Your Home Tax Deduction Checklist: Did You Get Them All?

Welcome to your home tax deduction checklist! For homeowners, this kind of guidance is essential in the wake of all the changes ushered in by the new tax plan, the Tax Cuts and Jobs Act, that are still rolling in.

The biggest change for 2020? The standard deduction jumped a couple of hundred dollars for taxpayers—to $12,400 for individuals, $18,650 for heads of household, and $24,800 for married couples filing jointly. And this higher number means you need to dig in to all of your home expenses to see if their total sum tops the standard deduction, depending on your filing status. (If the total doesn’t surpass it, then you’ll just take the standard deduction on your taxes when you file.)

To help, here’s a list of all the tax breaks for homeowners.

Mortgage interest

In the past, you could deduct the interest from up to $1 million in mortgage debt (or $500,000 if you filed singly).

“But for loans taken out from Dec. 15, 2017, onward, only the interest on the first $750,000 of mortgage debt is deductible,” says William L. Hughes, a certified public accountant in Stuart, FL.

Mortgages are structured so that you start off paying more interest than principal. For example, in the first year of a $300,000, 30-year loan at a fixed 4% interest rate, you’d be deducting $10,920. (To find out how much you paid—or will pay—in mortgage interest any year, punch your numbers into our online mortgage calculator.)

Note that taking this deduction under the new tax law does require itemizing deductions, but it may be worth the hassle, especially for new homeowners.

Mortgage points

If you bought a home and paid points, then you can still deduct those from your taxes. They must be “true,” or discount, points, not origination points. After all, points are essentially mortgage interest that you prepay, so it makes sense that they’d be treated like the rest of your mortgage interest. Each point is 1% of the loan amount, so if you paid 2 points on that $300,000 loan, you can deduct $6,000.


Watch: 5 Pet-Related Tax Deductions We Bet You Didn’t Know Of


Private mortgage insurance

For now at least, Congress has renewed this deduction.

If you can’t make a 20% down payment on your home, most lenders require that you pay private mortgage insurance, or PMI. The upside: It’s tax-deductible as long as your adjusted gross income is less than $100,000. (For each $1,000 you make after that, you can deduct 10% less of your PMI, up to $109,000.) PMI is generally between 0.3% and 1.5% of the loan amount annually, so on a $300,000 loan, you’d be deducting between and $900 and $4,500.

Home equity debt interest

Homeowners often take out a home equity loan or home equity line of credit in order to tap into some quick cash—for college, weddings, home improvements, or otherwise—using their home as collateral. And up until 2017, homeowners could deduct the interest on home equity debts up to $100,000 for married joint filers.

Now? “Home equity debt interest deductions have been eliminated,” says Eric Bronnenkant, a certified public accountant and financial planner, and head of tax at Betterment. That is, unless you spend the money on one thing only: home improvements.

So if you’re eager to renovate that kitchen, this deduction still stands. But if you have to foot the bill for your daughter’s wedding, the IRS will no longer pitch in, explains Amy Jucoski, a certified financial planner and national planning manager at Abbot Downing.

And unlike mortgage interest deductions, the new rules on home equity debt apply to all loans regardless of when they were taken. And to reap the benefit, your total debt—meaning your mortgage plus your home equity loan—can’t be more than the new $750,000 cap.

Property taxes

In the good ol’ days of 2017, your property taxes were fully tax-deductible.

This tax season, there’s a $10,000 cap on the combined amount of your property taxes, state and local income taxes, and (for states without income tax) deductible sales tax.

One bright side for landlords and those with vacation homes: “You can take deductions for all the properties you own, plus add your state income tax,” says Steven Weil, president of RMS Accounting, in Fort Lauderdale, FL.

Energy-efficient upgrades

Did you add solar panels or a solar-powered water heater last year? That means you can help yourself to a tax credit.

According to Bishop L. Toups, a taxation attorney in Venice, FL, qualifying solar electric panels and solar water heaters are good for a credit of 26% of the cost of the equipment and installation. For a $30,000 green investment, that’s a cool $7,800 back!

