relay Archives | Page 19 of 35

Feb

2023

What Is a Good Salary to Live On in Florida for 2023?

By Kim Franke-Folstad | Financial Independence, Home Ownership, relay | Comments Off

A good salary — one that allows for necessities, fun, and savings — might start at $60,000 for a single, childless renter in Florida and $75,000 for a similar homeowner.

Why those figures? Using the 50/30/20 budget method, start with what MIT calls a living wage in Florida, which covers basic needs (50% of a salary). Add entertainment, vacations, restaurant meals, more shoes for the collection, and other “wants” (30%). Factor in 20% to be saved.

Even adding one child to a household greatly increases expenses (as if any parent needs to be reminded). A looser definition of a good salary for a working adult with a working partner and a child, based on the MIT Living Wage Calculator, could be $66,500 plus money for discretionary spending.

Of course, your actual cost of living will depend on the city, size of your household, and your spending needs and habits. Read on for a breakdown of what it may take to say you earn a good annual salary in Florida.

Recommended: Should I Sell My House Now or Wait?

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Is It Expensive to Live in Florida?

Florida was the fastest-growing state in the U.S. in 2022, the Census Bureau says, and it’s easy to see the draw.

It’s a state with no income tax, moderate property taxes, lots of sunshine, and plenty to do and explore. Corporate and sales taxes are lower than those of most other states.

Despite those perks, it isn’t the cheapest state to live in. Florida had the 32nd lowest cost of living in the U.S. in 2022, according to data gathered by the Missouri Economic Research Information Center (MERIC). That means 31 states had a lower cost of living, with Mississippi the cheapest place to live.

Some cities are as sizzling as the summers. If you’re Miami-bound and plan to rent or buy, for example, that’s when you’ll especially need to check your finances. Realtor.com recently called Miami-Dade the country’s least affordable place in which to live.

What Is the Average Annual Salary in Florida?

Whether a salary can be considered “good” or not in Florida can depend on several factors, including where you choose to live. Proximity to a big city or beach can draw residents who are willing and able to pay more. So can living in an area known for high-end amenities (like shopping, nightlife, and cultural attractions) and luxurious homes.

The median household income in 2021 among Floridians was about $62,000, according to FLHealthCharts.gov. That means, of course, that half of the state’s households bring in more than that, and half bring in less.

That figure compares with the median household income in upscale Collier County (which includes Naples and Marco Island) of $75,543. In Monroe County (Key West), it was $73,153. In Palm Beach County (Palm Beach, Wellington, Boca Raton), it was $68,874. And in St. Johns County (St. Augustine, Ponte Vedra), it was $88,794.

On the other hand, the median household incomes in landlocked and lesser-known Glades and Hendry counties in the south, and Hamilton County on the Georgia border, were $38,088, $38,843, and $39,346, respectively.

So what is a good salary in Florida, if you’re talking about one that goes beyond basic needs and allows for “wants” and savings?

A registered nurse pulls in an average base salary of over $79,000, according to Indeed. That’s a good income for a single person with no children in most parts of Florida as viewed through the 50/30/20 budget lens.

One Floridian with no children needs to net $30,856 to cover necessities like groceries, a modest rental, health care, and transportation, the MIT Living Wage Calculator shows. Doubling that provides room for discretionary spending (30%) and savings (20%).

Recommended: What Is Competitive Pay?

What Can Affect Affordability in Florida?

As you can imagine, one of the biggest factors affecting how far your salary will go in Florida is housing. Housing costs can vary widely, depending on where you decide to settle and on whether you buy a house or condo, but home and rent prices across the entire state have risen sharply over the past couple of years.

The cost of insurance coverage — homeowners, health, and auto — also is generally higher than in many other states. Many home and condo owners also must pay for federal flood insurance, whose cost is on the rise.

Still, owners of primary homes may get a property tax break with the homestead exemption, which decreases the property’s taxable value by as much as $50,000.

That doesn’t mean that everyone who lives in the Sunshine State is living large. The state’s median household income in 2021 (the Census Bureau’s most recent number) was just shy of $62,000 — while the median U.S. household income was closer to $72,000.

And although the state’s minimum wage recently increased from $10 to $11 an hour and will rise to $12 this year, Florida is one of the states impacted most by inflation, according to the U.S. Congress Joint Economic Committee.

Recommended: Does Net Worth Include Home Equity?

