How Do I Get the Best Interest Rate on a Loan?

Whether trying to consolidate debt with a personal loan or thinking about a loan to pay for a major life event, taking on debt is a financial move that warrants some consideration. It’s important to understand the financial commitment that taking on a personal loan — or any other debt — entails. This includes understanding interest rates you might qualify for, how a loan term affects the total interest charged, fees that might be charged by different lenders, and, finally, comparing offers you might receive.

Shopping around and comparing loans can increase your confidence that you’re getting the best interest rate on a loan.

What’s a Good Interest Rate on a Loan?

You may see advertisements for loan interest rates, but when you get around to checking your personal loan interest rate, what you’re offered may be different than rates you’ve seen. Why is that? A loan company may have interest rate ranges, but the lowest, most competitive rates may only be available to people who have excellent credit, as well as other factors.

When shopping around for a loan, it’s typical that when checking your rate, even with online personal loan companies, you can check your rate without affecting your credit score. This pre-qualification rate is just an estimate of the interest rate you would likely be offered if you were to apply for a loan, but it can give you a good estimate of what sort of rate you might be offered. You can compare rates to begin to filter potential companies to use to apply for a loan.

Recommended: Personal Loan Calculator

Getting a Favorable Interest Rate on a Loan

The potential interest rate on a loan depends on a few factors. These may include:

•   The amount of money borrowed.

•   The length of the loan.

•   The type of interest on your loan. Some loans may have variable interest (interest rates can fluctuate throughout the life of the loan) or a fixed interest rate. Typically, starting interest rates may be lower on a variable-rate loan.

•   Your credit score, which consists of several components.

•   Being a current customer of the company.

For example, your credit history, reflected in your credit score, can give a lender an idea of how much a risk you may be. Late payments, a high balance, or recently opened lines of credit or existing loans may make it seem like you could be a risky potential borrower.

If your credit score is not where you’d like it to be, it may make sense to take some time to focus on increasing your credit score. Some ways to do this are:

•   Analyzing your credit report and correcting any errors. If you haven’t checked your credit report, doing so before you apply for a loan is a good first step to making sure your credit information is correct. Then you’ll have a chance to correct any errors that may be bringing down your credit score.

•   Work on improving your credit score, if necessary. Making sure you pay bills on time and keeping your credit utilization ratio at a healthy level can help improve your credit score.

•   Minimize opening new accounts. Opening new accounts may temporarily decrease your credit score. If you’re planning to apply for a loan, it may be good to hold off on opening any new accounts for a few months leading up to your application.

•   Consider a cosigner or co-applicant for a loan. If you have someone close to you — a parent or a partner — with excellent credit, having a cosigner may make a loan application stronger. Keep in mind, though, that a cosigner will be responsible for the loan if the main borrower does not make payments.

Recommended: What is a Good APR?

Comparing Interest Rates on Personal Loans

When you compare loan options, it can be easy to focus exclusively on interest rates, choosing the company that may potentially offer you the lowest rate. But it can also be important to look at some other factors, including:

•   What are the fees? Some companies may charge fees such as origination fees or prepayment penalties. Before you commit to a loan, know what fees may be applicable so you won’t be surprised.

•   What sort of hardship terms do they have? Life happens, and it’s helpful to know if there are any alternative payment options if you were not able to make a payment during a month. It can be helpful to know in advance the steps one would take if they were experiencing financial hardship.

•   What is customer service like? If you have questions, how do you access the company?

•   Does your current bank offer “bundled” options? Current customers with active accounts may be offered lower personal loan interest rates than brand-new customers.

Recommended: Avoiding Loan Origination Fees

Choosing a Personal Loan For Your Financial Situation

Interest rates and terms aside, before you apply for a loan, it’s a good idea to understand how the loan will fit into your life and how you’ll budget for loan payments in the future. The best personal loan is one that feels like it can comfortably fit in your budget.

But it also may be a good idea to assess whether you need a personal loan, or whether there may be another financial option that fits your goals. For example:

•   Using a buy now, pay later service to cover the cost of a purchase. These services may offer 0% interest for a set amount of time.

•   Transferring high-interest credit card debt to a 0% or low-interest credit card, and making a plan to pay the balance before the end of the promotional rate.

•   Taking on a side hustle or decreasing monthly expenses to be able to cover the cost of a major purchase or renovation.

•   Researching other loan options, such as a home equity loan, depending on your needs.

Recommended: 39 Ways to Earn Passive Income Streams

The Takeaway

A loan is likely to play a big part in your financial life for months or years, so it’s important to take your time figuring out which loan option is right for you. And it’s also important to remember that interest rate is just one aspect of the loan. Paying attention to details like potential fees, hardship clauses, and other factors you may find in the small print may save you money and stress over time.

SoFi offers competitive unsecured personal loan options with fixed rates and no fees. Completing an easy online application will show what rate you qualify for — no commitment required and it won’t affect your credit score*.

Check your rate in just one minute.

Photo credit: iStock/Prostock-Studio


*Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

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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Source: sofi.com

These Healthcare Stocks Should Thrive in 2022

As the COVID-19 pandemic recedes, routine doctor and hospital visits, along with deferred medical procedures such as cataract surgery and heart valve replacements, are returning to normal.

The pandemic has been a global tragedy, but if there is one silver lining it is that the miraculous development of effective COVID-19 vaccines in less than a year is helping to usher in a golden age for the pharmaceutical and health sciences industries.

“We’re seeing a revolution today in vaccine development,” says Andy Acker, manager of Janus Henderson Global Life Sciences.

Before COVID arrived, the fastest vaccine approval had been four years, and the average was 10 years; with COVID, two vaccines were approved in about 10 months. Validation of the mRNA technology used by Pfizer (PFE) and Moderna (MRNA) in their vaccines means that it will now be adopted to treat other medical indications. (The mRNA vaccines teach our cells how to make a protein that triggers an immune response.)

In truth, the COVID-19 medical challenge and the dramatic success of the vaccines have only served to accelerate a powerful trend of innovation in medicine. For instance, the sharply declining cost of gene sequencing is pushing forward the growing field of precision medicine, which aims to tailor treatments to specific diseases, such as cancer.

“The science is exponentially improving for better outcomes,” says Neal Kaufman, manager of Baron Health Care fund.

Of course, the healthcare sector is also riding the (global) demographic wave of aging populations. At CVS Health drugstores, the number of prescription medicines purchased by people age 65 or older is three to four times that of 20- to 40-year-old people, says Jason Kritzer, co­manager of Eaton Vance Worldwide Health Sciences.

In rapidly developing countries with expanding middle classes, such as China, quality healthcare is likely to be one of the first things people rising out of poverty will spend money on.

With innovation and some of these secular trends in mind, we identified six intriguing healthcare stocks that literally span the alphabet, from letter A to letter Z. We particularly like companies that address large and growing end markets, especially global ones. We give extra points to businesses that have less exposure to pricing pressure from insurance com­panies or the government. Returns and other data are through Nov. 5.

healthcare stockshealthcare stocks

1 of 7

Align Technology

Share price: $687

Market cap: $54 billion

Price-earnings ratio: 50

Maker of the Invisalign brand of clear, plastic braces for teeth, Align Technology (symbol ALGN) is a disruptive force in the global teeth-correction market, rapidly gobbling market share from traditional wires and brackets. Jeff Mueller, comanager of Polen Global Growth, credits the “Zoom effect” for accelerating the adoption of the aesthetically pleasing aligners: Workers stuck at home during the pandemic were staring at their own teeth every day on Zoom. “Vanity is increasing around the world,” Mueller says, adding that, due to the rise of smartphones, the internet and social media, “more people are taking pictures of themselves than ever before in the history of mankind.”

A lot of technology is used in the Invisalign process. It employs intra-oral scanners and modeling software, plus mass-customization manufacturing using 3D printing at several plants around the globe (each set of teeth is unique, and individuals change their aligners every two weeks). Because braces are generally for cosmetic purposes, they are not subject to pricing pressure from insurance companies or the government.

Align Technology’s revenues are currently growing by 25% to 30% a year as its market penetration rises, and Mueller expects earnings to continue to compound at double digits for quite a while.

2 of 7

Merck

Share price: $82

Market cap: $206 billion

Price-earnings ratio: 11

Dividend yield: 3.2%

CFRA analyst Sel Hardy thinks that Merck’s (MRK) COVID-19 antiviral pill, molnupiravir, is “a game changer.” The drug maker has applied for emergency-authorization use from the government; approval was expected before the end of 2021. Merck projects that global sales of the oral medication, which has demonstrated strong efficacy against multiple variants of COVID, could be $5 billion to $7 billion by the end of 2022.

Apart from this breakthrough drug, Hardy likes the way Merck is positioned. Sales of Keytruda, its versatile oncology drug, topped $14 billion in 2020 and continue to grow; its animal health division is expanding; and the firm’s $12 billion acquisition of Acceleron Pharma, a biotech firm with strengths in blood and cardiovascular treatments, will augment Merck’s product pipeline.

Hardy thinks Merck, which yields 3.2%, can compound earnings by at least 10% a year for the next three years.

3 of 7

Novo Nordisk

Share price: $113

Market cap: $259 billion

Price-earnings ratio: 31

Dividend yield: 1.3%

Danish pharmaceutical company Novo Nordisk (NVO) focuses on two global pandemics: diabetes and obesity. The World Health Organization projects that the number of diabetics will expand from 460 million to 580 million by 2030, and it estimates that there are nearly 800 million obese people around the world. Novo pioneered insulin injections a century ago and has remained a global leader in diabetes care ever since. Multibillion-dollar drugs include Ozempic, a once-weekly prescription for adults with Type 2 diabetes to lower blood sugar, and NovoRapid, a fast-acting insulin treatment. Novo’s sales are evenly split between North America and the rest of the world.

Investors such as Samantha Pandolfi, comanager of Eaton Vance Worldwide Health Sciences, are also excited about rapid growth in Novo’s newer weight-management business. Wegovy, prescribed for obese people with another disease, such as diabetes, was approved by the FDA in June 2021. Tests show Wegovy typically delivers a weight loss of 15% to 17%, and Pandolfi says sales are off to a blazing start. The century-old firm plows an impressive 12% of sales back into research and development, which helps it stay ahead of the competition and generate earnings growth in the low double digits.

