Understanding Your Skin Type and Creating a Routine
Your skin type influences the products you use and how your face responds to certain treatments. Board-certified dermatologists Aanand Geria, MD, Christina Chung, MD, Hadley King, MD, and Geeta Yadav, MD share expert tips to identify your skin type.
Normal skin looks smooth and feels supple. It is balanced in its oil production and pores, and doesn’t sting or irritate.
Normal
This skin type is the most common and typically has a nice balance between oily and dry. People with normal skin can use light products and tend to avoid breakouts, flakiness or a greasy appearance.
The best way to determine whether your skin is normal is to observe it after cleansing and leaving it bare for half an hour. You can also buy a pack of blotting sheets and press them to your nose, cheeks and forehead to see how much oil is picked up.
Remember, however, that our skin can change based on the season, diet, location and more. And that is ok. Your skin is like your personality – it can be wishy-washy and exist on a continuum. It might be oily one day and dry the next.
Oily
Oily skin is characterized by a greasy appearance and the production of excess sebum. It can be caused by genetics, hormonal changes (particularly during puberty and perimenopause), diet or certain medications.
You can identify your skin type by cleansing it and waiting for half an hour, then using a blotting sheet to see how much oil is on the surface of your skin. Feeling your skin’s texture and a soft pinch test can also help to gauge hydration levels.
It’s important to remember that our skin is always changing and can go through dry, oily or combination spells for many reasons including lifestyle, weather, hormone changes and stress. The good news is that with the right skincare and routine, you can help keep your skin healthy and radiant.
Dry
When people have dry skin, their pores are small and they often feel tight. This type of skin can have a flakey appearance, be rough and itchy. It can also show premature wrinkles and have a dull, lifeless appearance.
To test your skin’s moisture levels, try ripping up pieces of tissue and sticking them to your face. If the tissue sticks, you have normal skin and if it falls off then you have oily skin.
Another way to check your skin is by observing how it reacts after washing and then pressing blotting sheets against your face. If your skin looks shiny or has enlarged pores, you have oily skin. If the blotting sheets reveal no shine or only a small amount, you have normal skin.
Combination
People with combination skin have oily areas but dry parts of the face. Typically, the T-zone is very oily while the cheeks and jaw area are very dry.
Genetics plays a major role in determining your skin type, but your diet, weather and lifestyle can all influence how oily or dry your skin is. It’s important to know your skin type so you can avoid products, ingredients and routines that could disrupt your healthy balance.
One of the easiest ways to find out what your skin type is is to wash your face with a gentle cleanser and apply nothing else. If you notice that after 30 minutes your face is shiny, then you’re likely an oily skin type. You may also have large pores that get clogged easily.
Sensitive
Sensitive skin is prone to reacting to stimuli that normal skin does not, which can cause redness, itching, burning or stinging sensations. These triggers may be soaps, detergents, fragrances, perfumes, skincare or household products, as well as environmental elements such as cold and wind.
Symptoms include objective signs that can be seen by your healthcare provider, like redness and swelling, as well as subjective symptoms that you experience, such as burning or itching. Regardless of your skin type, elevated sensitivity can be a sign of an underlying condition, including rosacea, eczema, or an allergy. All skin types can benefit from regular cleansing and moisturizing, as well as avoiding irritants. However, if your sensitivity is severe, you should speak to a dermatologist or skincare professional for recommendations.
Read MoreNatural Skincare Remedies and DIY Treatments for Healthy Skin
Natural skincare treatments help restore your skin’s natural oils, which can be stripped by frequent washing with drying soaps. To hydrate your face and hands, try shea butter or other natural oils such as jojoba oil.
Tea tree oil can also be used as a simple blemish-fighting treatment. It has anti-microbial properties that may reduce the inflammatory type of acne, such as pink papules and tender pustules.
Tea Tree Oil
Tea tree oil, also known as melaleuca oil, is having a major moment, appearing in cleansers, natural face oils and even in hair products. “We love it because it’s antiseptic, anti-inflammatory and can help treat a variety of skin conditions,” says Dr. Jennifer Holman, a dermatologist with U.S. Dermatology Partners in East and South Texas.
It has antifungal properties, too, so you can keep a bottle of this stuff in your first aid kit to disinfect minor cuts and scrapes or use it as a treatment for nail fungus. But when used on the skin, this oil can cause irritation if it’s too strong or not properly diluted, so always perform a patch test on a small area of your body, like behind your ear, before using.