What Are Some Average Annual Expenses in Florida?

How should you expect to divvy up your income if you live in Florida? Here are some costs you may want to plug into a money tracker app:

Housing

Whether you rent or buy a home, a major portion of your paycheck will likely go toward putting a roof over your head (unless as a buyer you pay cash and your home becomes part of what is the biggest percentage of free and clear residences in the country).

A couple of Florida cities appear on this price-to-rent ratio list. The ratios can be useful when considering whether to rent, buy, or invest.

Also useful if you haven’t owned a principal residence in the past three years or you’re a veteran: first-time homebuyer programs in Florida.

If you’re buying …

Though Florida’s red-hot housing market was slowing as 2022 came to a close, prices were still up 5.8% compared with December 2021.

Here’s a look at median sale prices in cities across the state for that same period, according to Redfin.

Cocoa: $325,070

Daytona Beach: $230,000

Marco Island: $1 million

Miami: $515,000

Ocala: $231,250

Orlando: $350,000

Palm Beach: $2.3 million

Stuart: $412,300

Tampa: $375,000

If you’re renting …

Rents are all over the place in Florida, as you can see from the list below. Here are some recent median monthly rents for two-bedroom properties, according to Zillow.

Cocoa: $1,350

Daytona Beach: $1,500

Marco Island: $7,000

Miami: $4,000

Ocala: $1,395

Orlando: $1,850

Palm Beach: $12,500

Stuart: $2,200

Tampa: $2,000

Groceries

The Economic Policy Institute’s 2022 Family Budget Calculator ranked Florida 12th highest for food costs in the U.S.

Here are the monthly costs for some Florida counties, based on a family of four (two adults and two children in a household where most food is purchased at a grocery store and prepared at home), according to the nonprofit think tank.

Brevard County: $847

Collier County: $919

Hamilton County: $740

Hillsborough County: $849

Miami-Dade County: $902

Monroe County: $1,119

Palm Beach County: $924

Washington County: $717

Utilities

Florida ranks 15 in the U.S. for utility costs, according to 2022 data gathered by Statista. Of course, utility costs can vary depending on whether you rely on natural gas or solar, the size and age of your home, your appliances, etc. But here’s what Statista says are the average monthly utility costs in Florida.

Electricity: $124.50

Natural Gas: $62

Water: $45

Phone: $114

Broadband Internet: $60

Gasoline

According to GasBuddy’s interactive gas price map, Florida’s gas prices are about average compared with other states. But again, the cost can vary depending on where you live.

Here are GasBuddy numbers for some Florida counties at the start of 2023.

Brevard County: $3.196 per gallon

Hillsborough County: $3.231

Miami-Dade County: $3.345

Orange County: $3.219

Palm Beach County: $3.374

Sarasota County: $3.205

St. Johns County: $3.235

Walton County: $3.104

Recommended: How to Save Money on Gas

Child Care

The cost of child care can depend on how old your kids are and if you choose an at-home or classroom setting. According to CostofChildCare.org, the average cost per month in Florida is $989 per child for home-based family care, $1,364 for an infant classroom, $790 for a toddler classroom, and $702 for a preschool classroom.

Which City in Florida Has the Lowest Cost of Living?

According to NewHomeSource, the Florida city with the lowest overall cost of living is Titusville, followed by Winter Haven, Lauderdale Lakes, Daytona Beach, Sanford, Largo, Lakeland, Deltona, Jacksonville, and Pinellas Park.

A few of those, as well as more affluent cities, have a sizable retiree population. Yes, Florida is a senior magnet. (See: Winter Haven.) By 2030, the number of seniors in Florida is expected to top 6 million.

Recommended: Extra Income Sources for Retirees

How Much Money Do You Need to Live Comfortably in Florida?

“Comfort” is a subjective term in any context, and, of course, we all have different wants and needs when it comes to our lifestyle.

If you plan to spend more time outside doing things that are inexpensive or free, you may find it’s easier to embrace financial minimalism by living in the Sunshine State.

If, on the other hand, you long to reside in one of Florida’s bigger cities or near the beach, you may have to ask for a bigger salary than you’d need in a less expensive location. That’s especially true if you’ll be living on a single income.

Either way, it may be useful to consider your priorities and whether your income will cover those costs. Can you be happy without owning a boat or being a member of a golf club? Do you tend to live below your means or overspend? Are annual passes to Disney a must?