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Thermo Fisher Scientific

Share price: $617

Market cap: $243 billion

Price-earnings ratio: 29

Dividend yield: 0.2%

Eddie Yoon, manager of Fidelity Select Health Care Portfolio, calls Thermo Fisher Scientific (TMO) “the Walmart of life sciences.” Whether it’s a big pharma, biotech or university lab, customers come to this health sciences supermarket for analytical tools, lab equipment and services, and diagnostic kits and consumables. “They are the partner of choice for any pharma or biotech company of any size,” says Jeff Jonas, a portfolio manager at Gabelli Funds. Thermo has benefited from increased demand for its products and services due to COVID-19, and now the firm is poised to benefit from the rise in research and development spending among drug companies around the world.

One thing that distinguishes Thermo, according to health care stock analysts, is the quality of its management. The firm has successfully integrated several strategic acquisitions that helped broaden its menu of products and services. Tommy Sternberg, an analyst at William Blair, notes that Thermo is particularly adroit at staying close to customers and understanding what their scientists are working on. “They do a fantastic job of getting to know customers and their needs, and learning from customers to come up with more solutions more quickly,” says Sternberg.

5 of 7

UnitedHealth Group

Share price: $456

Market cap: $429 billion

Price-earnings ratio: 21

Dividend yield: 1.3%

The U.S. spends a staggering $4 trillion a year on health care. UnitedHealth (UNH)—with annual revenues of nearly $300 billion, a market value of $430 billion and 330,000 employees—is the industry’s largest player. As the top private health care insurance provider, it leads in managed care. Its OptumHealth unit offers pharmacy benefits and owns physician’s practices and surgical centers. Eaton Vance’s Kritzer calls Optum, an industry leader in the digitization of services, “a very large health IT company inside an insurance giant.” United helps the federal government manage costs through its Medicare Advantage plan (the most popular private plan). Plus, it enjoys high customer satisfaction, and it is counting a growing number of seniors as customers (about 10,000 Americans turn 65 every day). Despite United’s massive size, William Blair’s Sternberg thinks it can sustain earnings-per-share growth of about 15% annually.

6 of 7

Zoetis

Share price: $217

Market cap: $103 billion

Price-earnings ratio: 42

Dividend yield: 0.5%

Like Align Tech­nology’s Invisalign, Zoetis’s (ZTS) main business—companion-animal health—was already riding a tailwind that picked up force thanks to lifestyle changes during the pandemic. Pet-ownership rates spiked as people grew more isolated and sought the companionship of dogs and cats, according to David Kalis, comanager of The Future Fund Active ETF. Zoetis markets vaccines, prescription drugs and diagnostic equipment directly to veterinarians. The industry is regulated, with FDA approval required for the drugs, but Zoetis benefits from the lack of insurance company price pressures and the fragmented nature of the firm’s customer base, notes Eaton Vance’s Pandolfi.

In fact, companion-animal ownership is growing globally, driven by aging populations and shrinking family sizes. Pet owners are treating their pets better, addressing ailments such as skin irritation and arthritis, and visiting the vet more frequently, says Pandolfi. Zoetis books about half of sales overseas; roughly 60% of revenues come from the companion-animal business and 40% from the less-profitable and slower-growing livestock animal division.

7 of 7

Invest in a Fund

Given the complexity and diversity of the health care sector, investing in a fund makes a lot of sense for many investors. Here are our favorites (returns and other data are through November 5).

Baron Health Care (symbol BHCFX, expense ratio 1.10%) is a young fund off to a sizzling start. Over the past three years, it returned 29.2% annualized, or nearly twice the return of the S&P 1500 Health Care index. Manager Neal Kaufman and assistant manager Joshua Riegelhaupt look for innovative, fast-growing companies. The largest holding is Natera, a clinical genetic-testing outfit.

Fidelity Select Health Care (FSPHX, 0.69%) is a member of the Kiplinger 25, the list of our favorite no-load funds. The fund has a 19.8% three-year annualized return, ahead of the 17.0% average annual gain of its peers. Eddie Yoon, who has piloted the fund since 2008, says he’s light on large pharmaceutical companies in the portfolio, preferring makers of devices used to help manage chronic diseases such as diabetes and heart ailments. The fund’s top three holdings are UnitedHealth, Boston Scientific and Danaher.

Ziad Bakri, a former physician, runs T. Rowe Price Health Sciences (PRHSX, 0.76%), which has returned 21% annualized over the past three years. Nearly one-third of assets are invested in biotechnology, a high-risk, high-return segment of health care. Top positions include Thermo Fisher Scientific and Intuitive Surgical.

If you prefer investing through exchange-traded funds, Simplify Health Care (PINK, $26, 0.50%) is an intriguing, actively managed ETF that launched on October 7. Through November 5, just shy of one month, it returned 5.9%. Manager Michael Taylor, a virologist by training who spent 20 years investing in health care stocks at some prominent hedge funds, expresses his views by increasing or decreasing the fund’s weighting of stocks in relation to the MSCI US Health Care Index.

Source: kiplinger.com

Solo 401(k) vs SEP IRA: Key Differences and Considerations

Self-employment has its perks but an employer-sponsored retirement plan isn’t one of them. Opening a solo 401(k) or a Simplified Employee Pension Individual Retirement Account (SEP IRA) allows the self-employed to build wealth for retirement while enjoying some tax advantages.

A solo 401(k) or one-participant 401(k) is similar to a traditional 401(k), in terms of annual contribution limits and tax treatment. A SEP IRA, meanwhile, follows the same tax rules as traditional IRAs. SEP IRAs, however, allow a higher annual contribution limit than a regular IRA.

So, which is better for you? The answer can depend largely on whether your business has employees or operates as a sole proprietorship and which plan yields more benefits, in terms of contribution limits and tax breaks.

Weighing the features of a solo 401(k) vs. SEP IRA can make it easier to decide which one is more suited to your retirement savings needs.

Investing for Your Retirement When Self-Employed

An important part of planning for your retirement is understanding your long-term goals. Whether you choose to open a solo 401(k) or make SEP IRA contributions can depend on how much you need and want to save for retirement and what kind of tax advantages you hope to enjoy along the way.

Recommended: When Can I Retire? This Formula Will Help You Know

A solo 401(k) could allow you to save more for retirement on a tax-advantaged basis compared to a SEP IRA, but not everyone can contribute to one. It’s also important to consider whether you need to give some thought to retirement planning for employees.

If you’re hoping to mirror or replicate the traditional 401(k) plan experience, then you might lean toward a solo 401(k). Whether you can contribute to one of these plans depends on your business structure. Business owners with no employees or whose only employee is their spouse can use a solo 401(k).

Meanwhile, you can establish a SEP IRA for yourself as the owner of a business as well as your eligible employees, if you have any. It’s also helpful to think about what kind of investment options you might prefer. What you can invest in through a solo 401(k) plan may be different from what a SEP IRA offers, which can affect how you grow wealth for retirement.

Solo 401(k) vs SEP IRA Comparisons

Both solo 401(k) plans and SEP IRAs make it possible to save for retirement as a self-employed person or business owner when you don’t have access to an employer’s 401(k). You can set up either type of account if you operate as a sole proprietorship and have no employees. And both can offer a tax break if you’re able to deduct contributions each year.

In terms of differences, there are some things that set solo 401(k) plans apart from SEP IRAs. Under SEP IRA rules, for instance, neither employee nor catch-up contributions are allowed. There’s no Roth option with a SEP IRA, which you may have with a solo 401(k). Choosing a Roth solo 401(k) might appeal to you if you’d like to be able to make tax-free withdrawals in retirement.

You may also be able to take a loan from a solo 401(k) if the plan permits it. Solo 401(k) loans follow the same rules as traditional 401(k) loans. If you need to take money from a SEP IRA before age 59 ½, however, you may pay an early withdrawal penalty and owe income tax on the withdrawal.

Here’s a rundown of the main differences between a 401(k) vs. SEP IRA.

Solo 401(k) SEP IRA
Tax-Deductible Contributions Yes, for traditional solo 401(k) plans Yes
Employer Contributions Allowed Yes Yes
Employee Contributions Allowed Yes Yes
Withdrawals Taxed in Retirement Yes, for traditional solo 401(k) plans Yes
Roth Contributions Allowed Yes No
Catch-Up Contributions Allowed Yes No
Loans Allowed Yes No

What Is a Solo 401(k)?

A solo 401(k) or one-participant 401(k) plan is a traditional 401(k) that covers a business owner who has no employees or employs only their spouse. Simply, a Solo 401(k) allows you to save money for retirement from your self-employment or business income on a tax-advantaged basis.

These plans follow the same IRS rules and requirements as any other 401(k). There are specific solo 401(k) contribution limits to follow, along with rules regarding withdrawals and taxation. Regulations also govern when you can take a loan from a solo 401(k) plan.

A number of online brokerages now offer solo 401(k) plans for self-employed individuals, including those who freelance or perform gig work. You can open a retirement account online and start investing, no employer other than yourself needed.

If you use a solo 401(k) to save for retirement, you’ll also need to follow some reporting requirements. Generally, the IRS requires solo 401(k) plan owners to file a Form 5500-EZ if it has $250,000 or more in assets at the end of the year.

Solo 401(k) Contribution Limits

Just like other 401(k) plans, solo 401(k)s have annual contribution limits. You can make contributions as both an employee and an employer. Here’s how annual solo 401(k) contribution limits work for elective deferrals:

Solo 401(k) Contribution Limits by Age in 2021 (Elective Deferrals) Annual contribution in 2022
Annual Contribution Catch-Up Contribution in 2021 and 2022
Under 50 $19,500 N/a N/a
50 and Older $19,500 $6,500 $20,500

The limit on 401(k) contributions, including elective deferrals and employer nonelective contributions, is $58,000 for 2021 and $61,000 in 2022. That doesn’t include an additional $6,500 allowed for catch-up contributions if you’re 50 or older.

If you’re self-employed, the IRS requires you to make a special calculation to figure out the maximum amount of elective deferrals and employer nonelective contributions you can make for yourself. This calculation reflects on your earned income, or means your net earnings from self-employment after deducting one-half of your self-employment tax and contributions for yourself.