Experts recommend diluting it with water or a skin-safe carrier oil such as coconut, olive or jojoba. You can apply the mixture to your skin with a cotton ball to soothe itching and redness from dryness, reduce acne breakouts or get rid of dandruff.
Manuka Honey
Honey isn’t just that bear-shaped jar in your pantry, it’s actually a natural sweetener with antimicrobial properties that have been known to fight off bacteria. But not all honey is created equal—it’s the manuka variety that’s making waves in the beauty industry thanks to its wound-healing and anti-aging benefits.
Unlike traditional honey, manuka honey is sourced from the nectar of only one type of flower (monofloral), giving it a higher concentration of the molecule methylglyoxal (MGO). This gives it antibacterial and anti-inflammatory effects that are able to penetrate deep into the skin tissue to treat infections and soothe irritated skin conditions like acne and eczema.
Research has also shown that consuming manuka honey can help treat and prevent seasonal allergies by blocking histamines in the body. Try taking a tablespoon a day to see if it helps relieve your symptoms. In addition, apply manuka honey to minor scrapes and cuts. It may encourage the growth of cells called dermal fibroblasts that help your skin grow new skin tissue and heal from injuries.
Oatmeal
When it comes to DIY skincare, oatmeal has been long hailed as a natural skin-soothing remedy thanks to its lipid-rich beta glucan and anti-inflammatory phenols. Moreover, its saponins function as natural cleansers to remove excess sebum and impurities from pores without causing irritation or over-drying.
Aside from the calming effect, the anti-inflammatory properties of oatmeal can help relieve itching caused by rashes like chicken pox, insect bites and poison ivy. In addition, applying a paste made with oatmeal can help soothe itching and redness from shingles and other painful conditions like psoriasis.
Try blending dry, rolled oats into a powder to create colloidal oatmeal, then use it in a face mask or add it to your bath for a natural rehydration treatment. You can also make an oatmeal scrub and massage it gently into your face for a few minutes before rinsing with lukewarm water. This scrub can also be used as a polishing exfoliant for oily or acne-prone skin.
Shea Butter
Shea butter is a super skin care ingredient that does triple-duty. This creamy fat, which is solid at room temperature but melts on contact with the skin, fades scars (acne and non-acne) and heals sunburned or dry skin. It soothes inflammatory skin conditions like eczema and psoriasis, and even reduces the symptoms of rheumatism.
It also promotes strong antioxidant activity, which helps slow aging and dull-looking skin. Plus, shea butter may help protect skin from oxidative damage by inhibiting the formation of free radicals.
When choosing a shea butter for your skin, look for one that is free of preservatives such as parabens and phthalates and chemical UV filters such as oxybenzone, avobenzone, octisalate, and octocrylene. Or, try a body butter that only contains shea butter, such as this one that combines virgin African shea butter with Ghanaian baobab and Egyptian jojoba oil. This combo provides rich moisture without the icky ingredients you might find in a lot of over-the-counter products.
Read MoreExploring Investment Options
Explore the different types of investments that can help grow your money. These include stocks, bonds, mutual funds** and exchange-traded funds (ETFs).
Stocks, also known as equities, represent ownership in a company. They offer growth potential but carry more risk than other investments.
Bonds are a type of investment designed to aid corporations and governments to raise money by paying interest to investors. They offer lower risks than stocks and are often considered less volatile.
Stocks
Stocks are a common way to invest and can offer potential for high returns over time. However, they are also highly volatile and susceptible to price fluctuations.
By investing in shares of a company, you gain some residual claim to the company’s profits and assets, and may also be eligible for voting rights. You can invest in growth stocks, which are designed to grow rapidly, or value stocks, which focus on more established companies whose stock prices may not appropriately reflect their current worth.
Bonds are another investment option that can provide higher long-term returns than a savings account or bank CD, but they do not have the potential to increase in value as much as stocks. Additionally, bonds are subject to market volatility, and if a company defaults on its debt obligations, investors may lose money on their bond investments.
Bonds
Stocks, also known as equities, are pieces (shares) of ownership in a company. When the company does well, it can pay dividends to shareholders a percentage of the profits. Stocks offer the highest potential return, but also carry the most risk-reward ratio of any investment.
Bonds, which are considered fixed-income investments, provide steady income payments from interest accrued over time. They are typically the lowest-risk investment option and make up a key component of a diversified portfolio.