The Takeaway

Florida can be an expensive place, mostly because the cost of renting or owning a home has gone up so much. But with a good salary — by one definition at least $60,000 for a single, childless person — and a solid spending plan, you can enjoy the laid-back Florida lifestyle.

With SoFi, a free budget app, you can set up your budget, categorize your spending, and spot upcoming bills in one convenient place. You can also monitor your credit and investments, as well as your home value, and you’ll have access to tools that can help you make important financial decisions now and in the future.

Ready to make a big move? SoFi can help you get on track, and stay on track, no matter where life takes you.

FAQ

What is a livable salary in Florida?

MIT’s Living Wage Calculator says a livable salary for a single person in Florida with no children is about $36,000 before taxes.

What job in Florida pays the most?

Anesthesiologists, cardiologists, and radiologists are the highest earners in the state, according to the Bureau of Labor Statistics.

Can you live on $30,000 a year in Florida?

You may find it challenging, especially when it comes to finding a place to live. But if you share a home and other expenses, find affordable health care, and budget carefully, $30,000 a year could be enough to get by on in Florida.

Photo credit: iStock/Pgiam

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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.

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Feb

2023

How Long Does It Take for the IRS to Mail Tax Refund Checks?

By Laurel Tincher | Financial Independence, relay | Comments Off

If you’re expecting a refund from the IRS, you shouldn’t have to wait too long for your money. According to the IRS, it issues about 90% of refunds within three weeks of receiving your filing. Key to receiving your refund quickly are two actions on your part: using e-file and providing your bank info for direct deposit.

In fact, a directly deposited refund can show up in as little as five days.

This table shows the estimated times for receiving an IRS tax refund depending on how you file and choose to get your refund:

Estimated Federal Tax Refund Schedule
Filing Method and Receiving Method	E-File, Direct Deposit	Paper File, Direct Deposit	E-File, Check in Mail	Paper File, Check in Mail
Time between filing date and receiving refund	1-3 weeks	3 weeks	1 month	2 months

What Money Will Be Included In My Tax Refund This Year?

Of course, the size of your refund depends on how much you overpaid. But the average refund for individuals in 2022 was $3,039. That figure is slightly up from 2021, when the average tax refund was $2,827.

To get your refund faster, you may want to file earlier, rather than waiting until the last minute. Typically, the tax season, when the IRS starts accepting and processing returns, starts in late January — Jan. 23 in 2023.

Recommended: 2023 IRS Tax Refund Dates and Deadlines

Reasons for Your Tax Refund to be Delayed

People typically receive their tax refund two weeks after the IRS accepts their tax filing if they opt to receive a direct deposit, or in three weeks if they choose to get a check in the mail. But if you’re still waiting after that point and wondering, where is my tax refund?, here are a few possible reasons for the delay:

• If anything in your return is incomplete or incorrect, the IRS may need to give the return further review before sending you a refund check. In this case, you may get a notice from the IRS in the mail with instructions for fixing or completing your tax return. It may take up to four months for the IRS to process returns that require extra handling. The sooner you respond to the IRS request for information, the sooner your return will be processed.

• If you are claiming the Earned Income Tax Credit or Additional Child Tax Credit, there may be a delay in receiving your tax refund. The IRS is required to hold any tax returns for people claiming those two tax credits until mid-February. This hold will show up in the “Where’s My Refund” tool on the IRS site if it applies to you.

• Your bank or credit union may take more time to post a refund to your account. The time for posting IRS refunds varies from institution to institution.

How to Use the ‘Where’s my Refund’ Tool on the IRS Site

The IRS has a ‘Where’s My Refund’ tool on irs.gov where anyone can check and see the status of their tax refund. It can also be accessed using the IRS2Go mobile app. If you submit your tax return electronically, you can easily check on the status of your refund online within 24 hours of filing. If you mail your tax return, it will take about a month or longer for any information about refunds to show up on the IRS site.

In order to access your refund information on the IRS website, you will need to input your social security number, tax filing status, and the dollar amount that your expect to receive on the return. Double check your information before submitting it: If the wrong social security number is entered, this could result in an error, extra identity verification steps, and even a delay in receiving your tax refund.

What Do the IRS Tax Return Statuses Mean?