To qualify, the solar panels have to generate at least half of the energy used by the home, they have to be installed in your primary residence, and they can’t be used to heat a pool or hot tub. (Sorry!)

The credit will drop to 22% until the end of 2021 and then go away.

Home office deduction

The home office tax deduction disappeared for all W-2 employees who have an office elsewhere that they could use if they wanted to. The only people who can continue taking this deduction are those who truly run their own business from home, says Joshua Hanover, a senior manager at Marks Paneth.

Using the simplified home office deduction, self-employed people can take $5 for every square foot of office space, up to a maximum of 300 square feet. For a 200-square-foot home office, you’re looking at a nice $1,000 deduction. Just don’t try any funny stuff—it has to be a dedicated home office, used only for work. Here’s more on the home office tax deduction.

For more smart financial news and advice, head over to MarketWatch.


Own a Rental Property? Why Filing Your Taxes This Year Rules

My husband and I recently purchased our first rental property. Over the past few months, we’ve repaired and renovated the 1930s-era home, and are starting to look for tenants.

And it turns out, our timing couldn’t be better: The Tax Cuts and Jobs Act made several changes for rental property owners that portend a more profitable enterprise than it used to be.

“For rental property owners, [the act] will generally benefit you,” says Thomas Castelli, a New York City–based certified public accountant and tax strategist with the Real Estate CPA, a firm focusing on real estate tax.

How exactly the federal tax changes apply to individual property owners can vary, so Castelli recommends seeking out a tax professional well-versed in real estate to help sort things out. But here’s a general overview of some of the new tax rules that will most likely affect rental real estate owners—including me.

The rental house we purchased before the remodel
The rental house we purchased before the remodel

Erica Sweeney

The newly renovated rental, with a new roof, fresh paint, and an opened-up front porch
The newly renovated rental, with a new roof, fresh paint, and an opened-up front porch

Erica Sweeney

Landlords can deduct a big ‘bonus’ the first year

Blame it on wear and tear or just the passage of time, but in the eyes of the IRS, rental property depreciates over time. For landlords, that’s a tax break—typically one that’s spread out over several years.

The good news? During the first year of owning a rental property, landlords can take a “bonus” depreciation deduction. In the past, that deduction maxed out at 50% of the property’s value. But under the new tax act, that deduction doubled, to a max of 100%, which could amount to the entire sum you paid for the place. In other words, it’s a huge chunk of change!

This bonus deduction would be netted against revenue, which, in many cases, would make rental income show a loss, Castelli says.

“So you won’t be paying tax on your rental income,” he says. “I’d say that’s probably the biggest and most important change or most beneficial change to rental real estate investors.”

Keep in mind, though, that your property has to qualify. One, it must be placed in service (meaning available for rent) after Sep. 27, 2017, and before Jan. 1, 2023. Two, all or part of the property must have a “class life” of less than 20 years. Since most properties typically have a class life of 27.5 years, it would need to be reclassified as a five-, seven-, and 15-year property in order to take advantage of the bonus depreciation. (A CPA can help with this.)

“Let’s say you have a property worth $100,000, and you can get 20% of that reclassified as a five-, seven- and 15-year property,” Castelli says. “That’s a $20,000 deduction.”


Watch: 5 Pet-Related Tax Deductions We Bet You Didn’t Know Of


Up to 20% of rental revenue can be tax-free

While rental income is taxed, the tax act could offer landlords a nice tax shelter of sorts where up to 20% of that rental income is tax-free.

“What that means is for every $100 of taxable rental income, it’s possible that you only pay tax on $80 worth of it,” says Amanda Han, a certified public accountant and assistant managing director at Keystone CPA, in Fullerton, CA.

How it works: Section 199A of the IRS code provides some taxpayers with a deduction for qualified business income. In the past, there was much confusion about whether this applied to landlords, but the IRS issued a clarification, providing a safe harbor for a “rental real estate enterprise” to be treated as a business.