There are various types of bonds available, including government, corporate and mortgage-backed securities. Additionally, there are bond mutual funds and exchange-traded funds that manage a basket of bonds. In general, bond prices have inverse correlations to stocks. This makes them a good diversifier to a stock-heavy portfolio. However, they also carry their own unique risks and should be carefully evaluated.
Mutual Funds
When you invest in a mutual fund, you buy units (or shares) of the fund. The value of those units can go up or down, depending on the performance of the underlying securities that the fund holds. Mutual funds generally offer more diversity and liquidity than individual stocks or bonds.
Stocks have the potential to grow over time, but they also carry more risk and can fluctuate greatly in value. They are one of the most popular types of investments.
Bonds are a conservative investment that provides income over time. They usually pay out interest payments every month and then repay the original principal at a predetermined date. Investors typically earn a profit when bonds appreciate or yield more than the initial investment amount. Many investors choose to diversify their investments with both stocks and bonds. They may also consider using target-date funds that automatically move from higher-growth, higher-risk stocks to lower-return, lower-risk bonds as the date approaches for retirement or other goals.
Real Estate
Amid an economic environment where many investors are concerned about inflation, investing in real estate can provide a potential hedge against rising prices. It’s important to consider your personal financial goals, risk tolerance and investment time horizon before investing.
**Investment options such as stocks and mutual funds involve risks, including the potential loss of principal. Investors should carefully review the investment objective and summary of each fund before making a purchase decision.
Stocks are pieces (shares) of ownership in a company that can either make money when their value increases or by collecting regular dividend payments. Bonds are investments designed to aid governments and corporations in raising money by lending investors interest payments for a specific period of time. Both can be valuable assets in a well-rounded portfolio, depending on your investing goals and risk tolerance.
Read MoreBuilding a Solid Investment Portfolio
Investing should be viewed as a long-term endeavor. As such, investors should build a portfolio that is suited to their unique financial situation and goals.
An asset allocation is the percentage of an investor’s total investment portfolio that will be invested in different asset classes such as stocks, bonds and cash or cash equivalents.
1. Diversification
The value of diversification can be summed up by the old saying, “Don’t put all your eggs in one basket.” It’s very hard to outperform the market by picking specific investments (research shows that even professional investors struggle to do so consistently). However, it’s fairly easy to avoid dramatic losses by constructing a diverse portfolio.
Diversification involves spreading risk among different asset classes and securities within an asset class. By investing in a mix of stocks, bonds and cash, and breaking these down further by industry, company size, creditworthiness, geography, investment strategy and bond issuer, we can achieve true diversification.
We can also diversify across time by using dollar-cost averaging, where we invest small amounts regularly over a period of months rather than putting a lump sum into the market on one day. This allows us to take advantage of the power of compounding and potentially minimizes the impact of market volatility. In addition, we can diversify by owning shares in companies at different stages of their growth cycle.
2. Risk Management
As the saying goes, “Don’t put all your eggs in one basket.” This timeless adage aptly sums up the concepts of diversification and asset allocation.
While some risks (such as market risk) can’t be avoided, others can be mitigated through a variety of strategies such as diversification and rebalancing. Asset allocation also helps to ensure that your hard-earned savings are protected by investing in the right mix of investments based on your investment goals and risk tolerance.
Project portfolio management involves assessing and mitigating the impact of risks at the enterprise level rather than at the individual project level. For example, if your company has been negatively impacted by recent shutdowns due to the CHIPS and Science Act, you could invest in digital streaming platforms that may counterbalance the loss of revenue from reduced travel.
3. Rebalancing
Over time, market fluctuations can cause the relative weights of various asset classes in your portfolio to veer from their original planned allocation. Rebalancing allows you to realign these weights back to your plan and helps minimize the risk in your portfolio.
The process of rebalancing is accomplished by selling the investments that have exceeded their planned percentage composition and using the proceeds to buy more of the investments that are underweight in your portfolio. There are a number of ways to determine when your portfolio is in need of rebalancing, including using tolerance bands that can be either fixed or relative.
Rebalancing can be difficult, as it requires you to sell assets that have performed well over the past year in order to purchase assets with a less impressive track record. But it’s a crucial step in maintaining a portfolio that adheres to your risk tolerance and desired level of returns. In addition, rebalancing regularly can help reduce the need for more frequent, potentially emotionally driven investment decisions.