The IRS offers a rate table you can use to calculate your contributions. You can set up automatic deferrals to a solo 401(k), or make contributions at any point throughout the year.

What Is a SEP IRA?

A SEP IRA or Simplified Employee Pension Plan is another option to consider if you’re looking for retirement plans for those self-employed. This tax-advantaged plan is available to any size business, including sole proprietorships with no employees, and its one of the easiest retirement plan to set up and maintain. So if you’re a freelancer or a gig worker, you might consider using a SEP IRA to plan for retirement.

SEP IRAs work much like traditional IRAs, with regard to the tax treatment of withdrawals. They do, however, allow you to contribute more money toward retirement each year above the standard traditional IRA contribution limit. That means you could enjoy a bigger tax break when it’s time to deduct contributions.

If you have employees, you can make retirement plan contributions to a SEP IRA on their behalf. SEP IRA contribution limits are, for the most part, the same for both employers and employees. If you’re interested in a SEP, you can set up an IRA for yourself or for yourself and your employees through an online brokerage.

SEP IRA Contributions

SEP IRA contributions use pre-tax dollars. Amounts contributed are tax-deductible in the year you make them. All contributions are made by the employer only, which is something to remember if you have employees. Unlike a traditional 401(k) that allows elective deferrals, your employees wouldn’t be able to add money to their SEP IRA through paycheck deductions.

Here’s how SEP IRA contributions work.

SEP IRA Contributions by Age

Annual Contribution Catch-Up Contribution
Under 50 Lesser of 25% of the employee’s compensation or $58,000 in 2021 and $61,000 in 2022. N/a
50 and Older Lesser of 25% of the employee’s compensation or $58,000 and $61,000 in 2022. N/a

The IRS doesn’t allow catch-up contributions to a SEP IRA, a significant difference from solo 401(k) plans. So it’s possible you could potentially save more for retirement with a solo 401(k), depending on your age and earnings. If you’re self-employed, you’ll need to follow the same IRS rules for figuring your annual contributions that apply to solo 401(k) plans.

You can make SEP IRA contributions at any time until your taxes are due, in mid-April of the following year.

The Takeaway

Saving for retirement is something that you can’t afford to put off. Whether you choose a solo 401(k), SEP IRA or another savings plan, it’s important to take the first step toward growing wealth.

If you’re ready to start saving for the future, one way to get started is by opening a brokerage account on the SoFi Invest investment platform. All members get complimentary access to a financial advisor, which can help you create a plan to meet your long-term goals.

Photo credit: iStock/1001Love


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
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Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
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Source: sofi.com

Cost of Goods Sold Formula: A Step-by-Step Guide

Cost Of Goods Sold Definition
Cost of goods sold (COGS) is the cost of producing the goods sold by a company. It accounts for the cost of materials and labor directly related to that good and for a designated accounting period.

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As a company selling products, you need to know the costs of creating those products. That’s where the cost of goods sold (COGS) formula comes in. Beyond calculating the costs to produce a good, the COGS formula can also unveil profits for an accounting period, if price changes are necessary, or whether you need to cut down on production costs.

Whether you fancy yourself as a business owner or a consumer or both, understanding how to calculate cost of goods sold can help you feel more informed about the products you’re purchasing — or producing.

What Is Cost of Goods Sold?

Cost of goods sold is the cost of producing the goods sold by a company. It includes the cost of materials and labor directly related to that good. However, it excludes indirect expenses such as distribution and sales force costs.

What Is the Cost of Goods Sold Formula?

Four illustrations help explain the cost of goods sold formula, which accounts for beginning inventory, purchases, and ending inventory.

When selling a product, you need to understand the production costs associated with it in a given period, ​​which could be a month, quarter, or year. You can do that by using the cost of goods sold formula. It’s a straightforward calculation that accounts for the beginning and ending inventory, and purchases during the accounting period. Here is a simple breakdown of the cost of goods sold formula:

COGS = beginning inventory + purchases during the period – ending inventory

How Do You Calculate Cost of Goods Sold?

To calculate cost of goods sold, you have to determine your beginning inventory — meaning your merchandise, including raw materials and supplies, for instance — at the beginning of your accounting period. Then add in the new inventory purchased during that period and subtract the ending inventory — meaning the inventory leftover at the end for your accounting period. The extended COGS formula also accounts for returns, allowances, discounts, and freight charges, but we’re sticking to the basics in this explanation.

Taking it one step at a time can help you understand the COGS formula and find the true cost behind the goods being sold. Here is how you do it:

Step 1: Identify Direct and Indirect Costs

Whether you manufacture or resell products, the COGS formula allows you to deduct all of the costs associated with them. The first step is to differentiate the direct costs, which are included in the COGS calculation, from indirect costs, which are not.

Direct Costs

Direct costs are the costs tied to the production or purchase of a product. These costs can fluctuate depending on the production level. Here are some direct costs examples:

  • Direct labor
  • Direct materials
  • Manufacturing supplies
  • Fuel consumption
  • Power consumption
  • Production staff wages

Indirect Costs

Indirect costs go beyond costs tied to the production of a product. They include the costs involved in maintaining and running the company. There can be fixed indirect costs, such as rent, and fluctuating costs, such as electricity. Indirect costs are not included in the COGS calculation. Here are some examples:

  • Utilities
  • Marketing campaigns
  • Office supplies
  • Accounting and payroll services
  • Insurance costs
  • Employee benefits and perks

Step 2: Determine Beginning Inventory

Now it’s time to determine your beginning inventory. The beginning inventory will be the amount of inventory leftover from the previous time period, which could be a month, quarter, or year. Beginning inventory is your merchandise, including raw materials, supplies, and finished and unfinished products that were not sold in the previous period.

Keep in mind that your beginning inventory cost for that time period should be exactly the same as the ending inventory from the previous period.

Step 3: Tally Up Items Added to Your Inventory

After determining your beginning inventory, you also have to account for any inventory purchases throughout the period. It’s important to keep track of the cost of shipment and manufacturing for each product, which adds to the inventory costs during the period.

Step 4: Determine Ending Inventory

The ending inventory is the cost of merchandise leftover in the current period. It can be determined by taking a physical inventory of products or estimating that amount. The ending inventory costs can also be reduced if any inventory is damaged, obsolete, or worthless.

Step 5: Plug It Into the Cost of Goods Sold Equation

Now that you have all the information to calculate cost of goods sold, all there’s left to do is plug it into the COGS formula.

An Example of The Cost of Goods Sold Formula

Let’s say you want to calculate the cost of goods sold in a monthly period. After accounting for the direct costs, you find out that you have a beginning inventory amounting to $30,000. Throughout the month, you purchase an additional $5,000 worth of inventory. Finally, after taking inventory of the products you have at the end of the month, you find that there’s $2,000 worth of ending inventory.

Using the cost of goods sold equation, you can plug those numbers in as such and discover your cost of goods sold is $33,000:

COGS = beginning inventory + purchases during the period – ending inventory
COGS = $30,000 + $5,000 – $2,000
COGS = $33,000

Accounting for Cost of Goods Sold

There are different accounting methods used to record the level of inventory during an accounting period. The accounting method chosen can influence the value of the cost of goods sold. The three main methods of accounting for the cost of goods sold are FIFO, LIFO, and the average cost method.

Two illustrations help explain the difference between FIFO and LIFO, which is an inventory method of accounting for the cost of goods sold.

FIFO: First In, First Out

The first in, first out method, also known as FIFO, is when the earliest goods that were purchased are sold first. Since merchandise prices have a tendency of going up, by using the FIFO method, the company would be selling the least expensive item first. This translates into a lower COGS compared to the LIFO method. In this case, the net income will increase over time.

LIFO: Last In, First Out

The last in, first out method, also known as LIFO, is when the most recent goods added to the inventory are sold first. If there’s a rise in prices, a company using the LIFO method would be essentially selling the goods with the highest cost first. This leads to a higher COGS compared to the FIFO method. By using this method, the net income tends to decrease over time.

Average Cost Method

The average cost method is when a company uses the average price of all goods in stock to calculate the beginning and ending inventory costs. This means that there will be less of an impact in the COGS by higher costs when purchasing inventory.

Considerations for Cost of Goods Sold

When calculating cost of goods sold, there are a few other factors to consider.

COGS vs. Operating Expenses

Business owners are likely familiar with the term “operating expenses.” However, this shouldn’t be confused with the cost of goods sold. Although they are both company expenditures, operating expenses are not directly tied to the production of goods.

Operating expenses are indirect costs that keep a company up and running, and can include rent, equipment, insurance, salaries, marketing, and office supplies.

COGS and Inventory

The COGS calculation focuses on the inventory of your business. Inventory can be items purchased or made yourself, which is why manufacturing costs are only sometimes considered in the direct costs associated with your COGS.

Cost of Revenue vs. COGS

Another thing to consider when calculating COGS is that it’s not the same as cost of revenue. Cost of revenue takes into consideration some of the indirect costs associated with sales, such as marketing and distribution, while COGS does not take any indirect costs into consideration.

Exclusions From COGS Deduction

Since service companies do not have an inventory to sell and COGS accounts for the cost of inventory, they can’t use COGS because they don’t sell a product — they would instead calculate the cost of services. Examples of service companies are accounting firms, law offices, consultants, and real estate appraisers.

salary, business owners should have a well-rounded view of the costs associated with their goods sold. Following this step-by-step guide to learn how to use the cost of goods sold formula is a good starting point. As always, it’s important to consult an expert, such as an accountant, when doing these calculations to make sure everything is accounted for.

Sources: QuickBooks

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What Is a Blockchain Explorer? Guide to Block Explorers

A blockchain is a public ledger of transactions. Whenever someone sends Bitcoin or another cryptocurrency from one wallet to another, the transaction is recorded on the ledger.

But how does anyone view the transaction? The simplest way is by using something called a block explorer.

What Is a Block Explorer?

A cryptocurrency block explorer is an online blockchain browser that can show the details of all transactions that have ever happened on a blockchain network.

There are block explorers for Bitcoin and also for individual altcoins. Some block explorers can be used on multiple different networks, while others are only for one specific blockchain. A BTC block explorer, for example, would only be able to find information from the Bitcoin network, such as when someone is sending Bitcoin to another wallet.

A block explorer can be used to find any specific transaction or view the recent history of the chain more generally.