“That is helpful for a lot of landlords, and is available as long as it’s rental income,” Han says.

Landlords can deduct more home improvements immediately

In the past, landlords could deduct repairs to a rental property immediately, but home improvements were depreciated over time. This has often caused confusion for landlords.

“What is a repair versus what’s an improvement?” Han asks. “There were always questions about that, because repairs we deduct immediately; improvements we have to depreciate.”

Yet the tax act simplified those rules. Under section 179, the IRS increased the immediate deduction threshold for home improvements to $2,500 per item. In other words, money spent on improvements under $2,500 can be deducted immediately, rather than going through the complicated depreciation process.

One negative: Some landlord losses are now capped

One new aspect that could sting rental owners relates to losses on the property. A loss occurs when a property’s expenses total more than rental income. Previously, owners of rental real estate could take unlimited losses from their rental real estate. The tax act now limits those losses to $250,000 for a single person and $500,000 for married couples, Castelli says.

The upside: Since these limits are quite high, Castelli says this change will not affect most individual rental-property owners.

How to make the tax act work for you

The tax act has been better than expected for rental property owners, Han says. “It’s a great opportunity for real estate investors.”

Good record-keeping is essential for rental owners, and Han recommends property owners keep sales closing disclosures, purchase closing disclosures, refinancing documents, and receipts for anything to do with the home for at least three years.

For more smart financial news and advice, head over to MarketWatch.


7 Steps to Prepare for Tax Season

By midnight on April 15, taxpayers must e-file or mail their federal and, if applicable, state tax returns for the previous calendar tax year without penalty. Well before the deadline, have you hunted and gathered all your documents, looked for a tax pro or software, and learned about any new tax credits or deductions you might be eligible for?

You should have received a Form W-2 by Jan. 31 or, with any mail delay, soon thereafter. The same deadline applies to certain 1099-MISC forms for independent contractors. Each financial institution that paid you at least $10 of interest during the year must send you a copy of the 1099-INT by Jan. 31 as well.

Waiting until the last minute to prepare for tax filing is never advisable. If taxpayers work for one employer, their taxes may not be complicated, but if they have side gigs or they’re self-employed, tax returns can take a while to fill out.

7 Tax Prep Tips for 2021

Before taxpayers file, here are some tasks they need to do.

1. Decide on Hiring a Pro or DIY

Taxpayers can either prepare and file their taxes on their own or hire a professional. If they choose the latter, they can go to a tax preparation service like H&R Block or contact a local accountant or other tax pro.

The costs for a professional vary, and the more complicated a return is, the higher the costs will be.

The IRS has a tool where taxpayers can find a tax preparer near them with credentials or select qualifications.

If you’re going it alone, IRS Free File lets you prepare and file your federal income tax online for free. There are two options, based on income.

•  You can file on an IRS partner site if your adjusted gross income was $72,000 or less. This is a guided preparation, and the online service does all the math.
•  Those with income above $72,000 who know how to prepare paper forms and can do basic calculations can fill out and file electronic federal tax forms. (There is no state tax filing with this option.)

2. Collect Tax Documents

By the end of January, you should have received tax documents from employers, brokerage firms, and others you did business with. They include a W-2 for a salaried worker and 1099s for contract workers or freelancers.

Employers will send the documents in the mail or electronically.

Investors might receive these forms:

•  1099-B, which reports capital gains and losses
•  1099-DIV, which reports dividend income and capital gains distributions
•  1099-INT, which reports interest income
•  1099-R, which reports retirement account distributions

Other 1099 forms include:

•  1099-MISC, which reports payments in lieu of dividends
•  1099-Q, which reports distributions from education savings accounts and 529 accounts

If taxpayers won anything while gambling, they’ll need to fill out Form W-2G. If they paid at least $600 in mortgage interest during the year, they’ll receive Form 1098, whose information can be used to claim a mortgage interest tax deduction.

A list of income-related forms can be found on the IRS website.