4. Taxes
A diversified investment portfolio requires regular review and periodic rebalancing. Market ups and downs can cause a portfolio’s original balance to shift, and rebalancing is the process of selling overperforming investments and buying underperforming investments to maintain your desired asset allocation.
Investors should start by defining their financial goals and understanding their risk tolerance. Then, they should establish a strategic asset allocation (SAA) that reflects their desired risk profile.
For example, a moderate SAA might target a 90% allocation to stocks and add small investments in yield-enhancing floating rate bank loans and commercial real estate for diversification purposes. It may also include a 2% allocation to cash for liquidity purposes and the ability to take advantage of opportunities as they arise.
Investors should choose low-cost mutual funds or exchange-traded funds to build their portfolios. They should also consider incorporating real assets like precious metals and natural resources into their portfolios, as these investments have different return profiles from traditional financial assets such as stocks and bonds.
Read MoreUnderstanding Interest Rates How They Affect Your Loans and Investments
Interest rates are a key factor when it comes to your finances. They determine how much you pay on your mortgage, car and credit card debt as well as how much you earn on savings accounts.
When rates rise, it becomes more expensive for individuals to borrow money which can slow consumer spending. Meanwhile, higher rates encourage people to save by increasing the annual percentage yields (APYs) on their savings, checking and CD accounts.
How Interest Rates Affect Your Loans and Investments
Generally speaking, when interest rates rise it’s more expensive to borrow money (unless you have a 0% credit card or mortgage rate). This can impact your finances in various ways depending on the situation.
Typically, when the federal funds rate increases, it also elevates the discount rate that financial institutions use for short-term borrowing with one another, as well as mortgage loan and credit card annual percentage rates. Additionally, it influences savings account APYs and certificate of deposit rates.
Rising interest rates can dampen consumer demand and lower stock market prices in the long term, with stocks in the cyclical and industrial sectors falling the most as consumers spend less and pay more to finance their purchases. This can lead to slower economic growth and possibly a recession.
Interest Rates on Mortgages
Although the Federal Reserve doesn’t set mortgage rates, it does influence them. When the Fed raises its short-term interest rate, other rates follow suit, including the rate banks charge each other to borrow overnight (known as the Secured Overnight Finance Rate and the Constant Maturity Treasury).
In general, rising rates indicate a healthy economy with robust growth. Investors demand higher returns on investments when the economy is strong, so longer-term investments like bonds tend to rise.
When rates go up, prospective homebuyers have a harder time qualifying for mortgages. This can force them to buy a smaller house, search in another area or delay their purchase until prices and incomes stabilize. Rising rates also can crimp the spending power of those with mortgages, credit cards and other debt.
Interest Rates on Car Loans
As the Fed works to keep the economy running smoothly, it often increases its federal funds rate to protect against possible risks. This rate sets a benchmark for other borrowing rates like the prime rate that lenders use to calculate auto loan interest.
A car loan can be a large financial commitment. Those with good credit may qualify for lower interest rates. The length of the loan term and the amount borrowed can also affect your interest rate.
Higher interest rates can reduce demand for new vehicles and lead to lower resale values on used cars. This can cause borrowers to end up owing more on their loans than their vehicles are worth, a situation known as negative equity. The most important thing for consumers is to stay informed of current interest rates and what the future may hold.
Interest Rates on Credit Cards
Credit card interest rates are typically variable, meaning they can change based on market benchmarks and the factors that credit card issuers use to assess the risk of lending money to consumers. These include a borrower’s credit score, debt-to-income ratio and other information.
Most cards also offer a low, introductory rate that applies to balance transfers or purchases for a set period of time after the account is opened. This rate is usually lower than the regular APR and can be as low as 0%.
As a result, while the Fed may raise or lower rates for other loans and investments, the impact on credit card interest rates tends to be minimal unless you carry an outstanding balance. However, knowing how the central bank’s actions affect credit card interest rates can help you minimize any potential effects from future rate hikes.
Interest Rates on Investments
Figuring out interest can be complicated, but it’s important to understand how it affects your investments. Many banks and financial institutions offer mortgage, car loan and credit card interest calculators to help you get a better understanding of how your payments may change over time.
A real interest rate reflects the purchasing power of an investment or cost of borrowing after accounting for inflation. It can help you make more informed financial decisions when evaluating investment opportunities or planning for long-term goals like retirement.
Read MoreExploring Types of Loans
Taking out loans can be helpful for a number of expenses. However, it is important to use them responsibly so you don’t end up with unnecessary and expensive debt.
