Tax Preparation vs. Tax Planning

Many people assume tax planning is the same as tax preparation but the two are actually quite different. Let's take a closer look:

What is Tax Preparation?

Tax preparation is the process of preparing and filing a tax return. Generally, it is a one-time event that culminates in signing your return and finding out whether you owe the IRS money or will be receiving a refund.

For most people, tax preparation involves one or two trips to your accountant (CPA), generally around tax time (i.e., between January and April), to hand over any financial documents necessary to prepare your return and then to sign your return. They will also make sure any tax reporting on your return complies with federal and state tax law.

Alternately, Individual taxpayers might use an enrolled agent, attorney, or a tax preparer who doesn’t necessarily have a professional credential. For simple returns, some individuals prepare and file their own tax forms with the IRS. No matter who prepares your tax return, however, you expect them to be trustworthy (you will be entrusting them with your personal financial details), skilled in tax preparation and to accurately file your income tax return in a timely manner.

What is Tax Planning?

Tax planning is a year-round process (as opposed to a seasonal event) and is a separate service from tax preparation. Both individuals and business owners can take advantage of tax planning services, which are typically performed by a CPA and accounting firm with in-depth experience and knowledge of tax law, rather than a tax preparer.

Examples of tax planning include bunching expenses (e.g., medical) to maximize deductions, how to use tax-loss harvesting to offset investment gains, increasing retirement plan contributions to defer income, and best timing for capital expenditures to reap the tax benefits. Good recordkeeping is also an important part of tax planning and makes it easier to pay quarterly estimated taxes, for example, or prepare tax returns the following year.

Tax planning is something that most taxpayers do not take advantage of - but should - because it can help minimize their tax liability on next year's tax return by planning ahead. While it may mean spending more time with an accountant, say quarterly or even monthly, the tax benefit is usually worth it. By reviewing past returns an accountant will have a more clear picture of what can be done this year to save money on next year's tax return.

If you're ready to learn more about what strategies you can use to reduce your tax bill next year, help is just a phone call away.

New Tax Rules for Divorce and Alimony Payments

Divorce is a painful reality for many people both emotionally and financially, and quite often, the last thing on anyone's mind is the effect a divorce or separation will have on their tax situation. To make matters worse, most court decisions do not take into account the effects divorce or separation has on your tax situation, which is why it's always a good idea to speak to an accounting professional before anything is finalized.

Furthermore, tax rules regarding divorce and separation can and do change - as they recently did under tax reform and divorced and separated individuals should be aware of tax law changes that take effect in 2019 (and affect 2019 tax returns).

Who is Impacted

The new rules relate to alimony or separate maintenance payments under a divorce or separation agreement and includes all taxpayers with:

• Divorce decrees.
• Separate maintenance decrees.
• Written separation agreements.

Tax reform did not change the tax treatment of child support payments which are not taxable to the recipient or deductible by the payor.

Timing of Agreements

Agreements executed beginning January 1, 2019. Alimony or separate maintenance payments are not deductible from the income of the payor spouse, nor are they includable in the income of the receiving spouse, if made under a divorce or separation agreement executed after December 31, 2018.

Agreements executed on or before December 31, 2018 and then modified. The new law applies if the modification does these two things:

• Changes the terms of the alimony or separate maintenance payments.
• Specifically states that alimony or separate maintenance payments are not deductible by the payer spouse or includable in the income of the receiving spouse.

Agreements executed on or before December 31, 2018. Prior to tax reform, a taxpayer who made payments to a spouse or former spouse was able to deduct it on their tax return and the taxpayer who receives the payments is required to include it in their income. If an agreement was modified after that date, the agreement still follows the previous law as long as the modifications do not:

• Change the terms of the alimony or separate maintenance payments.
• Specifically state that alimony or separate maintenance payments are not deductible by the payer spouse or includable in the income of the receiving spouse.

Tax reform made an already complicated situation even more so. If you have any questions about the tax rules surrounding divorce and separation, don't hesitate to call.

Small Business: Tips for Ensuring Financial Success

Can you point your company in the direction of financial success, step on the gas, and then sit back and wait to arrive at your destination?

While you may wish it was that easy, the truth is that you can't let your business run on autopilot and expect good results and any business owner knows you need to make numerous adjustments along the way. So, how do you handle the array of questions facing you? One way is through cost accounting.

Cost Accounting Helps You Make Informed Decisions

Cost accounting reports and determines the various costs associated with running your business. With cost accounting, you track the cost of all your business functions - raw materials, labor, inventory, and overhead, among others.

Cost accounting differs from financial accounting because it's only used internally, for decision making. Because financial accounting is employed to produce financial statements for external stakeholders, such as stockholders and the media, it must comply with generally accepted accounting principles (GAAP). Cost accounting does not.

Cost accounting allows you to understand the following:

1. Cost behavior. For example, will the costs increase or stay the same if production of your product goes up?
2. Appropriate prices for your goods or services. Once you understand cost behavior, you can tweak your pricing based on the current market.
3. Budgeting. You can't create an effective budget if you don't know the real costs of the line items.

Is It Hard?

To monitor your company's costs with this method, you need to pay attention to the two types of costs in any business: fixed and variable.