Last year’s federal return, and, if applicable, state return could be good reminders of what was filed last year and the documents used.

3. Look Into Deductions and Credits

Take the standard deduction or itemize deductions? The higher figure is the winner.

The vast majority of Americans claim the standard deduction, the number subtracted from your income before you calculate the amount of tax you owe.

For tax year 2020, the standard deductions are:

•  $12,400 for a single filer
•  $24,800 for a married couple filing jointly
•  $12,400 for a married couple filing separately
•  $18,650 for a head of household

Individuals interested in itemizing tax deductions can look into whether they’re eligible for a long list of deductions like a home office (and, if eligible, whether to use the simplified option for computing the deduction), education deductions, health care deductions, and investment-related deductions.

The IRS notes that you may benefit from itemizing deductions if any of these apply:

•  Don’t qualify for the standard deduction.
•  Had large uninsured medical or dental expenses during the year.
•  Paid interest and taxes on your home.
•  Had large uninsured casualty or theft losses.
•  Made large contributions to qualified charities.
•  Have total itemized deductions that are more than the standard deduction to which you otherwise are entitled.

Then there are tax credits, a dollar-for-dollar reduction of the income tax you owe. So if you owe, say, $1,500 in federal taxes but are eligible for $1,500 in tax credits, your tax liability is zero.

There are family and dependent credits, health care credits, education credits, homeowner credits, and income and savings credits.

Taxpayers can see the entire tax credits and deductions list on the IRS website.

4. Make a Final Estimated Tax Payment

Taxpayers who do not have taxes withheld from their paychecks can pay estimated taxes every quarter to avoid owing a big chunk of change.

In 2020, the first two quarters of taxes were due on July 15. The third was due on Sept. 15, and the fourth was due on Jan. 15, 2021.

5. Apply for a Payment Plan If Needed

Another way to prepare for taxes is to apply for a payment plan with the IRS, if that seems necessary.

Just know that penalties and interest will accrue until you pay off the balance.

For the 2020 tax year the IRS issued revised COVID-related collection procedures . They include:

•  Taxpayers who qualify for a short-term payment plan may now have up to 180 days to resolve their tax liabilities instead of 120 days.
•  Qualified individual taxpayers who owe less than $250,000 may set up installment agreements without providing substantiation or a financial statement if their monthly payment proposal is sufficient.
•  The IRS is offering flexibility to some taxpayers who are temporarily unable to meet the payment terms of an accepted offer in compromise (settlement of a tax bill for less than the amount owed).
With a long-term payment plan, taxpayers may pay taxes for a period of more than 120 days with monthly payments.

In general, the payment plans are available to individuals who owe $50,000 or less in combined income tax, penalties, and interest or businesses that owe $25,000 or less, combined, that have filed all tax returns.

A short-term payment plan has a $0 setup fee online, by phone or mail, or in person.

A long-term payment plan has a $31 setup fee online, or $107 by phone, mail, or in person. (The setup fee is waived for low-income payers.)

Taxpayers can pay for the plans on the IRS’s website.

6. Decide Whether to File for an Extension

If you need more time to prepare your federal tax return, you can electronically request an extension until Oct. 15 to file a return.

To get the extension, you must estimate your tax liability and pay any amount due by April 15 to avoid penalties.

7. Look Into CARES Act Provisions

The CARES Act was passed in March 2020 to help Americans during the COVID-19 crisis. The act included the Federal Pandemic Unemployment Compensation program, which gave people who were collecting unemployment compensation an extra $600 per week through July.

At the end of 2020, the president signed a $900 billion coronavirus relief bill, which gave people earning unemployment an extra $300 per week for up to 11 weeks.

Unemployment assistance does count as income, which means the base amount and the enhancements of $600 and $300 are taxable.

Most government agencies were to provide a paper copy of Form 1099-G, reporting unemployment compensation, by Jan. 31 of the year after the year of payment.

Other programs under the CARES Act aimed to assist struggling business owners. They include the Paycheck Protection Program, the Employee Retention Credit, Economic Injury Disaster Loans, and Payroll Tax Postponement.