Personal, business and mortgage loans all have different terms, interest rates and qualifying criteria. But knowing your loan options can help you find the best one for you.
Personal Loans
There are many different types of personal loans available, each with its own APR range, loan amount and payoff timeline. Many lenders also offer multiple personal loan options, such as secured and unsecured, to meet unique borrower needs and budgets.
For example, a debt consolidation personal loan can help consumers pay off high-interest credit card balances and reduce their overall monthly payments by consolidating multiple bills into one. And a home improvement personal loan can help homeowners finish home renovation projects that can increase the value of their home and make energy-efficient upgrades.
When exploring personal loan options, look for a lender that considers your credit score, debt-to-income ratio and financial profile holistically when making approval decisions. This can improve your chances of getting a personal loan, even if you have lower than ideal credit. You can find lenders that do this, like OneMain Financial, online or at your local bank. This type of lending can be less stringent than traditional auto or mortgage loans and may provide an alternative option when your credit score doesn’t qualify you for other loan programs.
Business Loans
Many financial institutions offer business loans and lines of credit, from large commercial banks to local lenders and credit unions. These are typically designed for businesses that have been in operation for multiple years and have established a solid credit history. These financing options tend to come with lower interest rates than personal loans but may require a longer application process, Detweiler says.
Business loans are usually installment credit, in which borrowers receive a lump sum of money and pay it back in fixed payments over time. They are generally reserved for more established businesses and often have a specific purpose listed on the application, Detweiler notes.
Often, business loans are secured by collateral, such as equipment or property, which the lender can seize in the event of a default. Lenders also might request a detailed business plan and financial statements. Some lenders might also ask for a personal guarantee and require that a borrower have good or excellent credit to be approved.
Mortgages
Mortgages are one of the most common types of loans, and they come in a variety of flavors. For instance, some are government-backed or insured, while others feature more flexible loan terms and qualifying criteria. Other differences include whether the mortgage is for a primary residence, second home or investment property.
Debt consolidation loans are a good way to pay off high-interest credit card debt and make your monthly payments more manageable. They can be secured or unsecured, and they may have fixed or variable interest rates.
A personal line of credit is a revolving type of financing that gives you a set amount of money to borrow from time to time. You’ll receive a monthly bill with a credit limit, pay a minimum payment and pay interest based on the outstanding balance. Personal lines of credit can be open-ended or closed-ended, and some lenders offer a hybrid solution like a HELOC. Open-ended lines of credit can be tapped again and again, while closed-ended loans require you to apply and be approved for each draw.
Lines of Credit
A credit line offers a flexible way to borrow cash. It’s similar to a credit card, but it may offer a lower interest rate and has a higher credit limit. Like personal loans, some lines of credit require collateral, but others are unsecured.
A business credit line can be a useful financing option for entrepreneurs. You can draw on it as needed, but you’ll need to repay any money you withdraw each billing cycle. This helps keep your balance low and your credit score high.
A debt consolidation loan can help you pay off your outstanding balances in a single payment each month. You’ll have a single monthly payment instead of several, and you can save on interest charges by paying down your highest-interest debt first.
Read MoreA Guide to Small Business Loans – Finding the Right Financing Option
Business loans are one of many ways that small businesses finance their operations. Finding the right lender for your business can be a challenge, but understanding your options is essential.
Make sure your company has tax returns and financial statements prepared by a certified public accountant (CPA) before applying for financing. Lenders review these documents to assess your company’s profitability and financial stability.
1. Bank Loans
Bank loans are the most ideal debt-based financing option, offering competitive interest rates and long terms. However, they are difficult to obtain for newer businesses without established credit or solid business revenue and require a personal guarantee.
Those who can offer solid collateral and good credit may be able to qualify for business lines of credit, which are a revolving source of funding that works similar to a credit card, allowing the borrower to draw on a pool of money as they see fit (while paying only for what is used). Business line of credit offers more flexibility than traditional term loans, making it an excellent option for day-to-day expenses or as a “just in case” emergency fund.
If you’re looking for startup or small-business loans, there are many options out there, including nonprofit microlenders and online lenders. It’s important to compare loan offers, APR, terms, qualifying criteria and fees before deciding on the best business financing solution for your needs.
2. Lines of Credit
Unlike traditional term loans, which require a lump sum that you pay back over time with interest, business lines of credit let you borrow funds repeatedly until your balance is zero. These financing products are typically unsecured (they don’t require collateral like a mortgage or vehicle loan) with limits of $100,000 or more.