There are three different IRS tax return statuses that you will see when you use the Where’s My Refund tool. Here’s what they mean:

Received

Once the IRS has received a return, it is marked as received. You can check to see if your return has been received using the “Where’s My Refund” tool on the IRS site.

Approved

Once the IRS processes a tax return and there are no errors or missing information, it is marked as approved. At that point, the process of sending a refund by mail or direct deposit can begin.

Sent

When the IRS mails out a refund check or sends a direct deposit refund, the tax return status is marked as “sent.”

Once you receive your refund, this budget planner can help you track your money.

How to Contact the IRS About Your Tax Refund

It’s best to wait at least 21 days after filing your return electronically, and six weeks after mailing your return, to contact the IRS by phone. At that point, you can call the IRS refund hotline at 800-829-1954.

Recommended: 41 Things to Do With Your Tax Refund

The Takeaway

Knowing when you’ll receive your tax refund can be helpful if you’re planning to use the money to pay off debt, create a budget, or save for a big purchase. Filing your return electronically and opting to get your refund via direct deposit will allow you to get your return quickly, typically within three weeks.

For help managing your finances, including your refund, and tracking your spending and savings, turn to the SoFi Insights money tracker app. You can add all your existing banking and investment accounts to the app and easily see your financial information all in one place.

With SoFi Insights, you’ll always know where your finances stand.

FAQ

How quickly will I get my refund?

Most refunds are sent within three weeks of the IRS receiving a tax filing, but it can sometimes take longer, especially if you mail your return or opt to get your refund by check through the mail.

It’s been longer than 21 days since the IRS received my return and I haven’t gotten my refund. Why?

Sometimes the IRS needs to manually review tax returns if they are incomplete, have errors, or if fraud is suspected. Also, if a taxpayer claims certain tax credits, such as the Earned Income Credit or Additional Child Tax Credit, his or her return may take longer to process.

Will calling help me get my refund any faster?

Calling may help you track where your refund is, but it won’t necessarily help you get it faster. Wait at least 21 days after filing your return electronically, and six weeks after mailing your return to contact the IRS by phone. You can call the IRS refund hotline at 800-829-1954.

Photo credit: iStock/rez-art

Jan

2023

What Is a Good Salary to Live On in Texas for 2023?

By Kelly Boyer Sagert | Family Finances, Life & Career, relay | Comments Off

What’s considered a “good” salary in Texas depends on your household size and lifestyle, but most Texans make between $45K and $100K annually.

Texas cities have differing costs of living, of course — Austin is much pricier than Amarillo — so where you live in the Lone Star State also matters. Let’s break it down further.

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What Is a Good Salary for Texas?

A good salary, in many people’s minds, is one that allows an earner to save, take vacations, eat out, and so on. But before we can calculate that amount, we need to look at the average income required to cover basic needs in Texas.

Each year, MIT releases living wage figures — the income that one or two working adults, with or without children, must earn to pay for necessities. Living wage numbers are expressed as an hourly rate, and it’s assumed that the person will work full time.

Wages needed to cover basic needs are as follows:

Living Wage for 1 Adult
No children	$16.41
1 child	$31.63
2 children	$38.97
3 children	$51.02

Living Wage for 2 Adults, 1 Working
No children	$25.12
1 child	$30.64
2 children	$35.75
3 children	$39.24

2 Adults, Both Working
No children	$12.56
1 child	$17.44
2 children	$22.10
3 children	$25.96

If you multiply the hourly figure by 40 hours a week and 52 weeks, you’ll get the living wage as an annual salary. For an individual with no kids, that comes out to just over $34K.

That income would pay for rent and utilities, minimal food, healthcare, child care, and other basics. But it’s not enough to cover DoorDash deliveries, restaurant meals, a deluxe apartment, vacations, or savings for retirement or a house.

Average Annual Salary in Texas

So what is a good yearly salary in Texas? According to MIT, the top three professions in Texas pay around $100K, while the three lowest paying fields average out to $45K. Most Texans then make somewhere in the middle. However, statewide figures can’t tell you what constitutes a good salary in Austin, where the cost of living is much higher.

Another measure of what constitutes a good salary: one that allows you to purchase an average priced home. The average home price in the Woodlands, one of the most popular suburbs in the country, is $500K. A buyer would need to make over $100K to qualify for a mortgage. In the Panhandle or Dallas, however, home prices are considerably lower.

Recommended: Does Net Worth Include Home Equity?