The PPP program gave employers the chance to borrow up to 2.5 times their average monthly payroll, or up to $10 million, to cover workers’ paychecks. A forgiven PPP loan is not taxable under federal law, and business owners can deduct qualifying expenses paid with the money from the forgiven PPP loan, according to the U.S. Small Business Administration.

With Economic Injury Disaster Loans, business owners could borrow up to $2 million or they could receive a cash advance, which would not need to be repaid, up to $10,000. Emergency EIDL advances aren’t included in income, and taxpayers can deduct business expenses they paid using the advance, Bloomberg Tax notes.

The Employee Retention Credit , which gave employers a tax credit for keeping workers on the job, could reduce expenses that business owners would otherwise pay on their federal return and is not counted as income, according to the IRS.

Special Distribution Provisions

Another CARES Act provision provides for special distribution options and rollover rules for retirement plans and IRAs and expands permissible loans from certain retirement plans.

The IRS lays out the rules in a piece titled “Coronavirus-related relief for retirement plans and IRAs, questions and answers.”

In general, an individual could take a distribution of up to $100,000 from employer retirement plans, such as section 401(k) and 403(b) plans, and IRAs without the typical 10% additional tax on early distributions (before age 59½).

The provision also increases the limit on the amount that a qualified individual can borrow from a retirement plan. An IRA does not count. It permits a plan sponsor to offer qualified individuals up to one additional year to repay their plan loans, too.

The criteria for qualified individuals can be found on the IRS’s website, but it basically says that individuals who had the coronavirus or had a spouse or dependent with the virus, or who experienced financial hardship because of coronavirus would be eligible.

The Takeaway

“Tax prep” isn’t a phrase signaling that big fun is on the way, but putting off the inevitable isn’t the best choice. Prepare for tax season as early as possible by gathering documents and information, choosing a preparer or getting ready to DIY, and learning about new tax credits and deductions.

Still have questions about preparing for taxes? SoFi’s Tax Help Center can answer tax questions as they apply to investing, stock options, loans, college, and retirement accounts.

You can also find out more about coronavirus tax relief, check your tax refund status, and make a tax payment from the hub.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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Tax Deductions on Home Equity Loans and HELOCs: What You Can (and Can’t) Write Off

Do you have a home equity loan or home equity line of credit (HELOC)? Homeowners often tap their home equity for some quick cash, using their property as collateral. But before doing so, you need to understand how this debt will be treated come tax season.

With the 2018 Tax Cuts and Jobs Act, the rules of home equity debt changed dramatically. Here’s what you need to know about home equity loan taxes when you file this year.

Acquisition debt vs. home equity debt: What’s the difference?

For starters, it’s important to understand “acquisition debt” versus “home equity debt.”

“Acquisition debt is a loan to buy, build, or improve a primary or second home, and is secured by the home,” says Amy Jucoski, a certified financial planner and national planning manager at Abbot Downing.

That phrase “buy, build, or improve” is key. Most original mortgages are acquisition debt, because you’re using the money to buy a house. But money used to build or renovate your home is also considered acquisition debt, since it will likely raise the value of your property.

Home equity debt, however, is something different.

“It’s if the proceeds are used for something other than buying, building, or substantially improving a home,” says Jucoski.

For instance, if you borrowed against your home to pay for college, a wedding, vacation, budding business, or anything else, then that counts as home equity debt.

This distinction is important to get straight, particularly since you might have a home equity loan or HELOC that’s not considered home equity debt, at least in the eyes of the IRS.

If your home equity loan or HELOC is used to go snorkeling in Cancun or open an art gallery, then that’s home equity debt. However, if you’re using your home equity loan or HELOC to overhaul your kitchen or add a half-bath to your house, then it’s acquisition debt.

And as of now, Uncle Sam is far kinder to acquisition debt than home equity debt used for non-property-related pursuits.