Lines of credit are most commonly offered by credit unions and small banks. They may also be available from lenders that focus on a particular type of business or industry. They have more flexible terms than payday or pawn loan options, including lower interest rates.
You’ll need to meet a lender’s requirements for eligibility, which may include providing a business plan and cash flow details. Some lenders allow you to link your bank accounts directly and qualify online, while others offer more in-person applications or phone consultations. You’ll have to make timely minimum payments and pay interest on what you borrow, just as you would with a credit card.
3. Equipment Financing
If you need a new backhoe, credit card processing software or six-speed blender for all those sales guys who do Crossfit after work and can’t function without their morning protein smoothies, there’s a business loan out there that can help you finance it. Just remember that any big investment should be part of a thorough capital budgeting exercise and that you may want to consider alternatives like invoice factoring, merchant cash advance or angel investing first.
With equipment financing, you present the lender with a quote for the equipment you want to purchase; they run through your business and personal financial profile to see if you qualify; and then front you up to 100% of the cost of the equipment in return for a lien on that specific piece of equipment as security for the debt, along with monthly payments and interest rates that vary by lender.
Qualifications for this type of financing can be strict and terms can be long, but you can find lenders online, with local banks, and through the Small Business Administration’s 7(A) loan program.
4. Crowdfunding
Crowdfunding is a way for small business owners to seek funds from a large group of people, rather than individual investors. There are many different types of crowdfunding, and each has its own benefits and risks. For example, equity-based crowdfunding involves selling shares of your business to investors, while debt-based crowdfunding requires you to pay back the money you raise.
In reward-based crowdfunding, business owners give backers a product or service in exchange for their contributions. Other forms of crowdfunding include donation-based, in which business owners ask for donations to cover startup costs or launch a project without incurring debt or offering shares or equity; and loan-based, in which businesses seek funding from individuals who are interested in lending their own money.
No matter which type of financing you choose, it’s important to research your options thoroughly. Xero’s guide to business loans and financing can help you find the right solution for your business. Click here to get started.
Read MoreThe Impact of Tax Reforms – What You Need to Know for the Coming Year
Tax changes affect growth by influencing incentives. For example, lowering marginal tax rates can increase the financial reward for work and savers.
Likewise, changing deductions can distort how investment capital is deployed. For example, some studies show that a long wait for a company to recover capital expenses reduces investment.
1. Inflation Adjustments
Inflation adjustments ensure that income tax brackets, exemption amounts, and deductions rise with inflation (as measured by the chained consumer price index). Without them, people would be pushed into higher tax brackets by rising income alone instead of by an increase in real prices.
The IRS makes these adjustments yearly before the start of the tax year. Whether they will be large or small depends on the pace of inflation over the coming year.
Tax reforms are designed to progressively raise enough revenue for public investment in the economy, while encouraging work and saving, eliminating barriers to inter-state migration, and enhancing global competitiveness of American companies. But they can also cause unintended consequences. These can include higher income inequality and greater compliance costs.
2. Tax Brackets
In addition to inflation adjustments, the IRS is increasing income limits for its seven tax brackets. These new levels could reduce the number of Americans paying taxes in a given bracket. But that number doesn’t necessarily indicate the percentage of their income they will owe in taxes. After all, earnings are taxed progressively and the actual percentage they pay depends on where they fall in the brackets, after deductions and credits are accounted for.
A more accurate measure of a person’s effective tax rate is their total tax liability divided by their gross income. Another potential reform is eliminating tax breaks that encourage immediate consumption, a policy that distorts economic decision-making. It takes people longer to pay their taxes because they have to save for them, which also reduces domestic investment opportunities.
3. Taxpayer Credits
Tax credits can have major impacts on individuals and families. These can cover large expenses such as mortgage interest and charitable contributions, as well as smaller items such as energy-saving adjustments or credit for post-secondary education tuition.
Standard economic theory suggests that these credits encourage labor force participation, as filers must work to qualify for the benefits. However, the elimination of refundable credits like the EITC may reduce this effect.
The tax cuts and other changes are expected to increase after-tax incomes by 1.1 percent on a conventional basis, with the bottom quintile seeing a larger increase in after-tax income than the top 1 percent. On a dynamic basis, adding in the effect of greater economic growth increases these numbers. Changing various aspects of the reform could achieve different distributional effects.