Average Annual Expenses in Texas

When determining a living wage, MIT considers these expenses: food, child care, medical, rental housing, transportation, civic, and annual taxes (including individual income tax, payroll tax, corporate income tax, and excise tax, but not property tax). By the way, “civic” is a catchall category that includes cultural attractions, hobbies, and pets, while “other” groups together clothing and personal care items.

As noted above, one adult with no children requires a gross income of $34K on average. This is how that income might allocated:

• Food: $3,351

• Child Care: $0

• Medical: $2,549

• Housing: $10,823

• Transportation: $5,509

• Civic: $2,503

• Other: $4,508

• Taxes: $4,761

Supporting a family of two working adults and three children requires an income of about $108K, which breaks down as follows:

• Food: $11,999

• Child Care: $22,710

• Medical: $8,805

• Housing: $19,195

• Transportation: $16,304

• Civic: $5,153

• Other: $8,655

• Taxes: $15,067

To compare your spending to these figures, sign up for a free money tracker app.

How Much Money Do You Need to Live Comfortably in Texas?

Comfort is in the eye of the beholder. Some people want luxuries while others embrace financial minimalism. This is a “less is more” attitude to spending. People who follow this philosophy focus on purchases that will add meaning to their lives.

When determining the income you need to live comfortably, factor in where you fall on the minimalism to luxury spectrum. There’s no “bad” answer; it’s just important to be honest when budgeting. Also, what changes are you willing to make in order to save more? For instance, would you downsize your home?

Texans with a financial minimalist philosophy will be comfortable with less money than someone who strives for luxury. Minimalists often reap the benefits of living below their means, which can make room for having an emergency fund, spending in ways that are better for the planet, and stressing out less about finances.

If you’d like a more structured approach to saving and spending, the 50/30/20 budget can help. The three numbers represent the percentage of income that will be allocated to needs, wants, and savings, respectively.

Which City in Texas Has the Lowest Cost of Living?

Harlingen (pop. 72,00) has a cost of living that’s 24% lower than the national average, according to recent data from the Council for Community and Economic Research. Harlingen is in the Rio Grande Valley about 30 miles from the Gulf of Mexico. Its median home sale price was $250,000 in December 2022.

Recommended: Should I Sell My House Now or Wait?

The Takeaway

What is a good salary in Texas? It depends on your family size, location, and spending habits. Most individuals make between $45K and $100K. You’ll need an income on the higher end of that range if you’re living in Austin, with its high cost of living. In Harlingen, on the other hand, where the cost of living is 24% lower than the national average, you can get by on much less. With that in mind, a good salary in Texas is between $55K and $73K.

To live comfortably anywhere, it helps to track your spending and saving with SoFi Insights. The free budget app also provides credit score monitoring. Set your budget, categorize your spending, spot upcoming bills, and gain insights into your finances.

Stay on top of your money — where it comes from and where it goes — with SoFi Insights.

FAQ

What is a livable salary in Texas?

The answer depends on your spending habits, locale, and how many people live in your household. The living wage for a single worker with no children is $34K before taxes, which is just enough to cover necessities. Two working adults with two children need a gross income of $91,949, to cover basic needs

What is considered rich in Texas?

This will depend on the city where you live. In general, you’ll need to earn between $110,000 and $125,000 annually to be in the top 20% in Texas’ big cities, such as San Antonio, Houston, and Dallas.

What is the top 1% income in Texas?

You need to earn nearly $600,000 per year to be in the top 1% in Texas. This is similar to the national average.

Photo credit: iStock/gustavofrazao

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. (Must click on the link to be eligible.) This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the Rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed into SoFi accounts such as cash in SoFi Checking and Savings, SoFi credit cards or loan balances, and fractional shares subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Third-Party Brand Mentions: No brands, products, or companies 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.

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Jan

2023

What Are The Tax Benefits of an Limited Liability Company (LLC)?

What Are the Tax Benefits of a Limited Liability Company (LLC)?

By Kelly Boyer Sagert | Building Your Career, relay, Terminology | Comments Off

When people are starting a business, it’s likely that they’ll consider the tax benefits of different company structures. In some cases, founders may create a limited liability company (LLC) specifically for its tax benefits.

Here, we’ll delve into the tax benefits of LLCs for business owners, as well as other pros and cons.

What Is an LLC?