Interest on home equity debt is no longer tax-deductible

Under the old tax rules, you could deduct the interest on up to $100,000 of home equity debt, as long as your total mortgage debt was below $1 million. But now, it’s a whole different world.

“Home equity debt interest is no longer deductible,” says William L. Hughes, a certified public accountant in Stuart, FL. Even if you took out the loan before the new tax bill passed, you can no longer deduct any amount of interest on home equity debt.

This new tax rule applies to all home equity debts, as well as cash-out refinancing. That’s where you replace your main mortgage with a whole new one, but take out some of the money as cash.

For example, say you initially borrowed $300,000 to purchase a home, then over the course of time paid it down to $200,000. Then you decide to refinance your loan for $250,000 and take that extra $50,000 to help your kid pay for grad school. That $50,000 you took out to pay tuition is home equity debt—and that means the interest on it is not tax-deductible.

Limits on tax-deductible acquisition debt

Meanwhile, acquisition debt that’s used to buy, build, or improve a home remains deductible, but only up to a limit. Any new loan taken out from Dec. 15, 2017, onward—whether a mortgage, home equity loan, HELOC, or cash-out refinance—is subject to the new lower $750,000 limit for deducting mortgage interest.

So, even if your sole goal is to buy, build, or improve a property, there are limits to how much the IRS will pitch in.

When in doubt, be sure to consult an accountant to help you navigate the new tax rules.

For more smart financial news and advice, head over to MarketWatch.


What to Know Before Exercising Your Pre-IPO Stock Options

First of all, if you are reading this for personal financial reasons, then congratulations. As a recipient of employer stock options, you have the opportunity to own shares of your company. Stock options can be a powerful wealth-builder. If granted, chances are you have a windfall headed your way. Be sure to have a plan in place regarding the exercise of those options and subsequent sale of stock.

There are several considerations that should factor prominently in your decision-making process. These actions may have major tax implications and, if done improperly, could effectively reduce the amount of that windfall.

When formulating a plan to exercise your stock options, there are some important questions to ask: What exactly is your stock option? When can you move on that stock? What are the tax implications? What valuation does your company have?

Stock Options

Understanding what type of stock options you own is significant when considering your financial position and determining your next move. Stock options come in a few varieties. Incentive stock options (ISOs) are a company benefit that give an employee the right to buy shares at a discounted price, while delaying taxes due until those shares are sold. With non-qualified stock options (NSOs) taxes are due both when you exercise the option (purchase shares) and sell those shares.

Another common employee compensation package is restricted stock units (RSUs). RSUs give an employee interest in company stock but have no tangible value until vesting is complete. It is important to know which type of options you have, and the implications of each.

Timing the Sale of Your Stock

Be sure to understand the earliest date at which your stock can be sold as a long-term capital gain. This tax-advantaged rate applies to stock held more than one year. Additionally, two years must have passed since the option to buy those shares was granted. Remember, you may have a post-IPO lockup period during which you will not be able to sell stock. A lockup period is a window of time when company insiders are not allowed to redeem or sell shares of their company. Lockup periods can vary but typically span six months post-offering.

A common strategy is exercising options six months before the IPO, which starts your stock holding period. Assuming a six-month lockup, any stock you sell thereafter will be taxed as a long-term gain, as you have now held the stock for one year. This strategy gives you flexibility to exit your position at the lower capital gains rate and earliest calendar date possible if you have concerns about your company’s prospects or need liquidity. On the contrary, if you think the stock could soar, you can hold it. Regardless, the early exercise of options gives you, well, options.

Plan Ahead for Alternative Minimum Tax Issues

If you exercise ISOs be aware of the rules surrounding the Alternative Minimum Tax (AMT.) The AMT applies to taxpayers with high income by setting a limit on deductions and exclusions. It helps to ensure that certain taxpayers pay at least a minimum amount of tax.