4. Deductions
Deductions are expenses that reduce a taxpayer’s gross income, which reduces the amount of taxes they pay. Taxpayers can choose to itemize deductions or take the standard deduction.
The TCJA limits the ability of companies to deduct interest payments, in part as a way of disincentivizing firms from investing in debt and toward equity. It also limits the deductibility of business investment costs and shifts tax treatment for foreign-sourced profits to prevent firms from shifting earnings offshore.
Changing the availability of deductions could affect decisions by households that itemize, particularly those with top statutory tax rates above 15 percent. For example, eliminating the deduction for mortgage interest and property taxes would reduce the cost of purchasing a home and reduce current homeowners’ wealth, potentially causing them to spend less on other goods and services.
5. Other Changes
Many of the changes made in 2022 will help taxpayers save money by preventing “bracket creep,” which would otherwise push inflation-adjusted incomes into higher tax brackets. In addition, these tweaks will help reduce the need for specialized accounting of corporate and pass-through business income taxes by replacing them with a distributed profits tax that requires only the same type of reporting that is already maintained in regular bookkeeping systems.
But these changes also raise revenue and decrease preferences that enable high earners to avoid taxes. Reducing top tax rates, removing preference for employer-provided health care and retirement savings, eliminating the deduction or interest on student loans and expanding the standard deduction could generate $3.5 trillion in new revenue over 10 years, as could lowering the corporate income tax rate and changing the international tax system.
Read MoreTax Planning Strategies for Real Estate Investors
Real estate investors can reduce their tax liabilities by maximizing deductions and conducting smart property purchases. Having thorough and accurate bookkeeping is essential for identifying and capturing deductions and credits.
One advanced strategy is to accelerate depreciation deductions through a cost segregation study. This can be done in a few years and may not suit all investments.
Depreciation
Depreciation strategies are an important tool for real estate investors, as they can help reduce taxable income and increase cash flow. However, it’s critical to consult with tax professionals before implementing any depreciation strategy.
For example, many real estate investors take advantage of Section 179 expensing and bonus depreciation, which can significantly reduce their tax liability. Similarly, many investors use the straight-line method of depreciation, which allows them to claim an equal amount of depreciation each year for the property’s useful life.
However, the tax savings from these deductions can be more significant if the investor uses a depreciation strategy such as cost segregation, which allows the investor to separate components of the property with shorter recovery periods. This can result in faster depreciation deductions and higher cash flow in the early years of ownership. Additionally, some real estate investors choose to invest in their properties through self-directed IRAs or retirement plans, which offer tax advantages and benefits.
Property Taxes
Real estate investments offer a host of tax benefits that can help reduce your overall tax liability. These include depreciation, the personal property exclusion, 1031 exchanges, and self-directed IRA investments. These strategies can save you money on taxes and increase your returns on investment.
To take advantage of these strategies, you should leverage modern real estate accounting software like Landlord Studio to keep accurate and up-to-date records. This will allow you to accurately report your rental expenses and reduce your taxable income at year-end.
Investors should also be aware that short-term capital gains are taxed at higher rates than long-term ones. Therefore, it is advisable to invest in properties that will appreciate over a longer period of time. This will enable you to reap the benefits of appreciation while keeping your tax liability low. Moreover, you can use other strategies to lower your effective tax rate such as using passive loss rules and maintaining accurate record-keeping.
Capital Gains
Real estate investors often face high capital gains taxes. However, there are several strategies that can help reduce these tax liabilities. These include waiting to sell a property for a long period of time (qualifying for long-term capital gains), leveraging depreciation deductions through cost segregation studies, choosing properties in opportunity zones, and itemizing expenses.
Another strategy that can minimize capital gains taxes is using an advanced tax technique called a 1031 exchange, which allows you to roll your real estate investment profits into a new property with a lower rate of tax. This is accomplished by following the rules of section 1031 of the IRS code.
Lastly, anyone who flips properties should make sure they are forming a strategy to avoid dealer classification, which triggers an extra 15.3% tax on the profit from each sale. To do so, they must demonstrate investment intent and show that each sale is part of a larger plan for future investments.
Interest
Real estate investors can minimize tax liabilities by utilizing a variety of strategies. These strategies include depreciation, using a 1031 exchange, and investing in a self-directed IRA or retirement plan to gain potential tax benefits.
Keeping detailed financial records helps to make tax time less stressful. It allows you to review deductions and credits that may be available and can also provide insight into future liabilities.
