Borrowing Money: Pros & Cons

 

The Pros of Borrowing Money

Achieve Major Financial Goals:

• Home Loans: Borrowing money through a home loan allows you to purchase a home without having to save the entire amount upfront. This can be a stepping stone to building wealth through home equity.
• Business Loans: Business loans provide the capital needed to start or expand your business, helping you seize opportunities and grow your enterprise.
• Auto & Motorcycle Loans: These loans make it possible to buy a reliable vehicle, which is essential for commuting, travel, and personal freedom.

Flexibility and Convenience:

• Recreational Loans: Loans for recreational vehicles like boats and RVs can enhance your lifestyle, providing opportunities for travel and leisure.
• Personal Loans: Personal loans offer flexibility for various needs, such as home renovations, medical expenses, or consolidating high-interest debt.
• Credit Cards: Credit cards provide convenient access to credit for everyday purchases and can offer rewards and benefits.

Build and Improve Credit: 

Responsible borrowing and timely repayment can help build and improve your credit score. A higher credit score can lead to better interest rates and more favorable loan terms in the future.

Fixed Monthly Payments: 

Many loans come with fixed monthly payments, making it easier to budget and manage your finances. Knowing your monthly obligation helps in planning and avoiding financial surprises.

Potential Tax Benefits: 

Some loans, such as home mortgages, come with potential tax benefits. Interest paid on home loans may be deductible, reducing your overall tax burden. (Consult your tax professional)

The Cons of Borrowing Money

Interest Costs: 

Borrowing money comes with the cost of interest, which can add up over time. High-interest rates, especially on credit cards and personal loans, can significantly increase the total repayment amount.

Debt Burden: 

Taking on debt means committing to regular repayments, which can strain your finances, especially if your income fluctuates or if unexpected expenses arise.

Impact on Credit Score: 

While responsible borrowing can improve your credit score, missed or late payments can negatively affect it. A lower credit score can hinder your ability to borrow in the future and result in higher interest rates.

Risk of Over-Borrowing: 

It's easy to borrow more than you can comfortably repay, leading to a cycle of debt. It's crucial to borrow only what you need and can afford to repay without compromising your financial stability.

Additional Fees and Penalties: 

Loans often come with fees such as origination fees, late payment penalties, and prepayment penalties. Understanding all associated costs before committing to a loan is essential to avoid unexpected financial burdens. 

Source

 

What Kind of Records Should I Keep

Purchases, sales, payroll, and other transactions you have in your business will generate supporting documents. Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. These documents contain the information you need to record in your books. It is important to keep these documents because they support the entries in your books and on your tax return. You should keep them in an orderly fashion and in a safe place. For instance, organize them by year and type of income or expense.

The following are some of the types of records you should keep:

• Gross receipts are the income you receive from your business. You should keep supporting documents that show the amounts and sources of your gross receipts. Documents for gross receipts include the following:
  • Cash register tapes
  • Deposit information (cash and credit sales)
  • Receipt books
  • Invoices
  • Forms 1099-MISC

• Purchases are the items you buy and resell to customers. If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. Your supporting documents should identify the payee, the amount paid, proof of payment, the date incurred, and include a description of the item to show that the amount was for purchases. Documents for purchases include the following:
  • Canceled checks or other documents reflecting proof of payment/electronic funds transferred
  • Cash register tape receipts
  • Credit card receipts and statements
  • Invoices
• Note: A combination of supporting documents may be needed to substantiate all elements of the purchase.

• Expenses are the costs you incur (other than purchases) to carry on your business. Your supporting documents should identify the payee, the amount paid, proof of payment, the date incurred, and include a description of the item purchased or service received that shows the amount was for a business expense. Documents for expenses include the following:
  • Canceled checks or other documents reflecting proof of payment/electronic funds transferred
  • Cash register tape receipts
  • Account statements
  • Credit card receipts and statements
  • Invoices
• Note: A combination of supporting documents may be needed to substantiate all elements of the expense.

• Travel, transportation, entertainment, and gift expenses
  If you deduct travel, entertainment, gift or transportation expenses, you must be able to prove (substantiate) certain elements of expenses. 

• Assets are the property, such as machinery and furniture, that you own and use in your business. You must keep records to verify certain information about your business assets. You need records to compute the annual depreciation and the gain or loss when you sell the assets. Documents for assets should show the following information:
  • When and how you acquired the assets
  • Purchase price
  • Cost of any improvements
  • Section 179 deduction taken
  • Deductions taken for depreciation
  • Deductions taken for casualty losses, such as losses resulting from fires or storms
  • How you used the asset
  • When and how you disposed of the asset
  • Selling price
  • Expenses of sale

• The following documents may show this information:
  • Purchase and sales invoices
  • Real estate closing statements
  • Canceled checks or other documents that identify payee, amount, and proof of payment/electronic funds transferred

• Employment taxes

  There are specific employment tax records you must keep. Keep all records of employment for at least four years.

 Source

End-of-Year Bookkeeping Wrap-Up

Wrap up your books before year-end for accurate financials, smoother tax prep, and a strong start to the new year. Contact Powers Bookkeeping today to schedule your year-end wrap-up.

Schedule your Consultation Today!

Year-End Bookkeeping Recommendations for Business Owners

As the year wraps up, taking a few proactive steps now can make a big difference in how smoothly you head into the new year. We recommend business owners consider the following before closing out the books:

• Make sure all bank and credit card accounts are reconciled so your numbers reflect reality
• Take a fresh look at income and expenses to catch miscategorized or missing items
• Confirm payroll and payroll tax filings are complete and accurate
• Review vendor payments and prepare for upcoming 1099s
• Follow up on outstanding invoices and unpaid bills to improve cash flow
• Check sales tax filings to avoid surprises later
• Review your profit & loss and balance sheet to understand how the year really performed
• Organize receipts and financial documents while everything is still fresh
• Plan a quick check-in with your bookkeeper or tax professional before year-end

Addressing these items now can help reduce stress, avoid last-minute issues, and set your business up for a confident start to the new year. Powers Bookkeeping is here to guide you through a smooth year-end close.

Contact us today! 

(916) 302-9153

info@powersbookkeepingservice.com

Happy Holidays!

 

We hope you have a safe and healthy holiday season! 

Happy Holidays from all of us at Powers Bookkeeping Service, Inc!

916-302-9153

Reminder: It's 1099 Season

Be sure your business has all the necessary W-9s so that you can properly issue 1099s in January. This can include all contractors and vendors you paid over $600 from your business.

Here is link to the current W-9 form you can have your contractors/vendors fill out. This will help alleviate any scrambling at year end.

3 Ways to Prepare Your Books for Tax Season

1.) Organize Your Receipts and Records

Gather all your receipts, invoices, and financial documents from the year. Use a system (physical or digital) to sort them by category, such as income, expenses, and deductions. This will save time and ensure all details are noticed.

2.) Reconcile Your Accounts

Ensure your bank statements, credit card accounts, and bookkeeping software match up. Reconciling ensures your records are accurate and up to date, which is essential for filing taxes correctly.

3.) Review Your Financial Reports

Please review your profit and loss statement, balance sheet, and cash flow statement. These reports clearly show your business’s financial health and help identify potential deductions or adjustments.

Need Help?

Tax season can be overwhelming, but you don’t have to tackle it alone. Powers Bookkeeping Service, Inc. ensures your books are accurate, organized, and ready for filing. Contact us today to schedule a year-end bookkeeping review!