September 2024 Tax Tips & More

Sep 4

September 2024

Upcoming dates:

September 16

- Filing deadline for extended 2023 calendar-year S corporation and partnership tax returns

- 3rd quarter installment of 2024 estimated income tax is due for individuals, calendar-year corporations and calendar-year trusts & estates

October 15

- Filing deadline for extended 2023 individual and C corporation tax returns

Reducing the amount of interest you pay over the life of a mortgage can yield huge savings! This month's newsletter provides an illustration of just how much you can save, even with as little as $10 a month.

As always, feel free to pass this information on to anyone that may find it useful and please call if you have any questions or concerns.

Early Mortgage Payoff: Small Payments Can Save You Big Money

Small payments can save you big money when paying off your mortgage.

With 30-year fixed rates reaching levels not seen in 25 years, adding even just a little extra to your monthly payment can significantly cut down on the interest you pay over the life of your mortgage.

Here are several different scenarios to illustrate how much interest you can save by slightly increasing each monthly payment.

Base scenario and assumptions

Here’s the assumptions used for this base scenario:

Average U.S. home price ($420,800) and mortgage rate (7.50%) for early 3rd quarter of 2024
Average U.S. downpayment of 10%
House financed using a 30-year fixed rate mortgage
Monthly payment includes principal and interest payments only; it does not include other expenses typically bundled with monthly payments, such as property taxes, homeowners insurance, and mortgage insurance premiums

With no additional money tacked on to your monthly payment, you would pay $574,583 in interest over the course of your 30 year mortgage in this base scenario.

To buy this house for $420,800, you would end up paying just shy of $1 million after adding $574,583 of interest charges!

None of us wants to pay $1 million for a $420,000 house. So let’s take a look at the following scenarios to find out how much interest expense you can save by increasing your monthly payments by a small amount.

Here's a summary of the base scenario's assumptions compared with how much interest you can save, and how much faster you'll pay off your mortgage, in each of the following examples.

Example #1: An Extra $100 Per Month

Adding an extra $100 to your monthly mortgage payment would save you $81,902 in interest expense and cut down on the time to pay off your mortgage by 3½ years.

Example #2: An Extra Lump-Sum at Years 5, 15 & 25

In this example, let’s assume you make an additional lump-sum payment of $5,000 in years 5, 15, and 25 of your mortgage.

While you wouldn’t save that much extra time paying off your mortgage in this scenario, you’ll still end up pocketing nearly $37,000 just by making three lump-sum payments over the course of your mortgage.

Example #3: An Extra $200 Per Month

If you can afford an extra $100 per month to put towards your mortgage, why not try for $200 a month? This is where the math starts to get fun. Adding $200 a month helps pay off your mortgage 6 years sooner and saves you $140,000 in interest expense.

Every little bit helps

Even adding an extra $10 per month can save you nearly $10,000 over the course of your mortgage. That’s a lot of money that goes into your bank account instead of your bank’s bank account!

Paying off your mortgage early and cutting down how much interest you pay over the course of your mortgage doesn’t require a lot of money. Whether it’s $100 or $10 a month, every little bit can help on your quest towards a better financial future for you and your family.

Tax Credit or Tax Deduction: Understand the Difference

Tax credits are some of the most valuable tools around to help cut your tax bill. But figuring out how to use these credits on your tax return can get complicated very quickly. Here's what you need to know.

Understanding the difference

To help illustrate the difference between a credit and a deduction, here's an example of a single taxpayer making $50,000 in 2024.

Tax Deduction Example: Savi Lesse earns $50,000 and owes $5,000 in taxes. If you add a $1,000 tax deduction, she'll decrease her $50,000 income to $49,000, and owe about $4,800 in taxes.

Result: A $1,000 tax deduction decreases Savi's tax bill by $200, from $5,000 to $4,800.
Tax Credit Example: Now let's assume Ima Smart has a $1,000 tax credit instead of a $1,000 tax deduction. Ms. Smart's tax bill decreases from $5,000 to $4,000, while her $50,000 income stays the same.

Result: A $1,000 tax credit decreases Ms. Smart's tax bill from $5,000 to $4,000.

In this example, your tax credit is five times as valuable as a tax deduction.

What you need to know

Credits are generally worth much more than deductions. There are several hurdles you have to clear, though, before being able to take advantage of a credit. To illustrate these hurdles, consider the popular child tax credit.

Hurdle #1: Meet basic qualifications. You can claim a $2,000 tax credit for each qualifying child you have on your 2024 tax return. The good news is that the IRS's definition of a qualifying child is fairly broad, but there are enough nuances to the definition that Hurdle #1 could get complicated.

Hurdle #2: Meet income qualifications. If you make too much money, you can't claim the credit.

Hurdle #3: Meet income tax qualifications. To claim the entire $2,000 child tax credit in 2024, you must owe at least $2,000 of income tax.

Take the tax credit...but get help!

The bottom line is that tax credits are usually more valuable than tax deductions. But tax credits also come with many rules that can be confusing. It's always best to get help.

As always, should you have any questions or concerns regarding your tax situation please feel free to call.

This publication provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here. This publication includes, or may include, links to third party internet web sites controlled and maintained by others. When accessing these links the user leaves this newsletter. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does JOHN P WAUTERS & COMPANY LLC have any control over, or responsibility for, the content of any such Websites. All rights reserved.

Sherri Lareau