What Can You Do With a Blockchain Explorer?

A blockchain explorer allows users to view blockchain activity. Users might use block explorers to track the status of a pending transaction (technically referred to as exploring Mempool status, since the transaction has not yet been recorded in a block and added to the chain) or to view the balance of a wallet they hold without having to use the crypto wallet itself.

Beyond these types of tasks, block explorers can also be used to:

•   Examine the history of any wallet address, including all transactions sent to and from that address.

•   Explore change addresses, which are transaction outputs that return coins to the spender in an effort to prevent too much of the input value being spent on transaction fees.

•   View blocks that aren’t attached to the main blockchain and whose parent blockchain is unknown. These are called “orphaned blocks.”

•   Explore the largest transaction that was sent in the last 24 hours.

•   Explore the number of double-spend transactions happening in a blockchain.

•   Discover the individual or mining pool who mined a specific block.

•   Explore the genesis block, or the first block that was ever mined on a given chain.

•   See other information specific to a blockchain, such as average transaction fees, hash rate, mining difficulty, and other data.

There are also more advanced use cases for block explorers, but these are mostly utilized by companies that create sophisticated software to track criminal activity or try to predict cryptocurrency prices.

How Do Blockchain Explorers Work?

An explorer is basically a blockchain search engine. It can be used to search for just about any information pertaining to the state of a specific blockchain that someone might want to know. The details of every crypto wallet and all of its transactions and more can all be found using a blockchain explorer.

Before we get into the step-by-step of this process, there are a few key terms worth knowing.

•   Rational Database: Allows for the storage of data in a table in terms of how each piece of data is related to others. Rather than having one giant block table with all details for each block, entries can be organized according to their type and relation to similar entries, for example.

•   Structured Query Language (SQL): A protocol for searching a database, or giving a query. Software of this nature can create a table in a database, insert records into that table, search for a given term, then create a new table with relevant results and present them on a web page.

•   Application Programming Interface (API): A protocol that makes it possible for users to communicate with computers through software. APIs define the formatting details for responses that are sent and received by the software being used.

How a Blockchain Explorer Works, Step by Step

From a technical perspective, here’s what it looks like:

1.    Blockchain explorers use application programming interfaces (APIs), rational databases, and SQL databases alongside a blockchain node to retrieve information from a network.

2.    The software organizes this information into a database and displays things in a searchable format.

3.    The explorer can then be used to perform searches through an organized table in response to user demands through a simple user interface (think: search engine) that allows people to conduct searches.

4.    The explorer server creates a web page through which it can interact with users.

5.    An API also allows the explorer to interface with other computers.

6.    Search requests are sent to the backend server, which then responds to the user interface.

7.    Finally, the user interface and API sends web pages in HTML format to the user’s browser so the results can be read in a manner that is easy to understand.

Examples of Blockchain Explorers

What follows are some of the most popular blockchain explorers. There are different explorers for different types of cryptocurrency, though some explorers can be used to search multiple chains.

Blockchain.org

Blockchain.org, formerly known as Blockchain.com, is a popular Bitcoin block explorer. It allows users to search the Bitcoin blockchain by transaction, address, or block. Many Bitcoin users have probably used Blockchain.org at some point to monitor or record their Bitcoin transactions.

Blockchair

While most block explorers work on only one blockchain, Blockchair can be used to search multiple chains. This explorer allows for searches on the Ethereum, Bitcoin Cash, and Bitcoin blockchains. Users can look up words, mining difficulty, Mempool size, and nodes.

Tokenview

Tokenview also allows for searches to be conducted on multiple blockchains — more than 20 of them, in fact. This explorer is based in China and was launched in 2018.

Etherscan

Etherscan might be the most popular blockchain explorer for the Ethereum network. It allows users to conduct searches for ETH addresses, wallet balances, transactions, smart contracts, and more.

The Takeaway

A block explorer can be thought of as a search engine for a blockchain — allowing a user to find lots of different information about that blockchain.

To use a block explorer, you simply visit its website and enter the information you’re looking for. To look up a pending transaction currently stored in the Mempool, for example, you could enter the transaction hash ID provided by your wallet or exchange.

Or, those curious about blockchain technology could just use the block explorer to “explore” the blockchain in general and look at things like the largest transactions, the most recently mined block, or hash rate.

Looking to invest in cryptocurrency? With a SoFi Invest® brokerage account, investors can trade more than two dozen cryptocurrencies, including Chainlink, Bitcoin, Ethereum, Dogecoin, Solana, Bitcoin, Litecoin, Cardano, and Enjin Coin.

Find out how to get started with SoFi Invest.

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12 Best Monthly Dividend Stocks and Funds to Buy for 2022

For all the changes we’ve experienced in recent years, some things remain regrettably the same. We all have bills to pay, and those bills generally come monthly. Whether it’s your mortgage, your car payment or even your regular phone and utility bills, you’re generally expected to pay every month.

While we’re in our working years, that’s not necessarily a problem, as paychecks generally come every two weeks. And even for those in retirement, Social Security and (if you’re lucky enough to have one) pension payments also come on a regular monthly schedule. But unfortunately, it doesn’t work that way in our investment portfolios. 

That’s where monthly dividend stocks come into play.

Dividend-paying stocks generally pay quarterly, and most bonds pay semiannually, or twice per year. This has a way of making portfolio income lumpy, as dividend and interest payments often come in clusters.

Well, monthly dividend stocks can help smooth out that income stream and better align your inflows with your outflows.

“We’d never recommend buying a stock purely because it has a monthly dividend,” says Rachel Klinger, president of McCann Wealth Strategies, an investment adviser based in State College, Pennsylvania. “But monthly dividend stocks can be a nice addition to a portfolio and can add a little regularity to an investor’s income stream.”

Today, we’re going to look at 12 of the best monthly dividend stocks and funds to buy as we get ready to start 2022. You’ll see some similarities across the selections as monthly dividend stocks tend to be concentrated in a small handful of sectors such as real estate investment trusts (REITs), closed-end funds (CEFs) and business development companies (BDCs). These sectors tend to be more income-focused than growth-focused and sport yields that are vastly higher than the market average.

But in a market where the yield on the S&P 500 is currently 1.25%, that’s certainly welcome. 

The list isn’t particularly diversified, so it doesn’t make a complete portfolio. In other words, you don’t want to overload your portfolio with monthly dividend stocks. But they do allow exposure to a handful of niche sectors that add some income stability, so take a look and see if any of these monthly payers align with your investment style.

Data is as of Nov. 21. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Fund discount/premium to NAV and expense ratio provided by CEF Connect.

1 of 12

Realty Income

7-11 store7-11 store
  • Market value: $40.1 billion
  • Dividend yield: 4.2%

Perhaps no stock in history has been more associated with monthly dividends than conservative triple-net retail REIT Realty Income (O, $70.91). The company went so far as to trademark the “The Monthly Dividend Company” as its official nickname.

Realty Income is a stock, of course, and its share price can be just as volatile as any other stock. But it’s still as close to a bond as you’re going to get in the stock market. It has stable recurring rental cash flows from its empire of more than 7,000 properties spread across roughly 650 tenants.

Realty Income focuses on high-traffic retail properties that are generally recession-proof and, perhaps more importantly, “Amazon.com-proof.” Perhaps no business is completely free of risk of competition from Amazon.com (AMZN) and other e-commerce titans, but Realty Income comes close. 

Its largest tenants include 7-Eleven, Walgreens Boots Alliance (WBA), FedEx (FDX) and Home Depot (HD), among others. The portfolio had relatively high exposure to gyms and movie theaters, which made the pandemic painful. But as the world gets closer to normal with every passing day, Realty Income’s COVID-19 risk gets reduced that much more.

At current prices, Realty Income yields about 4.2%. While that’s not a monster yield, remember that the 10-year Treasury yields only 1.6%. 

It’s not the raw yield we’re looking for here, but rather income consistency and growth. As of this writing, Realty Income has made 616 consecutive monthly dividend payments and has raised its dividend for 96 consecutive quarters – making it a proud member of the S&P 500 Dividend Aristocrats. Since going public in 1994, Realty Income has grown its dividend at a compound annual growth rate of 4.5%, well ahead of inflation.

2 of 12

Stag Industrial

warehousewarehouse
  • Market value: $7.6 billion
  • Dividend yield: 3.4%

Realty Income was pretty darn close to “Amazon.com-proof.” But fellow monthly payer STAG Industrial (STAG, $42.77) proactively benefits from the rise of internet commerce.

STAG invests in logistics and light industrial properties. You know those gritty warehouse properties you might see near the airport with 18-wheelers constantly coming and going? That’s exactly the kind of property that STAG buys and holds.

It’s a foregone conclusion that e-commerce is growing by leaps and bounds, and STAG is positioned to profit from it. Approximately 40% of STAG’s portfolio handles e-commerce fulfillment or other activity, and Amazon.com is its largest tenant.

E-commerce spiked during the pandemic for obvious reasons. As stores have reopened, the effects of that spike have dissipated somewhat, but the trend here is clear. We’re making a larger percentage of our purchases online.

Yet there’s still plenty of room for growth. As crazy as this might sound, only about 15% of retail sales are made online, according to Statista. Furthermore, the logistical space is highly fragmented, and Stag’s management estimates the value of their market to be around $1 trillion. In other words, it’s unlikely STAG will be running out of opportunities any time soon.

STAG isn’t sexy. But it’s one of the best monthly dividend stocks to buy in 2022, with a long road of growth in front of it. And its 3.4% yield is competitive in this market.

3 of 12

Gladstone Commercial

industrial parkindustrial park
  • Market value: $838.2 million
  • Dividend yield: 6.7%

For another gritty industrial play, consider the shares of Gladstone Commercial (GOOD, $22.49). Gladstone Commercial, like STAG, has a large portfolio of logistical and light industrial properties. Approximately 48% of its rental revenues come from industrial properties with another 48% coming from office properties. The remaining 4% is split between retail properties, at 3%, and medical offices at 1%.

It’s a diversified portfolio that has had little difficulty navigating the crazy volatility of the past few years. As of Sept. 30, 2021, the REIT had a portfolio of 127 properties spread across 27 states and leased to 109 distinct tenants. In management’s own words, “We have grown our portfolio 18% per year in a consistent, disciplined manner since our IPO in 2003. Our occupancy stands at 97.7% and has never dipped below 95.0%.”