An LLC is a type of business structure available in the United States. A kind of hybrid, it combines some characteristics of corporations with others from a partnership or sole proprietorship.

According to the IRS, LLC owners are called “members.” Depending on the state in which you set up the LLC, members may be individual people, other LLCs, or corporations. There is no maximum number of members that a company can have, and most states allow LLCs with just one member. Check your state for specifics.

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Tax Benefits of Forming an LLC

As mentioned above, company founders may choose an LLC structure especially for its tax benefits. Here, we go into detail about what those benefits are.

Limited Liability

An LLC, as its full name implies, provides limited liability to its members. This means that, if the company fails, the owners’ and investors’ private assets are not at risk and can’t be seized to repay company debts.

Flexible Membership

As noted previously, an LLC can have one member or many, and those members can be individuals or companies. This business structure gives owners significant freedom when starting their company.

Management Structure Options

LLCs can be managed by a member (owner) or by a hired manager. A member-managed LLC may be chosen if the company has limited resources or few members. An owner may select a member with management experience to oversee the business, or they may want all members to actively participate in the company’s operations.

A hired manager is someone who is not a member but has the appropriate experience and skill sets to run the LLC. An accountant or financial advisor can go into detail about the tax benefits of member-manager vs. hired manager approaches. (Here’s what to know if you’re filing taxes for the first time.)

Pass-Through Taxation

LLC member-owners have some control over how their business will be taxed. If there is only one member, it will automatically be treated like a sole proprietorship, and if there is more than one, like a partnership. In those cases, business income will pass through the business to the member-owners, and they’ll only get taxed once. Members will report income and losses on their personal tax returns, while the LLC itself is not taxed. (Learn how business income differs from other types of income.)

Because income and losses are reported as part of members’ personal financial pictures at tax time, taxes will be owed at each member’s personal tax rate.

Alternatively, the LLC owners may decide to be taxed as a corporation. If they choose an S-Corp structure, pass-through taxation still applies.

Heightened Credibility

When someone opens an LLC, it shows that they’ve gone beyond just hanging a shingle. Instead, they went through the decision making and paper filing processes involved in setting up the LLC.

Limited Compliance Requirements

According to the U.S. Small Business Association (SBA), another form of business structure — the corporation — has the strictest requirements. In contrast, LLCs have some but fewer.

In general, an LLC should maintain a current operating agreement, hold annual meetings, ensure that they have appropriate shares recorded for each member, and keep records if membership interests transfer. (Find out if you can use a personal checking account for your business.)

Disadvantages of Creating an LLC

So far, the LLC sounds like the ideal low-maintenance company structure. However, there are several caveats to be aware of.

Cost

Forming an LLC can cost a few hundred dollars, which may be more than what a small business wants to spend. The company will also need to file annual reports along with annual fees and taxes. These taxes and fees may cost a miniscule amount or several hundred dollars annually.

No Stock Ownership

When a corporation wants to raise funds, they sometimes issue shares of stock. An LLC cannot issue stock.

Recommended: How to Start Investing in Stocks

Transferable Ownership

Some states may require that an LLC be dissolved if there is a change in ownership. If the people starting the business expect to take in outside investors over the years, a corporation might be a better choice.

How to Form an LLC

Once you’ve decided to start an LLC, you’ll want to choose and reserve a company name that doesn’t conflict with currently existing ones. Typically, an LLC must have what’s called a registered agent: someone who will handle official documents for the company.

Then, you’ll need to document the nuts and bolts of the operating agreement that describes the structure of the company. This can include who owns what portion of the company and who gets to vote on which issues. You’ll detail how profits and losses will be addressed, how the company will be managed, when meetings will be held, and how to handle the business if a member leaves the company or dies. This document should also describe what should happen if the company goes out of business.

Recommended: 2022 IRS Tax Refund Dates

How LLCs Are Different From Other Business Entities

An LLC is formed to be a legal entity that’s separate from its owners and is responsible for its business debts. Here’s how an LLC differs from other company structures.

LLC vs Sole Proprietorship

Profits in an LLC are only taxed once because of the pass-through taxation structure. This is reported on and addressed through owners’ personal tax returns by filing a Form 1040, Schedule C, listing profits or losses. As an LLC owner, you may be taxed as a sole proprietor, a partnership, or a corporation.

