Tag: <span>Wealth management</span>

If you were offered the choice of being paid $100 today or $100 a year from now, you would probably choose $100 today. After all, even at today’s low interest rates, your $100 might earn a small return over the next year. This simple example illustrates an important concept: that the value of money changes with time. A dollar received today is worth more than a dollar received a year from now – and is worth even more than a dollar received five years from now.

Here are at least three reasons why today’s dollar is more valuable.

• First, it can be invested to earn interest or dividends, as in the example above.
• Second, future dollars may have their value eroded by inflation.
• Third, the further into the future a payment is due, the greater the risk or uncertainty associated with receiving it.

The concept of the time value of money is important in many personal and business financial decisions. For example, you may have to choose between receiving a lump sum from a pension plan or a stream of payments in the future. In your business, you may be deciding whether to buy a new piece of equipment which will bring increased revenues in future years. Both of these decisions involve comparing the value of present and future dollars.

Finance professionals like us at Loeffler Financial Group have developed a technique called present value for making such comparisons. The technique involves “discounting” the value of future dollars to reduce them to their equivalent value in current dollars. If you are faced with a decision that involves the time value of money, contact our office today. We have financial and wealth management advisors that can help assist with any and all of your financial questions. Call now, 717-303-7366!

Be aware that important tax consequences are often associated with some fairly common events involving your home. Here are some handy things to know.

Home purchase. When purchasing a home, you may pay a portion of the mortgage interest in advance. This loan origination fee, or “points,” is a percentage of the total amount borrowed.

If points are paid for a principal residence, you generally can deduct the full amount in the year paid, even if the points were paid by the seller. One caution: you must reduce your home’s tax basis (cost) by the amount of seller-paid points.

Of course, one of the greatest tax benefits of home ownership kicks in during the early years of the mortgage, when most of your payments go toward tax-deductible interest.

IRA withdrawals. The tax law allows penalty-free IRA withdrawals, up to a lifetime limit of $10,000 for the purchase of a first home for you or members of your family. Withdrawals from Roth IRAs for qualifying first-home expenses can be both penalty- and tax-free after the Roth is five years old.

Refinancing. What happens if you refinance? If you pay points, the general rule requires that you prorate deduction over the life of the loan. But if some of the refinance proceeds go toward home improvements, you may be able to take a current deduction for the portion of the points related to those improvements.

Improvements. If you take out a loan to make substantial improvements to your principal residence, and the loan is secured by that property, the interest is generally deductible. Remodeling often increases the value of your property. Remodeling costs also increase the property’s basis, potentially reducing capital gains tax if a future sale is partially or fully taxable.

Other home improvement costs generally are not deductible, but if you upgrade your home for medical reasons – say, to add a wheelchair ramp or stair lift – you may be able to deduct a portion of the cost as a medical expense.

Home office. The home office deduction can be another tax break of home ownership. If you use part of your home regularly and exclusively as a principal place of business, you may be able to deduct costs associated with that part.

Home sale. When you sell a home that you have owned and used as your principal residence for at least two of the five years before the sale, you can generally exclude from taxation up to $250,000 of profit if you’re single and up to $500,000 if you’re married filing jointly. Profits in excess of those amounts are subject to regular capital gains rates and rules.

The definition of “principal residence” includes not only the conventional single family house, but also such homes as house trailers, mobile homes, houseboats, condominiums, cooperative apartments, and duplexes.

Selling at a loss. Unfortunately, if you sell your home for less than you paid for it, you may not take a tax deduction for your loss.

Taxes often come into play for homeowners, and it’s important to be aware of potential benefits and pitfalls.