That’s not a bad run.

Gladstone Commercial has also been one of the most consistent monthly dividend stocks, paying one uninterrupted since January 2005. GOOD currently yields an attractive 6.7%.

4 of 12

EPR Properties

movie theater and tub of popcornmovie theater and tub of popcorn
  • Market value: $3.7 billion
  • Dividend yield: 6.1%

The COVID-19 pandemic was rough on a lot of landlords. But few were as uniquely battered as EPR Properties (EPR, $49.21). EPR owns a diverse and eclectic portfolio of movie theaters, amusement parks, ski parks, “eat and play” properties like Topgolf, and a host of others.

EPR specializes in experiences over things … which is just about the worst way to be positioned at a time when social distancing was the norm. Essentially every property EPR owned was closed for at least a time, and crowds still haven’t returned to pre-COVID levels across much of the portfolio.

But the key here is that the worst is long behind EPR Properties, and the more normal life becomes, the better the outlook for EPR’s tenants.

EPR was a consistent dividend payer and raiser pre-pandemic. But with its tenants facing an existential crisis, the REIT cut its dividend in 2020. With business conditions massively improving in 2021, EPR reinstated its monthly dividend in July, and the shares now yield an attractive 6.1%. If you believe in life after COVID, EPR is one of the best monthly dividend stocks to play it.

5 of 12

LTC Properties

senior living propertysenior living property
  • Market value: $1.3 billion
  • Dividend yield: 6.7%

For one final “traditional” REIT, consider the shares of LTC Properties (LTC, $34.24).

LTC faces some short-term headwinds due to the lingering effects of the pandemic, but its longer-term outlook is bright. LTC is a REIT with a portfolio roughly split equally between senior living properties and skilled nursing facilities.

Needless to say, COVID-19 was hard on this sector. Nursing homes were particularly susceptible to outbreaks, and nursing home residents were at particularly high risk given their age. 

Senior living properties are different in that the tenants are generally younger and live independently without medical care. But a lot of would-be tenants were reluctant to move out of their homes and into a more densely populated building during a raging pandemic. And many still are.

These lingering effects won’t disappear tomorrow. But ultimately, senior living facilities offer an attractive, active lifestyle for many seniors, and that hasn’t fundamentally changed. And home care might be a viable option for many seniors in need of skilled nursing. Ultimately there comes a point where there are few alternatives to the care of a nursing home.

Importantly, the longer-term demographic trends here are all but unstoppable. The peak of the Baby Boomer generation are in their early-to-mid-60s today, far too young to need long-term care. But over the course of the next two decades, demand will continue to build as more and more boomers age into the proper age bracket for these services.

At 6.7%, LTC is one of the higher-yielding monthly dividend stocks on this list.

6 of 12

AGNC Investment

couple going over financials with mortgage brokercouple going over financials with mortgage broker
  • Market value: $8.4 billion
  • Dividend yield: 9.0%

AGNC Investment (AGNC, $15.98) is a REIT, strictly speaking, but it’s very different from the likes of Realty Income, STAG or any of the others covered on this list of monthly dividend stocks. Rather than own properties, AGNC owns a portfolio of mortgage securities. This gives it the same tax benefits of a REIT – no federal income taxes so long as the company distributes at least 90% of its net income as dividends – but a very different return profile.

Mortgage REITs (mREITs) are designed to be income vehicles with capital gains not really much of a priority. As such, they tend to be monster yielders. Case in point: AGNC yields 9%.

Say “AGNC” out loud. It sounds a lot like “agency,” right?

There’s a reason for that. AGNC invests exclusively in agency mortgage-backed securities, meaning bonds and other securities issued by Fannie Mae, Freddie Mac, Ginnie Mae or the Federal Home Loan Banks. This makes it one of the safest plays in this space.

And here’s a nice kicker: AGNC almost always trades at a premium to book value, which makes sense. You and I lack the capacity to replicate what AGNC does in house and lack access to financing on the same terms. Those benefits have value, which show up in a premium share price. Yet today, AGNC trades at a 9% discount to book value. That’s a fantastic price for the stock in this space.

7 of 12

Dynex Capital

little house on chartlittle house on chart
  • Market value: $640.6 million
  • Dividend yield: 8.9%

Along the same lines, let’s take a look at Dynex Capital (DX, $17.47). Like AGNC, Dynex is a mortgage REIT, though its portfolio is a little more diverse. Approximately 85% of its portfolio is invested in agency residential mortgage-backed securities – bonds made out of the mortgages of ordinary Americans – but it also has exposure to commercial mortgage-backed securities and a small allocation to non-agency securities.

It’s important to remember that the mortgage REIT sector was eviscerated by the COVID-19 bear market. When the world first went under lockdown, it wasn’t immediately clear that millions of Americans would be able to continue paying their mortgages, which led investors to sell first and ask questions later. In the bloodbath that followed, many mortgage REITs took catastrophic losses and some failed altogether.

Dynex is one of the survivors. And frankly, any mortgage REIT that could survive the upheaval of 2020 is one that can likely survive the apocalypse. Your risk of ruin should be very modest here.

Dynex trades at a slight discount to book value and sports a juicy 8.9% yield. We could see some volatility in the space if the Fed ever gets around to raising rates, but for now this looks like one of the best monthly dividend stocks to buy if you’re looking to really pick up some yield.

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Broadmark Realty

real estate contract with keys and penreal estate contract with keys and pen
  • Market value: $1.3 billion
  • Dividend yield: 8.6%

Broadmark Realty (BRMK, $9.75) isn’t a “mortgage REIT,” per se, as it doesn’t own mortgages or mortgage-backed securities. But it does something awfully similar. Broadmark manages a portfolio of deed of trust loans for the purpose of funding development or investment in real estate.

This is a little different than AGNC or Dynex. These mortgage REITs primarily trade standardized mortgage-backed securities. Broadmark instead deals with the less-liquid world of construction loans.

Still, BRMK runs a conservative book. The weighted average loan-to-value of its portfolio is a very modest 60%. In other words, Broadmark would lend no more than $60,000 for a property valued at $100,000. This gives the company a wide margin of error in the event of a default by a borrower.

At current prices, Broadmark yields an attractive 8.6%. The company initiated its monthly dividend in late 2019 and sailed through the pandemic with no major issues.  

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Main Street Capital

person doing business on computerperson doing business on computer
  • Market value: $3.2 billion
  • Dividend yield: 5.5%

We know that the pandemic hit Main Street a lot harder than Wall Street. It is what it is.

But what about business development companies. This is where the proverbial Main Street means the proverbial Wall Street. BDCs provide debt and equity capital mostly to middle-market companies. These are entities that have gotten a little big to get financing from bank loans and retained earnings but aren’t quite big enough yet to warrant a stock or bond IPO. BDCs exist to bridge that gap.

The appropriately named Main Street Capital (MAIN, $46.61) is a best-in-class BDC based in Houston, Texas. The last two years were not particularly easy for Main Street’s portfolio companies, as many smaller firms were less able to navigate the lockdowns. But the company persevered, and its share price recently climbed above its pre-pandemic highs.

Main Street has a conservative monthly dividend model in that it pays a relatively modest monthly dividend, but then uses any excess earnings to issue special dividends twice per year. This keeps Main Street out of trouble and prevents it from suffering the embarrassment of a dividend cut in years where earnings might be temporarily depressed.

As far as monthly dividend stocks go, Main Street’s regular payout works out to a respectable 5.6%, and this does not include the special dividends.

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Prospect Capital

man signing contractman signing contract
  • Market value: $3.5 billion
  • Dividend yield: 8.0%

For another high-yielding, monthly-paying BDC, consider the shares of Prospect Capital (PSEC, $8.97).

Like most BDCs, Prospect Capital provides debt and equity financing to middle-market companies. The company has been publicly traded since 2004, so it’s proven to be a survivor in what has been a wildly volatile two decades.

Prospect Capital is objectively cheap, as it trades at just 89% of book value. Book value itself can be somewhat subjective, of course. But the 11% gives us a good degree of wiggle room. It’s safe to say the company, even under conservative assumptions, is selling for less than the value of its underlying portfolio. It also yields a very healthy 8.0%.

As a general rule, insider buying is a good sign. When the management team is using their own money to buy shares, that shows a commitment to the company and an alignment of interests. Well, over the course of the past two years, the management team bought more than 29 million PSEC shares combined. These weren’t stock options or executive stock grants. These are shares that the insiders bought themselves in their brokerage accounts.

That’s commitment.

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Ecofin Sustainable and Social Impact Term Fund

Ecofin logoEcofin logo
  • Assets under management: $269.7 million
  • Distribution Rate: 6.0%*
  • Discount/premium to NAV: -14.3%
  • Expense ratio: 2.28%**

There’s something to be said for orphan stocks. There are certain stocks or funds that simply don’t have a “normal” go-to buying clientele.

As a case in point, consider the Ecofin Sustainable and Social Impact Term Fund (TEAF, $15.00). This is a fund that straddles the divide between traditional energy infrastructure like pipelines and green energy projects like solar panels. It also invests in “social impact” sectors like education and senior living. Approximately 68% of the portfolio is dedicated to sustainable infrastructure with energy infrastructure and social impact investments making up 13% and 19%, respectively.

But this isn’t the only way the fund is eclectic. It’s also a unique mixture of public and private investments. 52% is invested in publicly traded stocks with the remaining 48% invested in private, non-traded companies.

Is it any wonder that Wall Street has no idea what to do with this thing?

This lack of obvious buying clientele helps to explain why the fund trades at a large discount to net asset value of 15%.

That’s okay. We can buy this orphan stock, enjoy its 6% yield, and wait for that discount to NAV to close. And close it will. The fund is scheduled to liquidate in about 10 years, meaning the assets will be sold off and cash will be distributed to investors. Buying and holding this position at a deep discount would seem like a no-brainer of a strategy. 

Learn more about TEAF at the Ecofin provider site.

* Distribution rate is an annualized reflection of the most recent payout and is a standard measure for CEFs. Distributions can be a combination of dividends, interest income, realized capital gains and return of capital.

