busted

Accounting Myth

Truth:

Gifting to family and friends isn’t a deduction from your taxable income. The only potential deduction for gifting would be to a charitable organization.

Financial Myth

Truth:

Not quite!  While your will directs assets such as real estate or personal property, it doesn’t impact accounts with a named beneficiary.  Accounts or insurance policies with a named beneficiary will be transferred to the beneficiary on that specific account or policy, regardless of what the will says. As a best practice, we recommend reviewing your estate planning documents and beneficiaries on an annual basis.  It’s also a best practice to communicate with beneficiaries regarding the steps to take in the event of a death or serious illness.

Financial Myth

Truth:

Interest rates have certainly been a hot topic recently.  In September, the Federal Reserve raised interest rates 75 basis points (or 0.75%) for the third consecutive meeting.  This has been a historic rise in rates.  Before we explore whether interest rate increases are good or bad, it may be helpful to understand why interest rates are going up.  By increasing interest rates, the Federal Reserve makes borrowing more expensive.  If it’s more expensive to borrow, less money will be spent, which cools down the economy.  This is sometimes referred to as “tight” money policy.  Cooling down the economy helps to lower inflation.So, are rising interest rates a negative thing?  It depends on your situation.  If you were preparing to purchase a new home, then rising interest rates can be difficult to deal with.  It can cause you to pay thousands of dollars in additional interest over the life of the loan, and it increases your monthly payment by several hundred dollars as well.  On the flip side, rising interest rates can be positive for households who have cash in the bank.  CD rates, high-yield savings accounts, and newly-issued bonds will all pay a higher interest rate.

Accounting Myth

Truth:

False! Expenses or deductions would need to be reported in the year they were paid for most individuals. If expenses or deductions were left off your prior return you might consider filing an amended return to correct it.

Financial Myth

Truth:

Not quite!  While owning your own home can be gratifying, it doesn’t necessarily make sense to purchase a home if you plan to own it for a short period of time (note - this is not in reference to an investment property).

As a general rule-of-thumb, it makes sense to purchase a home if you plan to live in it for five years or more.  If your time frame is shorter than that, then renting may actually make more sense.  Why is this?  When purchasing a home, there are many expenses on the front-end, especially maintenance, closing costs, and interest expense on the mortgage.  It typically takes a few years of payments (and home value appreciation) for you to cross the breakeven point.

While a home purchase is often a wise decision if the home is a long-term solution, don’t rush into buying a home because it’s something that you feel like you “should” do.  Our society tends to portray renting as negative, but renting is often the wise decision.  It can enable you to build cash for a down payment, and if you’ve moved to a new area, renting for a period of time can help you to learn the areas of town that you like and don’t like.

Accounting Myth

Truth:

Unfortunately not!  If you have a projected tax liability, the IRS will charge penalties and interest for “underpayment.”  This projected liability is due to be paid at the tax deadline in the spring, regardless of whether or not you request an extension.  For taxpayers who expect to receive a refund, no payment must be sent in at the spring deadline.