If you are subject to the AMT, exercising ISOs may count against you in the year in which they are exercised, so take into account the probability that your company will be successfully brought to market. Early exercise could negatively affect your balance sheet if the IPO is delayed or canceled and you were planning to pay that AMT with proceeds from the sale of stock to the public. For example, COVID-19 surely threw a wrench in the gears of recent IPOs such as Airbnb and likely in the plans of many executives standing to profit from it.

On the other hand, if you pay AMT on exercised ISOs when company stock is low, you may not get hit with it again after selling the stock at a later date. If it soars after the IPO, then exercising and paying AMT early would have been a smart move.

Valuation: Get an Idea of What Shares Are Worth

In the public stock market, there is a published bid-ask spread for each security throughout the trading day, thus providing a means of valuation for a stock or option. In the private marketplace, the valuation of a company is less clear because it is calculated infrequently. While there are some “exchanges” for private shares, transactions occur infrequently, and the bid-ask spread is often wide. You could certainly estimate based upon the most recent funding round or Venture Capital firm valuation.

Additionally, many private company values are based on the most recent 409(a) valuation. A 409(a) is an independent appraisal of the fair market value (FMV) of a private company’s common stock. Long story short: You can’t make a decision to exercise an option without understanding what a share of stock is worth.

Hire a Pro

DIY projects frequently end up costing a homeowner more money than just hiring a pro in the first place. As you review your stock options, it’s important to consider all variables. Having a team of trusted advisers by your side who can properly evaluate your stock options, portfolio and goals can bring you confidence that you are making informed decisions.

A certified public accountant (CPA), a financial planner and estate attorney should be vital members of your decision-making team when navigating your ownership interests from private to public. A CPA can typically model your estimated tax liabilities given your unique circumstances. If your windfall is substantial enough, a financial planner and estate attorney will strive to ensure your wealth is preserved for yourself and future generations through proper planning. Be sure to hire the right person for the job — preferably someone who has dealt with the complex circumstances surrounding private stock, stock options and IPOs.

Every company is different, as is every IPO. It is important to read the fine print regarding your rights and requirements as the holder of options or stock in a private company before deciding what to do in the months before and after an IPO. If uncertain, be sure to consult professionals with experience in this area.

Content in this material is for general information only and not intended to provide specific advice, tax advice or recommendations for any individual. We suggest that you discuss your specific tax issues with a qualified tax adviser. Securities and advisory services offered through LPL Financial, a Registered Investment Adviser, Member FINRA/SIPC.


What is Financial Therapy?

Financial therapy is a relatively new field that combines the emotional support of a psychologist with the money mindset of a financial planner.

Seeing a financial therapist can allow clients to begin to process their underlying feelings about money, while working out plans for retirement, savings, investments and other goals.

Financial therapists (sometimes referred to as financial psychologists) also work to lessen that stress that often comes with money concerns, and try to help their clients develop a more sustainable and healthy relationship to money.

Financial therapists can also help couples overcome differences in their approach to saving and spending, which can help mitigate money fights, and enable them to work together more as a team.

Read on to learn if you might benefit from this type of professional counseling, and, if so, how to find a financial therapist that is the right fit for you.

How Financial Therapy Works

According to the Financial Therapy Association (FTA) , financial therapy is a process informed by both therapeutic and financial expertise that helps people think, feel, and behave differently with money to improve overall well-being.

The profession sprang out of increasing evidence that money can be intrinsically tied to our hopes, frustrations, and fears, and also have a significant impact on our mental health.

According to a recent survey by the American Psychological Association , 72 percent of Americans reported feeling stressed about money at least some time in the prior month.

Money can also have a major impact on our relationships.

Indeed, research has shown that fighting about money is one of the top causes of conflict among couples, and one of the main reasons married couples land in divorce court.

And, while it might seem like bad habits and money arguments are things you can simply resolve on your own, the reality is that it’s often not that simple.

Many financial roadblocks, such as chronic overspending or constantly worrying about money, often aren’t exclusively financial. In many cases, psychological, relational and behavioral issues are also at play.

Financial therapy can help patients recognize problematic behaviors, and how various relationships and experiences may have led them to develop those behaviors as coping mechanisms or to form unrealistic or unhealthy beliefs.