A sole proprietorship is owned by one person and is the simplest structure available. A sole proprietorship also involves pass-through taxation with the business owner paying taxes on the business’s profit. There isn’t as much flexibility in filing as a sole proprietor as there is with an LLC.

LLC vs S-Corp

An LLC is a business structure. An S-corp, meanwhile, is a tax classification. Many businesses decide to have their LLC taxed as an S-corp. The nuances can be complicated, so it makes sense to consult your personal accountant or other professional before making this decision.

LLC for Rental Property

If you create an LLC to buy rental homes, you’ll have the benefits of no personal liability and pass-through taxation. There can be a flexible ownership structure, personal anonymity, and fairly simple reporting.

However, it may be harder to finance rental property as an LLC. There can also be significant fees to get the LLC up and running. LLCs for rentals can be more complex at tax time, and property transfers can also be more complicated.

Recommended: Does Net Worth Include Home Equity?

How to Choose the Right Business Type

Consider how simple or complex your proposed business will become. Do you plan to basically run the business yourself, or will it ideally turn into something bigger? What kind of legal protections will you need based on your business plans?

Entrepreneurs should also weigh the tax benefits of LLCs and sole proprietorships. The two structures, along with partnerships and S-corps, feature pass-through benefits, meaning that profits are taxed only when they’re paid to the company owner(s). A C-corp, meanwhile, is taxed as a company as well as when shareholder payouts are made.

Consult your accountant or financial advisor for specifics on your situation.

Recommended: Should I Sell My House Now or Wait?

The Takeaway

Limited liability companies (LLCs) come with plenty of advantages and a few disadvantages. As its name implies, the owners’ and investors’ private assets are not at risk if the company should struggle financially. Owners of the LLC are referred to as members. Membership may range from one individual to multiple individuals to other companies.

A major benefit is pass-through taxation, where income passes through the company to its members, who report it on their personal taxes. One disadvantage of LLCs for very small businesses is the startup cost and annual fees, which can run to several hundred dollars a year. Consult a professional to find out whether an LLC is the right fit for your business plan.

No matter what business structure you choose, it’s important to keep track of your finances. SoFi Insights, our spending app, provides you with an easy to use online budget planner so you can stay on top of your finances.

Benefit from the insights you’ve always wanted with SoFi Insights.

FAQ

What are the tax benefits of having an LLC?

With an LLC, you’ll have flexibility in deciding the structure under which your company will be taxed. There are more tax benefits of an LLC, including pass-through taxation, which means you’ll only get taxed once at your individual tax rate.

What are the benefits of a limited liability company?

They can include limited liability, meaning that owners aren’t personally responsible for company debts; flexible structures; pass-through taxation; more credibility; and fewer compliance requirements compared to a corporation.

What is the best tax option for an LLC?

Each situation is unique, so consult your accountant or financial advisor for specifics.

Photo credit: iStock/hh5800

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. (Must click on the link to be eligible.) This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the Rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed into SoFi accounts such as cash in SoFi Checking and Savings, SoFi credit cards or loan balances, and fractional shares subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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This article is not intended to be legal advice. Please consult an attorney for advice.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Jan

2023

What Is a Gift Tax Return and When Is It Due?

By Kelly Boyer Sagert | Budgeting & Goals, Financial Independence, relay | Comments Off

An individual preparing to file a federal tax return will want to think back on gifts given in the prior year. If a gift exceeds a certain threshold, the IRS wants it reported by Tax Day — but only extremely wealthy taxpayers will ever have to pay taxes on their lifetime of gifts.

In 2022, you could have made gifts worth up to $16,000 per recipient without reducing your lifetime exemption, being required to report the gift to the IRS, or paying federal gift tax.

Gifts over that value count toward the lifetime gift and estate tax exemption of $12.06 million (per spouse, if married), rising even higher in 2023.

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Recommended: Does Net Worth Include Home Equity?

What Is a Gift and What Is Not?

According to the IRS, gift tax is applicable when property is transferred from one person to another, with the giver receiving nothing, or less than full value, in return.

The tax applies even when the donor doesn’t consider the transfer a gift.

The IRS defines the federal gift tax broadly, including when the gift is monetary or a physical property, or a donor allowing someone to stay in their property or earn income from the property without getting something equal in return.

Someone who makes an interest-free or reduced-interest loan may also be seen as giving a gift.

When you make a gift other than cash, you must assess the property’s fair market value: the price a willing buyer would pay in the open market. If you’re buying a house from a family member, you might ask for a gift of equity.

