned beyond this limit.
However, upon reaching full retirement age, you can work and receive Social Security benefits simultaneously without penalty. Your benefit amount will be recalculated, considering any previously withheld payments and your ongoing earnings.
Understanding the tax ramifications of your Social Security benefits is important. If the total of your adjusted gross income, nontaxable interest, and half of your Social Security benefit exceeds $25,000 for individuals or $32,000 for couples, up to 50% of your Social Security benefit might be taxable. Should these combined income sources exceed $34,000 for individuals or $44,000 for couples, income tax could apply to as much as 85% of your Social Security benefit. Note that these tax thresholds remain unchanged annually, regardless of inflation.
In the event of a spouse’s passing, the surviving partner may qualify for survivor’s benefits. The surviving spouse may be eligible to receive the deceased spouse’s higher benefit payment if it surpasses their own current benefit amount. For instance, if a husband receives $2,200 monthly from Social Security and his wife receives $1,600, the wife would receive $2,200 monthly after her husband’s passing, inheriting his higher payment.
After experiencing two years of increases in interest rates, which led to significant spikes in mortgage and credit card rates, investors and consumers alike are eager to know when the Federal Reserve intends to reduce interest rates. Simply put, the Fed is waiting for more positive indicators from the economy. Below, we discuss how soon the Fed might cut rates.
In March 2022, the Federal Reserve took action to tackle surging inflation rates by increasing interest rates. This is a tried-and-true strategy aimed at curbing excessive consumer spending and managing price spikes. Since then, the central bank has implemented 11 rate hikes, resulting in a notable decrease in the annual inflation rate. Inflation hit its peak in June of 2022 at 9.1%, but was down to 3.1% last month. However, January’s inflation figure exceeded economists’ forecasts and remains above the Fed’s target of 2%. With January’s inflation data indicating continued pressure, significant interest rate cuts are unlikely in the near future.
Following January’s higher-than-anticipated inflation figures, economists are revising their predictions, suggesting that the Federal Reserve’s first rate cut will likely occur later in 2024 than initially expected. As a result, it’s doubtful that rate adjustments will happen at the upcoming March meeting, and some experts are suggesting that even the May meeting may be premature. The consensus leans towards to possibility of the first rate cut taking place during the Fed’s June 12 meeting.
For borrowers, it seems loan terms won’t be shifting anytime soon. Credit card rates, auto loans, and similar credit products typically tied to the Federal Reserve’s benchmark rate are poised to remain stable or experience only marginal adjustments until the first rate cut.
However, mortgages paint a slightly different picture. When inflation growth is more than anticipated, mortgage rates tend to follow suit and rise. As a result, we may witness a gradual increase in mortgage rates over the coming weeks before they eventually settle around 6% by year’s end.
Consider these actions you can take with your money while you wait for rates to drop.
Unlike savings accounts, where Annual Percentage Yields (APY) tend to decrease when the Federal Reserve cuts rates, CDs offer fixed interest rates once opened, shielding you from fluctuations in APYs.
Strengthen your credit score to secure better terms on mortgages or personal loans once rates decrease. Your credit score heavily impacts the interest rates you’ll receive. While a score of 620 may be sufficient for a conventional mortgage, aiming for at least 750 can unlock the most competitive rates. To improve your score, ensure timely payments on credit cards and loans, aim for higher credit limits to lower your credit utilization ratio, and avoid applying for new lines of credit, which can impact your score with hard inquiries.
Eligible families may see a boost in child tax credits as a bipartisan bill known as the Tax Relief for American Families and Workers Act of 2024 progresses through the legislative process. Here’s an overview of the tax bill and what it could mean for American families.
The child tax credit (CTC) is a federal tax benefit that provides financial support for taxpayers raising children under the age of 17. This credit can directly reduce your tax liability, potentially eliminating it entirely. Additionally, some taxpayers might qualify for a partial refund of the credit through the “additional child tax credit” (ACTC). To be eligible, taxpayers and their children must meet specific criteria, including the child’s age and their relationship to the individual claiming them.
To maximize the benefits of the child tax credit, taxpayers need to meet income requirements since the credit gradually reduces for higher-income earners. If your modified gross income surpasses the threshold, you might receive a reduced credit amount or become ineligible altogether.
For 2023 (taxes filed in 2024), the child tax credit stands at $2,000 per eligible dependent child for those with a modified adjusted gross income (MAGI) below $400,000 (for married filing jointly) or $200,000 (for all other filers). The refundable portion, called the additional child tax credit, can reach up to $1,600. However, if your MAGI surpasses these thresholds, your credit decreases by $50 for every $1,000 your income exceeds the limit.
If passed in its most current form, the proposed child tax credit expansion promises to provide temporary yet substantial assistance to lower-income families and individuals who typically don’t fully benefit from this tax credit.
The House of Representatives voted 357-70 on January 31 to pass the bill, sending it to the Senate, where it will need 60 votes to pass. If it does pass, the IRS estimates that funds could be issued within six to 12 weeks. The IRS has stressed that taxpayers should not wait on the passage of this bill to complete their tax returns, noting that any additional refunds to taxpayers who have already filed will be taken care of without any additional steps needed on behalf of the taxpayer.
Keeping an open line of communication is important to us. We invite you to reach out to us either by phone, email, or this form to ask questions, request an appointment or talk about any finance-related matter that comes to your mind.
317-398-9753
8 Public Square
Shelbyville, IN, 46176