** Includes 1.50% in management fees, 0.28% in other expenses and 0.50% in interest expenses.

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BlackRock Municipal 2030 Target Term

BlackRock logoBlackRock logo
  • Assets under management: $1.9 billion 
  • Distribution rate: 2.9%
  • Discount/premium to NAV: -4.6%
  • Expense ratio: 1.01%**

We’ll wrap this up with another term fund, the BlackRock Municipal 2030 Target Term Fund (BTT, $25.49).

As its name suggests, the fund is designed to be liquidated in 2030, roughly eight years from now. A lot can happen in eight years, of course. But buying a portfolio of safe municipal bonds trading at a more than 4% discount to book value would seem like a smart move.

The biggest selling point of muni bonds is, of course, the tax-free income. The bond interest isn’t subject to federal income taxes. And while city, state and local bonds aren’t “risk free” – only the U.S. government can make that claim – defaults and financial distress in this space is rare. So, you’re getting a safe, tax-free payout. That’s not too shabby.

As of Oct. 29, 2021, BTT’s portfolio was spread across 633 holdings with its largest holding accounting for about 3.4%.

BTT sports a dividend yield of 2.9%. That’s not “high yield” by any stretch of the imagination. But remember, the payout is tax free, and if you’re in the 37% tax bracket, your tax-equivalent yield is a much more palatable 4.6%.

Learn more about BTT at the BlackRock provider site.

** Includes 0.40% in management fees, 0.61% in interest and other expenses

Source: kiplinger.com

Food Delivery Advice from an Uber Eats Driver Who Made Bank

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The Salem, Oregon, resident made thousands of dollars in June 2020 delivering food for Uber Eats, an app for gig work that proved especially popular during the pandemic.
The very premise of Lyon’s challenge is a goal. It gave him something to focus on and the motivation he needed to make it through grueling 12-hour days.
What you earn from Uber Eats is heavily determined by your market — the city or metropolitan area you deliver in.
“Make sure you look approachable,” Lyon said.

Uber Eats Tips and Tricks From a Driver Who Made $8,357 in One Month

Of the hundreds of orders Lyon completed in June, he got some pretty weird requests from customers. One person asked if he could deliver a pack of cigarettes along with the food order. Lyon told the guy that he didn’t have the money on him to buy the cigarettes on his own, thinking it would end there.
Results may vary in your market. The key is to adapt to your locale. “My days were long,” he said. “I would do all that stuff to kind of break it up and have fun.”

1. Set Goals. Even Tiny Ones Help

Lyon vowed not to fall into that temptation. He carried only in cash, and that was strictly for gas. If he had downtime, he’d listen to podcasts or practice Spanish — while positioning himself for his next order.
Many factors went into his paycheck but none more than his sheer determination. He drove 12 hours — the maximum Uber Eats allows — for 30 days without a single day off.
“When you’re starting, accept every single order and then find your own trends in your own area,” he said.
Lyon drove primarily in Salem, Oregon. If you were to do the same challenge in a different city, you may make more or less than he did. A perfect example of this played out over TikTok. About halfway through June, another Uber Eats driver posed a challenge to Lyon: Who could make more money in a day?
A bigger city doesn’t always equate to better profits though, Lyon noted. Heavy traffic is likelier and could slow you down. You may have to pay to park to make the delivery.

Pro Tip
Some Uber Eats drivers pass on smaller orders in hopes to land larger ones. But that can backfire for inexperienced drivers. Lyon said he put that strategy to the test and found, on average, he was making an order no matter how selective he was being.

2. Take a Great Profile Pic

And to cut down on costs, his own food was homemade.
“I knew I needed to do at least 20 trips to get around that 0-a-day mark,” he said. “So that was always my goal. Anything after that was icing on the cake.”
When the paychecks from your side hustle start rolling in, it’s easy to think all that money is profit. However, quite a bit of it actually goes toward expenses and taxes. It’s one of the biggest pains of being a 1099 worker.
Before we get started, let’s be clear: What Lyon earned is not typical. Far from it.
Uber Eats gives drivers a referral code that they can share with other people to get them to start delivering, too. Once the new driver completes a certain amount of deliveries, the recruiter earns money. But the amount fluctuates depending on the market. Sometimes it’s 0 per 50 trips. Other times, it’s per 50 trips.

This is the main photo used for Sam Lyon's Uber Eats account.
For his Uber Eats profile, Lyon used a selfie taken in his car — then realized he couldn’t change the picture once it was uploaded. Photo courtesy of Sam Lyon

3. Manage Expectations Based on Your Market

Referral bonuses are “definitely not worth the time,” according to Lyon.
Sam Lyon pushed his earning potential in the gig economy to its limits.
And if you’re keeping track of expenses like gas and car depreciation, you can factor that into the amount you’re withholding for Uncle Sam. Lyon’s system was pretty simple. He had a fixed amount for gas, a day. That totaled 9. He had one oil change (), and also factored in his car’s depreciation (0) based on the miles he drove.
“If I was delivering to a suburb, my downtime would be spent driving the extra mile or two to be parked next to a McDonalds, an Applebees, a Red Robin.”
They both delivered food for 12 straight hours. The difference was that the other driver lived 45 miles north in Portland, Oregon. That turned out to be a crucial factor— the challenger made 3 to Lyon’s 8.
Privacy Policy
Downtime between orders trips up many new delivery drivers. You’re delivering food all day, after all. You might be tempted to go through the drive-thru for yourself. But idle spending can eat into your earnings.

Need a banking service that’s built for freelancers, helping you save for taxes and keep track of your expenses? Check out Lili. (It’s free!)

4. Learn From the Trends in Your Area

And that’s coming from someone who had hundreds of thousands of followers on TikTok.
“In pending invites, I would make ,320,” Lyon said as he read off of the stats in his driver profile. “In successful invites, I made “You know what? Why not? I’ll do it. I picked up the money and got him the cigarettes. When I got back, he paid me the change as well. And I made a quick [tip],” he said.
“You can stop by here. I’ll put the money downstairs and you can come grab it,” the customer responded.
“See what kind of restaurants you like and which ones you want to avoid, he said”
Lyon is a big proponent of the quantity-over-quality approach to accepting orders.
The first picture you choose is the one you’re stuck with. Uber policy allows drivers to change their picture only if something happens that alters their appearance since the original photo. In that situation, you’d have to contact customer support.
He challenged himself to make as much money as possible in that one month. To do so, he drove 12 hours a day for 30 days straight.

5. Occupy Your Downtime

Lyon went for it.
Source: thepennyhoarder.com
His specific challenge may not be replicable (or even advisable) in every circumstance. But if you’re a current or aspiring delivery-app gig worker, you can apply Lyon’s tips for Uber Eats drivers to maximize your own profits.
“Depending on what city you’re in, there are a lot of moped Uber drivers, there are a lot of bike Uber drivers. You can’t really compete [in a car] in those urban, downtown areas,” he said.
Adam Hardy is a former staff writer at The Penny Hoarder. 

6. Don’t Waste Time With Referral Bonuses

“Suburbs are just front porch and then you’re gone.”
In an interview with The Penny Hoarder, Lyon broke down his earnings and what he learned from his 30-day challenge. He also offered some Uber Eats driver tips that other gig workers can use.

“I think goal setting was huge for my success,” Lyon said. “Setting markers in what you want to achieve are extremely important.”
It breaks down like this: His total earnings were ,357. His expenses account for ,148, and he set aside an estimated 30% of the difference for taxes, about ,100. That brought his actual profits to roughly ,100.
“I would go home and spend 30 minutes to an hour preparing food and eating before going back on the road,” he said. “I did not have any fast food during that 30 days.”

A man checks his phone in his car.
Lyon encourages indulging customers’ odd requests, as it can lead to a big tip. Photo courtsey of Sam Lyon

7. Indulge Odd Requests. They Could Lead to Big Tips

Before you start your gig, have a professional or financial goal in mind. That can keep you on track — and keep you from burning out.
“I would definitely keep in mind you will have to pay those taxes later. It’s not automatically coming out of what you earned,” Lyon said. “Personally, I set aside 30% of what I make. That way, I have a little bit of wiggle room.”
“It started off as a beautiful day. The birds were chirping. The sun was shining,” Lyon said in a video. “The perfect day for two gladiators to enter the arena.”
When you’re making your Uber Eats driver profile, don’t blast through it thinking you can go back and change it later — especially the photo step.
Keep your side hustle in check. Here’s how to create an exit plan so that you can enter the gig economy, meet your goals and get out.
Setting aside 30% might seem steep, but it’s usually an overestimate. Lyon, like most taxpayers, would rather have a refund come tax time than a hefty tax bill.

8. Track Your Expenses

Ready to stop worrying about money?
In the end, Lyon made ,357 and documented his journey on the video-sharing site TikTok, where he goes by the moniker SabbiLyon. Each day, he recorded a short video to log his progress — amassing more than 200,000 followers and millions of views along the way. Lyon entertained just about every odd request he got. They usually led to big tips.
Once you get a sense of those trends, you can then experiment to try to maximize your pay.
In the time it would take him to land a big order, he says he could have been delivering three smaller orders.
After a week or so of driving, he was able to see how much money was possible to make given his parameters. So he aimed for a specific target: ,000 by the end of June.To reach that, he would try to make at least 20 deliveries a day. He didn’t worry much about the pay of each delivery because they ended up averaging about an order. <!–

–>




The app shows you potential earnings based on the amount you would have earned if all the people you invited completed their first 50 trips.

How to Talk to Your Children About Student Loans: 6 Key Points

Many parents lecture — er, talk to — their teenagers about being responsible. Don’t text and drive. Do try to spend that summer job money wisely. As children approach college, talking about student loans might be a smart idea.

For one, the topic is pretty complicated.

And second, even if you plan to help repay any student loans, most qualified education loans are taken out in the student’s name, and there’s usually no escape: Even bankruptcy rarely erases student loan debt.

Maybe your student-athlete or scholar is counting on a full ride. While confidence is a wonderful thing, full rides are exceedingly rare.

Here are six student loan concepts you can discuss with your aspiring college student.

1. Here’s What We Think We Can Contribute

It might be uncomfortable to talk frankly about your family finances, but they almost always determine the amount and types of financial aid your child may qualify for.

It can be important for parents to discuss what they’re able to contribute in order to help their young adults wrap their heads around the numbers, too.