Generally, the IRS does not consider these taxable gifts:

• Gifts that are not more than the annual exclusion for the calendar year

• Another person’s tuition, as long as payments are made directly to the educational institution

• Another person’s medical expenses, as long as the payments are made directly to medical service providers

• Gifts to a spouse who is a U.S. citizen

• Gifts to a political organization

• Gifts to IRS-approved charities

What Is a Gift Tax Return?

Par for the course with the IRS, there’s a form involved if you made a gift exceeding the annual limit: Form 709. It is to be filled out the year after the giving of the gift. So if a relevant gift was given in 2022, the information belongs on the 2023 tax return form.

Information on this form lets the IRS know that a gift has been given that falls within the scope of the gift tax.

Married couples may “split” gifts and essentially double their annual exclusion. If you are married and your spouse consented, you could have given up to $32,000 to an unlimited number of individuals in 2022 with no gift or estate tax consequences. For 2023, that amount rises to $34,000.

Spouses who split gifts always have to file Form 709, even when no taxable gift was incurred.

The gift tax is tied to the estate tax. As of tax year 2022, you can leave up to $12.06 million to relatives or friends free of any federal estate tax. If you’re married, your spouse is entitled to a separate $12.06 million exemption. Clearly this is the province of high earners.

Recommended: Should I Sell My House Now or Wait?

Who Files the Gift Tax Return: the Giver or the Recipient?

Taxes typically fall on the donor, not the recipient.

There may be special circumstances when the recipient will agree to pay the tax. If you make this agreement, the IRS suggests that you contact your tax professional for guidance on how to proceed.

Annual Exclusion for 2022

You could have made an unlimited number of tax-free gifts in 2022 as long as no one received more than $16,000.

If you held back, just know that you can make an unlimited number of tax-free gifts of up to $17,000 in 2023, when the lifetime gift tax exemption increases to $12.92 million per person.

Tracking gifts you make, and all outlays, is easier with a spending app.

When Do You Need to File a Gift Tax Return?

This follows the regular tax filing deadline, which is April 18 in 2023.

If you need a gift tax return extension when you’re not filing a tax extension for your general income tax return, file Form 8892. This will typically give you a six-month extension.

How to File a Gift Tax Return

First, you use the federal gift tax return Form 709 that’s available online through the IRS. The IRS also provides gift tax return instructions. The agency includes determining if you need to file a form and, if so, for what gifts.

You may need to decide whether you and a spouse will split the gift taxes.

Form 709 is complicated. Whether you’re a seasoned tax filer or filing taxes for the first time, a tax pro could be of great help.

What Happens If I Don’t File a Gift Tax Return?

You could be fined by the IRS, and the taxing authority is becoming more vigilant in levying these failure-to-pay penalties. The fine equals 0.5% for every month that the tax isn’t paid, based on the amount of the gift. So, as time goes by, the fine gets bigger. If the IRS determines that fraud was involved, the fine can go up to 5%.

If this oversight isn’t discovered in a person’s lifetime, the estate could be assessed the accumulated fine.

How Long Should You Keep Gift Tax Returns?

Keep them indefinitely! They will likely be needed by the executor of your estate.

Recommended: Updates to the Tax Code

The Takeaway

A gift tax return might inspire dread, but it’s simply a way for the IRS to track eligible gifts made in a year and over a lifetime. Most people will never pay gift taxes.

Want to keep tabs on gifts and track all of your money in one place? SoFi provides credit score monitoring, spending breakdowns, budget planning, and more at no cost.

Find financial enlightenment with SoFi.

FAQ

What triggers a gift tax return?

The main trigger is exceeding the annual limit of what you can give without taxation. The annual amount per donee is $16,000 in 2022 and $17,000 in 2023.

Do I have to file a gift tax return if I receive a gift?

In general, it’s the donor of the gift, not the recipient, who pays the tax.

What happens if I don’t file a gift tax return?

The IRS may levy fines. If it doesn’t happen in your lifetime, the situation may be uncovered by the IRS after your death, and fines can be levied on the estate.

Photo credit: iStock/VioletaStoimenova

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. (Must click on the link to be eligible.) This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the Rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed into SoFi accounts such as cash in SoFi Checking and Savings, SoFi credit cards or loan balances, and fractional shares subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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