Real Estate Investors may be able to claim rental property expenses and use cost segregation studies to maximize tax savings. Additionally, renting properties to long-term tenants provides passive income and can create rental losses that reduce taxable profits.
It is important for real estate investors to consider capital gains taxes when selling properties. This can be mitigated by conducting a 1031 exchange and using the home exclusion to exclude some of the gains from taxable income. By understanding these tax-advantaged strategies, new and experienced investors alike can minimize tax liabilities.
Read MoreTax Credits and Deductions Maximizing Opportunities for Savings
Tax credits differ from deductions because they reduce actual taxes owed dollar for dollar. These tax breaks are a great opportunity for small businesses and individuals to lower their income tax bills or increase their refunds.
Deductions are “above the line,” meaning they reduce your taxable income before your tax bill is calculated. However, tax credits are subtracted from your tax liability after the calculation.
1. Home Mortgage Interest Deduction
Home mortgage interest deduction reduces the amount of taxable income by deducting the homeowner’s interest payments from their federal tax bill. This benefit increases household wealth, and higher homeownership translates into greater consumer spending that boosts the economy.
But the mortgage interest deduction is largely used by higher-income households, and it encourages homeowners to take out larger loans and keep their home equity high. Larger mortgage balances and high home equity increases the risk that households could be stuck with mortgage debt they cannot pay if house prices decline.
Rather than scaling back or reforming the mortgage interest deduction, converting it to a credit would provide more help than today’s deduction for lower- and middle-income households while trimming subsidies for higher-income households. This approach would also reduce the deficit without jeopardizing economic growth or housing market recovery.
2. Child Tax Credit
Raising children is expensive, and even families with low incomes can have expenses like food, utility bills, clothing and education costs. Tax credits can help cover these expenses and encourage saving.
The Child Tax Credit, which is partially refundable, helps most families with children. Its benefits are correlated with health outcomes including lower food insecurity, reduced income volatility and better health.
Families can claim the CTC if their Modified Adjusted Gross Income (MAGI) is less than $200,000 for single filers and $400,000 for married filers. To qualify, children must meet age, relationship and support tests as well as citizenship and residency requirements. If you’re receiving the credit, consider stashing it in a no-fee savings account such as Marcus by Goldman Sachs High Yield Online Savings, Synchrony Bank High Yield Savings or Varo Savings.
3. Education Credits
For those who have a child in college, there are two tax credits that help offset tuition and fees. These are known as the American Opportunity Credit and the Lifetime Learning Credit.
The credit differs from deductions because it reduces taxes dollar-for-dollar, while deductions only reduce the amount of income that is subject to tax. The value of a tax credit can also increase or decrease with the taxpayer’s marginal tax rate, which rises as income increases.
The key to getting the maximum benefit from these credits is careful planning and record-keeping. A qualified tax professional can provide guidance on these and other credits. In addition, the accumulated earnings of a 529 plan may be tax-free when distributions are used to pay education expenses, boosting the benefits further.
4. Energy Credits
A tax credit reduces a filer’s tax liability dollar-for-dollar, while a deduction lowers taxable income by deducting an amount from the gross income. Tax credits are more valuable than deductions, particularly for low- and middle-income households, according to the Urban-Brookings Tax Policy Center.
For example, the bill extends and enhances the nonbusiness energy property credit for up to 30% of the cost to install efficient windows, doors, skylights, water heaters and furnaces in homes, as well as an electric vehicle charging station credit. It also adds battery storage as a new credit for renewable solar installations.
It also expands the renewable electricity production credit to pay 2.6 cents per kilowatt-hour for power generated by wind, solar, geothermal, small wind, biomass, microgrid controllers and combined heat and power properties.
5. Other Credits
There are several other tax deductions that can be useful, including contributions to traditional individual retirement accounts and above-the-line deductions like property taxes, says Josh. Eligible taxpayers can claim these deductions whether they itemize or take the standard deduction. The benefit of these above-the-line deductions is that they lower a filer’s adjusted gross income, which may help save money on Medicare Part B and Part D premiums, as well as other tax-deductible expenses.
In terms of saving money, a credit is more valuable than a deduction, according to financial experts. That’s because credits reduce a filer’s tax liability dollar for dollar, while deductions’ value depends on a person’s marginal tax rate, which rises as income increases. Keeping track of eligible expenses throughout the year and minimizing taxable income are key for maximizing tax benefits.
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