2. Let’s Forge Ahead With the FAFSA

The first step to hunt for financial aid is to complete the FAFSA®, the Free Application for Federal Student Aid. It takes most people less than an hour. Students helping their parents fill it out will get a look at the expected family contribution: the family’s taxed and untaxed income, assets, and benefits.

Based on financial need, a college’s cost of attendance, and FAFSA information, schools put together a financial aid package that may be composed of scholarships and grants, federal student loans, and/or work-study.

Awards based on merit (scholarships) or need (grants) are free money. When they don’t cover the full cost of college, that’s where student loans can come in.

If your income is high, should you bother with the FAFSA? Sure, because there’s no income cutoff for federal student aid. And even if your student is not eligible for federal aid, most colleges and states use FAFSA information to award nonfederal aid.

About 400 colleges and scholarship programs use the CSS Profile, a financial aid application in addition to the FAFSA. It determines eligibility for institutional scholarships and grants.

3. Interest Rates: Fixed and Not

Your soon-to-be college student may not know that there are two types of interest rates: fixed and variable.

Fixed interest rates stay the same for the life of the loan. Variable rates go up or down based on market fluctuations.

You can explain that all federal student loans borrowed after July 2006 have fixed interest rates, which are set each year, and that private student loan interest rates may be variable or fixed.

4. Federal vs Private Student Loans

Around now your young person is restless. But press on.

Anyone taking out student loans should learn that there are two main types: federal and private. All federal student loans are funded by the federal government. Private student loans are funded by some banks, credit unions, and online lenders.

If your child is going to borrow money for college, it’s generally advised to start with federal student loans. Since federal student loans are issued by the government, they have benefits, including low fixed interest rates, forbearance and deferment eligibility, and income-based repayment options.

Private student loans have terms and conditions set by private lenders, and don’t offer the generous repayment options or loan forgiveness programs of federal loans, but some private lenders do offer specific deferment options.

Private student loans can be used to fill gaps in need, up to the cost of attendance, which includes tuition, books and supplies, room and board, transportation, and personal expenses. A student applicant often will need a cosigner.

5. Another Wrinkle: Subsidized vs Unsubsidized

Financial need will determine whether your undergraduate is eligible for federal Direct Subsidized Loans. Your child’s school determines the amount you can borrow, which can’t exceed your need.

The government pays the interest on Direct Subsidized Loans while your child is in college, during the grace period (the first six months after graduation or when dropping below half-time enrollment), and in deferment (postponing repayment).

With federal Direct Unsubsidized Loans, interest begins accruing when the funds are disbursed and continues during grace periods, and the borrower is responsible for paying it. Direct Unsubsidized Loans are available to both undergraduate and graduate students, and there is no requirement of financial need.

Borrowers are not required to pay the interest while in school, during grace periods, or during deferment (although they can choose to), but any accrued interest will be added to the principal balance when repayment begins.

There are annual and aggregate limits for subsidized and unsubsidized loans. Most dependent freshmen, for example, can borrow no more than $5,500.

6. Soothing Words: Scholarships and Grants

It’s important to not overlook the nonloan elements of the financial aid package. They can (hooray) reduce the amount your student needs to borrow.

Scholarships and grants are essentially free money.

While some schools automatically consider your student for scholarships based on merit or other qualifications, many scholarships and grants require applications.

You may want to assign a research project to your college-bound young adult to look into all of the scholarship options they may qualify for.

The Takeaway

Debt isn’t the most thrilling parent-child topic, but college students who will need to borrow should know the ins and outs of student loans: interest rates, federal vs. private, subsidized vs. unsubsidized, and repayment options.

If federal aid doesn’t cover all the bases of college, your student can consider a private student loan with SoFi.

SoFi Private Student Loans come with competitive rates, flexible repayment options, and no fees. A student can apply entirely online, with or without a cosigner.

See your interest rate in three minutes. No strings attached.


SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

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.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
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.
SOSL18140

Source: sofi.com

Biden Tax Plan Passed by House: How the Build Back Better Act Could Affect Your Tax Bill

President Biden’s “Build Back Better” social spending and tax bill is slowly working its way through Congress. It was just passed by the House of Representatives and is now on its way to the Senate. While there’s still plenty of political wrangling to come, and additional changes are expected in the Senate, we now have a better sense of where the Democrats are headed with this budget reconciliation bill. The president’s plan calls for sharp spending increases for a wide variety of social programs that would impact childcare, health care, higher education, climate change, and more. The package also contains a number of tax law changes that would boost taxes for some people and cut them for others.

How might these changes affect your future income tax bills if the Build Back Better Act ultimately becomes law? First, the proposed legislation calls for higher taxes and fewer tax breaks for the wealthy. That’s no surprise, because Biden and Congressional Democrats have said for months that they want to make the rich pay their “fair share” of taxes and use the additional revenue to strengthen the social safety net. The bill would also extend enhancements to certain tax credits for lower- and middle-income families. These enhancements were designed to help ordinary Americans pay for some of the day-to-day expenses they incur. There are also new or improved tax breaks for higher education costs, clean energy initiatives, and expenses paid by certain workers.

At this point, it’s impossible to say which (if any) of the proposed tax law changes will survive and be enacted into law. Additional tax provisions could be added later, too. Nothing is set in stone yet. However, smart taxpayers will get up-to-speed on the Build Back Better bill’s tax proposals now, so they’re prepared if/when they make it through the legislative process. To get you started, we’ve identified some of the most common ways the Build Back Better plan could either raise or lower your taxes. After all, what you know now could save you big bucks down the road.

1 of 14

Imposing a Surtax on Wealthy Americans

picture of young rich couple outside their homepicture of young rich couple outside their home

Negotiations over how to pay for the planned social spending provisions were contentious at times. There always seemed to be general agreement among the president and most Congressional Democrats that higher taxes on the wealthiest Americans should be part of the plan. But nailing down exactly how to tax them proved to be difficult. The Democrats bounced back and forth between a laundry list of proposals, including raising the top income tax rate, taxing capital gains at ordinary rates, eliminating stepped-up basis on inherited property, and a “billionaires tax” on the value of unsold assets.

The Build Back Better plan passed by the House settles on a “surtax” on millionaires and billionaires starting in 2022. The extra tax would equal 5% of modified adjusted gross income from $10 million to $25 million ($5 million to $12.5 million for married taxpayers filing a separate return). It would then jump to 8% for modified AGI above $25 million ($12.5 million for married taxpayers filing separately). Modified AGI would mean regular AGI reduced by any deduction allowed for investment interest.

2 of 14

Expanding the Surtax on Net Investment Income

picture of three stock traders looking at computer screenspicture of three stock traders looking at computer screens

In addition to the capital gains tax, wealthier Americans may also be hit with an additional 3.8% surtax on net investment income (NII includes, among other things, taxable interest, dividends, gains, passive rents, annuities, and royalties.) This surtax only applies if you’re a single or head-of-household filer with a modified AGI over $200,000, a joint filer with a modified AGI over $250,000, or a married person filing a separate return with a modified AGI over $125,000.

Starting in 2022, the Build Back Better Act would expand the surtax to cover net investment income derived in the ordinary course of a trade or business for single or head-of-household filer with a modified AGI over $400,000, a joint filer with a modified AGI over $500,000, or a married person filing a separate return with a modified AGI over $250,000.

The legislation also clarifies that the surtax doesn’t apply to wages on which Social Security and Medicare payroll taxes (i.e., FICA taxes) are already imposed.

3 of 14

Permanently Disallowing Excess Business Loss Deduction

picture of worried businessman looking at negative charts and graphspicture of worried businessman looking at negative charts and graphs

Another provision in the Build Back Better Act to limit business loss deductions would heap more taxes (mostly) on the rich. Under current law, non-corporate business owners can’t deduct losses exceeding $250,000 ($500,000 for joint filers) on Schedule C. Any excess losses can be treated as a net operating loss in later tax years, though.

This business loss limitation rule is currently set to expire in 2027. However, under the Build Back Better Act, the rule would be made permanent retroactively beginning with the 2021 tax year. In addition, the legislation would only allow excess losses to be treated as a deduction for the next tax year and repeal the limit on excess farm losses by farmers who received certain subsidies.

4 of 14

Denying Tax Break for Sale of Small Business Stock by Wealthy Taxpayers

picture of upset rich manpicture of upset rich man

President Biden’s proposal would also choke off a tax break for higher-income Americans who invest in small businesses. Currently, there’s no tax on any gain from the sale or exchange of certain small business stock if you acquired the stock after September 27, 2010, and held it for more than five years. (For qualifying stock acquired from February 18, 2009, to September 27, 2010, 75% of the gain is tax-free.)

The Build Back Better Act would deny wealthier investors this tax break. Under the bill, the exclusion from gross income generally wouldn’t be allowed for gains from the sale or exchange of qualified small business stock after September 13, 2021, if your modified AGI is $400,000 or more. There would be one exception, though. The new rule wouldn’t apply to any sale or exchange made pursuant to a written binding contract that was in effect on September 13, 2021, and not modified in any material respect after that date.

5 of 14

Curbing Mega-IRAs, Backdoor Roths and Other Retirement Savings for the Rich

picture of three eggs with IRA, Roth and 401k written on thempicture of three eggs with IRA, Roth and 401k written on them

If enacted, the Build Back Better package would curb a wealth person’s ability to stuff money in tax-advantage retirement savings accounts in a few ways. First, beginning in 2029, a new limit on IRA contributions would kick in if the total value of your IRA and defined contribution plans (e.g., 401(k), 403(b), and 457 plans) hits $10 million and your modified AGI exceeds:

  • $400,000 for single filers;
  • $425,000 for head-of-household filers; or
  • $450,000 for joint filers.

A new “required minimum distribution” (RMD) rule would be put in place for mega-IRAs and 401(k) plans starting in 2029, too. Under the proposal, a retirement plan distribution would be required if the combined total of your IRAs and defined contribution plans reached $10 million and your income exceeded the applicable threshold listed above ($400,000, $425,000, or $450,000). Generally, the distribution would equal 50% of the retirement savings over $10 million, but larger distributions could be required if savings surpass $20 million.