Along with offering practical financial advice, a financial therapist can reduce the feelings of shame, anxiety, and fear related to money.

The reasons why financial therapy can help are the same as why traditional psychological therapy can help: It can lead people to understand that they can do something to improve their situation. That, in turn, can instigate changes and healthier behaviors.

Like conventional therapy, the number of sessions needed will vary, depending on the situation. A financial therapy relationship can last from a few months to longer.

Generally, a financial therapist’s work is “done” when you feel your finances are orderly and you have the skills to keep them that way in the future.

Financial Therapists vs. Financial Advisors

Financial advisors are professionals who help manage your money.

They are typically well-informed about their clients’ specific situations and can help with any number of money-related tasks, such as managing investments, brokering the purchase of stocks and funds, or creating a tax plan.

However, psychological therapy is not a financial advisor’s area of expertise, and if a person requires real emotional support or needs help breaking bad money habits, a licensed mental health professional, such as a financial therapist, should likely be involved.

A certified financial therapist (someone trained by the FTA) can work with you specifically on the emotional aspects of your relationship with money and provide support that gets to the root of deeper issues.

Due to the interdisciplinary nature of financial therapy, professionals that enroll in FTA education and certification include: psychologists, marriage and family therapists, social workers, financial planners, accountants, counselors, coaches, students and academics.

Do You Need a Financial Therapist?

If you’re considering whether a financial therapist could help you, you may want to think about your general relationship to money.

If you feel you have anxiety about money, or unhealthy behaviors and feelings when it comes to spending, budgeting, saving, or investing, you might benefit from exploring financial therapy.

Some red flags that you might benefit from a financial therapist include:

•  Chronically paying bills late.
•  Holding unhealthy spending habits (such as gambling or compulsive shopping).
•  Overworking oneself to hoard money.
•  Completely avoiding financial issues that need to be addressed.
•  Hiding finances from a partner.

Often, unhealthy saving, spending, or working habits are a symptom of other bad habits related to mental or physical health.

Keep in mind that it’s possible to have an unhealthy relationship with money even if your finances are good on paper.

Finding a Financial Therapist

Like choosing any therapist, you often need to shop around a bit to find the right fit—someone you feel you can relate to, trust, and you also feel understands you.

For those who may not have access to a financial therapy professional in their backyard, many offer services via video conferencing.

You can start your search with the Find A Financial Therapist tool on the FTA website, which features members and lists their credentials and specialties.

Your accountant or financial counselor might also be a good source of referrals.

As with choosing any other financial expert or mental health professional, it’s a good idea to speak with a few potential candidates.

In your initial conversations with candidates, you may want to discuss the therapist’s training and expertise, as well as your needs and situation.

Financial therapists have a wide variety of backgrounds, so it is important for consumers to learn as much as they can about that individual’s practice, expertise, and ability.

You may even want to ask them how they define financial therapy themselves because approaches and definitions vary from one professional to another.

It can also be a good idea to ask how long they have been providing financial therapy services, what their fees are, as well as if some or all of the fee may be covered by your medical insurance.

The Takeaway

Financial therapy merges finance with emotional support to help people cope with financial stress, learn to make better financial decisions, and develop better money habits.

If you frequently feel stressed and/or overwhelmed when you think about money–or you simply avoid thinking about money as much as possible–you might be able to benefit from at least a few sessions of financial therapy.

While it might seem like hiring a financial therapist is another expense that could complicate an already difficult financial situation, it might be better to view it as investment in your emotional and financial wellness, one that could help you build financial stability and wealth in the future.

Another way to get–and stay–on top of your finances (that you do on your own) is to open a SoFi Money® cash management account.

SoFi Money can help simplify your financial life by allowing you to earn competitive interest, spend and save–all in one account.

And SoFi Money makes it easy to track your weekly spending and saving in your dashboard within the app.

Check out everything a SoFi Money cash management account has to offer today!

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