The Build Back Better plan would also restrict Roth conversions for wealthier Americans. First, beginning in 2022, it would put a stop to “backdoor” Roth IRA conversions. This popular tactic allows wealthier people avoid the Roth IRA contribution limits by making nondeductible contributions to a traditional IRA and then transferring those contributions to a Roth IRA later. However, under the proposed legislation, you won’t be able to convert after-tax contributions in an IRA or qualified retirement plan to a Roth account, regardless of your income. Then, starting in 2032, the proposed plan would eliminate all Roth conversions if your income exceeded the applicable threshold provided above ($400,000, $425,000, or $450,000).

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Modifying the SALT Deduction Cap

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Here’s a proposed change that goes against the grain – rolling back the state and local tax (SALT) deduction limit. It’s odd because the change would, for the most part, provide a tax cut for wealthy people.

The 2017 tax reform law placed a temporary $10,000 cap on the itemized deduction for state and local taxes until 2026. By limiting the deduction, the cap tends to increase taxes paid by wealthier people, who typically pay more state and local taxes and tend to itemize instead of claiming the standard deduction. Under the Build Back Better Act, the cap would be extended through 2031. It would also be increased from $10,000 to $80,000 for 2021 to 2030 (it would go back down to $10,000 for 2031).

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Extending the Earned Income Tax Credit Enhancements

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The Build Back Better plan doesn’t just focus on rich people. Jumping to the other end of the income spectrum, the enhancements made to the 2021 earned income tax credit (EITC) that benefit childless workers would be extended for one more year under the plan. The EITC is only available to low- to middle-income workers and families, and the enhancements that would stretch into 2022 were part of the American Rescue Plan, which was enacted in March 2021.

In a nutshell, the EITC improvements for workers with no qualifying children that would be extended to 2022 include:

  • Lowering the minimum age from 25 to 19 (except for certain full-time students);
  • Eliminating the maximum age limit (65), so older people without qualifying children can also claim the credit;
  • Increasing the maximum credit from $543 to $1,502 for the 2021 tax year (the maximum would be adjusted for inflation for the 2022 tax year); and
  • Expanding eligibility rules for former foster youth and homeless youth.

You would also be allowed to base your 2022 EITC on your 2021 income (instead of your 2022 income) if that would increase your credit amount. That’s similar to the rules applicable to the 2020 and 2021 EITC that permitted use of a person’s 2019 income to calculate the credit. This would help people who are laid off, furloughed, or otherwise experienced a loss of income in 2022.

8 of 14

Extending Child Tax Credit Enhancements and Monthly Payments

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President Biden also wants to extend enhancements to another popular tax credit for American families – the child tax credit. That would mean monthly advance payments in 2022, too. The credit would also be made fully refundable on a permanent basis. It’s fully refundable for 2021, but normally only up to $1,400-per-child is refundable, and you must have at least $2,500 of earned income. (With refundable credits, the IRS will send you a refund check if the credit is worth more than your income tax liability.) The president wants to repeal the requirement that each qualifying child have a Social Security number, too.

The American Rescue Plan pushed the amount of the child tax credit for the 2021 tax year from $2,000 to $3,000-per-child for most kids – and to $3,600 for children 5 years old and younger. Those higher credit amounts would continue through 2022 under the president’s plan. However, as with the 2021 credit, the extra $1,000 or $1,600 for 2022 would be phased-out for families with higher incomes. For people filing their tax return as a single person, the additional amount would be reduced if their AGI is above $75,000. The phase-out would start at $112,500 of AGI for head-of-household filers and $150,000 of AGI for married couples filing a joint return. The 2022 credit amount would be reduced further using the pre-2021 phase-out rules if AGI exceeds $400,000 on joint tax returns or $200,000 on single and head-of-household returns. Your 2021 AGI (rather than your 2022 income) would be used for phase-out rule purposes if you so elected.

Under the Biden plan, monthly child tax credit payments during 2022 would max out at $250-per-month for each child between six and 17 years of age, and $300-per-month for each child five years old or younger. However, unlike payments in 2021, monthly payments generally wouldn’t be sent to families in 2022 if their AGI exceeds $75,000 (single filers), $112,500 (head-of-household filers), or $150,000 (joint filers).

With regard to the “safe harbor” rules that let lower-income families keep any excess advance payments, the president’s plan calls for an exception if a child is taken into account for purposes of the advance payments through fraud or the intentional disregard of rules and regulations. The safe harbor amount would also increase from $2,000 to $3,000 ($3,600 for a child five years old or younger).

9 of 14

Extending Premium Tax Credit Enhancements

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The American Rescue Plan made temporary improvements to the premiums tax credit, too. This credit helps people pay premiums for health insurance purchased through an Obamacare exchange (e.g., HealthCare.gov). The current Build Back Better Act aims to extend the current enhancements from one to four years.

Provisions that are up for extension under the plan would:

  • Lower the percentage of annual income that eligible Americans must contribute toward their premium (extend through 2025);
  • Permit people with an income above 400% of the federal poverty line to claim the credit (extend through 2025); and
  • Disregard household income exceeding 150% of the federal poverty line for people receiving unemployment benefits (extend through 2022; income exceeding 133% of the federal poverty line is disregarded for the 2021 tax year).

There are new enhancements for the 2022 to 2025 tax years in the president’s plan, too. For instance, there are various provisions in the plan that would temporarily modifies certain eligibility rules and requirements to help lower-income people qualify for the credit. The president also wants to lower the threshold used to determine whether a taxpayer has access to affordable insurance through an employer-sponsored plan or a qualified small employer health reimbursement arrangement. Under Biden’s plan, an employee’s required contribution with respect to such a plan or arrangement couldn’t exceeds 8.5% of his or her household income from 2022 to 2025 (instead of 9.5%). Other provisions would exclude certain lump-sum Social Security benefit payments and the modified AGI of certain dependents 23 years old or younger from the calculation of household income.

In a related move, the Build Back Better plan would also make the health coverage tax credit permanent (the credit currently doesn’t apply after 2021). This credit is only available if you’re (1) eligible for Trade Adjustment Assistance allowances because of a qualifying job loss, or (2) between 55 and 64 years of age with a defined-benefit pension plans that was taken over by the Pension Benefit Guaranty Corporation. The Biden plan would also increase the amount of the credit from 72.5% to 80% of the amount paid for qualified health insurance coverage.

10 of 14

Adding Tax Breaks for Education

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College students would get a few additional tax breaks under President Biden’s plan. First, it would exclude federal Pell grants from gross income.

In addition, tuition and related expenses wouldn’t be reduced by the amount of any Pell grant for purposes of calculating the American Opportunity Credit or the Lifetime Learning Credit.

And, finally, students convicted of a state or felony drug offense would be allowed to claim the American Opportunity Credit. These changes would apply beginning in 2022.

11 of 14

Adding or Improving Tax Breaks for Clean Energy and Energy Efficiency

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One of the main goals of the president’s Build Back Better plan is to address climate change. This clearly shows up in the many tax provisions in the plan designed to encourage clean energy and energy efficiency. For instance, the credit for nonbusiness energy property added to your home would be extended through 2031 (it’s currently set to expire at the end of this year). In addition, the credit amount would jump from 10% to 30% of the cost of installing qualified energy efficiency improvements, the $500 lifetime cap would be replaced by a $1,200 annual credit limit, a $600-per-item limit would be placed on credits for qualified energy property, the credit would apply to the costs of home energy audits, and more.

The credit for residential energy efficiency property would also be extended under the current Build Back Better Act – this time through 2033 (it’s current set to expire after 2023).This credit applies to the cost of solar, wind, geothermal or fuel cell technology used to generate power in your home. The president’s plan would extend the credit to cover battery storage technology. The full 30% credit would also apply through the end of 2031, then the credit would drop to 26% in 2032 and 22% in 2033. It would also be made refundable beginning in 2024.

Other green energy or conservation tax proposals that would help individuals (as opposed to businesses) include:

  • Excluding water conservation, storm water management, and wastewater management subsidies provided by public utilities, state or local governments, or storm water management providers from gross income;
  • Creating a 30% tax credit for qualified wildfire mitigation expenditures;
  • Establishing a tax credit of up to $12,500 (but not more than the cost of the car) for the purchase of a new plug-in electric motor vehicle;
  • Creating a tax credit of up to $4,000 (but not more than the cost of the car) for the purchase of a used plug-in electric motor vehicle;
  • Extending the tax credit for the purchase of a qualified fuel cell motor vehicle through 2031, but only with respect to vehicles not subject to depreciation;
  • Reinstating the exclusion from gross income for bicycle commuting benefits (they are currently suspended until 2026), and increasing the maximum benefit from $20 to $81 per month (based on 2021 inflation adjusted amounts); and
  • Establishing a tax credit of up to $900 for the purchase of an electric bicycle.

12 of 14

Adding Deductions for Union Dues and Work Uniforms

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Workers would get two temporary above-the-line deductions if the Build Back Better Act is signed into law. The first would be for up to $250 of union dues. This deduction would be available from 2022 to 2025.

The second deduction would be for up to $250 uniforms or other work clothes that are required as a condition of employment and not suitable for everyday wear. This write-off would be available from 2022 to 2024.

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Subjecting Cryptocurrency and Other Assets to Wash Sale Rules

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People investing in commodities, currencies, and digital assets such as cryptocurrency would be subject to the “wash sale” rule if the Build Back Better Act becomes law. Currently, trading in those types of assets isn’t covered by the rule.

Basically, the rule states that you can’t deduct a loss from the sale or other disposition of stock or securities if you buy the same asset within 30 days before or after you sell it. Fortunately, though, if a deduction is denied because of the rule, the loss is added to the cost basis of the newly purchased stock. So, when you sell the new stock later, the tax on any gains will be lower.

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Extending Time for Same-Sex Couples to File Amended Tax Returns

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In 2013, the IRS began allowing same-sex couples who were legally married under state law to file joint tax returns. The tax agency also allowed same sex-couples to amend their tax returns to change their filing status to married filing jointly if they were married before 2013. However, they were generally only allowed to file amended returns going back to 2010.

Under the Build Back Better Act, same-sex couples who were lawfully married prior to 2010 would be able to change their filing status on pre-2010 returns if they were married during the tax year at issue. This would enable many couples, who were legally married as far back as 2004, to claim or increase credits, deductions, and other tax breaks that were not fully available to them on previous tax returns because they couldn’t file a joint return.

Source: kiplinger.com