Fixed costs don't fluctuate with changes in production or sales. They include:

• rent
• insurance
• dues and subscriptions
• equipment leases
• payments on loans
• management salaries
• advertising

Variable costs DO change with variations in production and sales. Variable costs include:

• raw materials
• hourly wages and commissions
• utilities
• inventory
• office supplies
• packaging, mailing, and shipping costs

Cost accounting is easier for smaller, less complicated businesses. The more complex your business model, the harder it becomes to assign proper values to all the facets of your company's functioning.

If you'd like to understand the ins and outs of your business better and create sound guidance for internal decision making, consider setting up a cost accounting system.

Need Help?

Please call if you need assistance setting up cost accounting and inventory systems, preparing budgets, cash flow management or any other matter related to ensuring the financial success of your business.

Tax Advantages of S-Corporations

As a small business owner, figuring out which form of business structure to use when you started was one of the most important decisions you had to make; however, it's always a good idea to periodically revisit that decision as your business grows. For example, as a sole proprietor, you must pay a self-employment tax rate of 15.3% in addition to your individual tax rate; however, if you were to revise your business structure to become a corporation and elect S-Corporation status you could take advantage of a lower tax rate.

What is an S-Corporation?

An S-Corporation (or S-Corp) is a regular corporation whose owners elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax (and sometimes state) purposes. That is, an S-corporation is a corporation or a limited liability company that's made a Subchapter S election (so named after a chapter of the tax code). Rather than a business entity per se, it is a type of tax classification. Shareholders then report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates, which allows S-corporations to avoid double taxation on corporate income. S-corporations are, however, responsible for tax on certain built-in gains and passive income at the entity level.

To qualify for S-corporation status, the corporation must submit a Form 2553, Election by a Small Business Corporation to the IRS, signed by all the shareholders, and meet the following requirements:

• Be a domestic corporation
• Have only allowable shareholders. Shareholders may be individuals, certain trusts, and estates but may not be partnerships, corporations or non-resident alien shareholders.
• Have no more than 100 shareholders
• Have only one class of stock
• Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).

What are the Tax Advantages of an S-Corp?

Personal Income and Employment Tax Savings

S-corporation owners can choose to receive both a salary and dividend payments from the corporation (i.e., distributions from earnings and profits that pass through the corporation to you as an owner, not as an employee in compensation for your services). Dividends are taxed at a lower rate than self-employment income, which lowers taxable income. S-corp owners also save on Social Security and Medicare taxes because their salary is less than it would be if they were operating a sole proprietorship, for instance.

The split between salary and dividends must be "reasonable" in the eyes of the IRS, however, e.g., paying self-employment tax on 50% or less of profits or a salary that is in line with similar businesses. Furthermore, some S-corp owners may be able to take advantage of the 20% deductions for pass-through entities as well, thanks to tax reform.

Losses are Deductible

As a corporation, profits and losses are allocated between the owners based on the percentage of ownership or number of shares held. If the S-corporation loses money, these losses are deductible on the shareholder's individual tax return. For example, if you and another person are the owners and the corporation's losses amount to $20,000, each shareholder can take $10,000 as a deduction on their tax return.

No Corporate Income Tax

Although S-corps are corporations, there is no corporate income tax because business income is passed through to the owners instead of being taxed at the corporate rate, thereby avoiding the double taxation issue, which occurs when dividend income is taxed at both the corporate level and at the shareholder level.

Less Risk of Audit

In 2017, S-corps faced an audit risk of just 0.2% compared to Schedule C filers with gross receipts of $100,000 who faced an audit rate of 0.9% (2018 IRS Data Book). While still low, individuals filing Schedule C (Profit or Loss from Business) are at higher risk of being audited due to IRS concerns about small business owners underreporting income or taking deductions they shouldn't be.

Help is just a phone call away.

Whether you keep your existing structure or decide to change it to a different one, keep in mind that your decision should always be based on the specific needs and practices of the business. Don't hesitate to call the office if you have any questions about electing S-Corporation status or are wondering whether it's time to choose a different business entity altogether.

File 2018 Tax Returns by Oct. 15 Extension Deadline

Time is running short for taxpayers who requested an extra six months to file their 2018 tax return. As a reminder, Tuesday, October 15, 2019, is the extension deadline for most taxpayers. For taxpayers who have not yet filed, here are a few tips to keep in mind about the extension deadline and taxes:

1. Taxpayers can still e-file returns. Filing electronically is the easiest, safest and most accurate way to file taxes.

2. For taxpayers owed a refund, the fastest way to get it is to combine direct deposit and e-file.

3. Taxpayers who owe taxes should consider using IRS Direct Pay, a simple, quick and free way to pay from a checking or savings account using a computer or mobile device. There are also other online payment options. Please call the office if you need details about other payment options.

4. Members of the military and those serving in a combat zone generally get more time to file. Military members typically have until at least 180 days after leaving a combat zone to both file returns and pay any tax due.

5. Taxpayers should always keep a copy of tax returns for their records. Keeping copies of tax returns can help taxpayers prepare future tax returns or assist with amending a prior year's return.

Be Prepared When Natural Disasters Strike

While September and October are prime time for Atlantic hurricanes, natural disasters of any kind can strike at any time. As such, it's a good idea for taxpayers to think about - and plan ahead for - what they can do to be prepared.

Here are four tips to help taxpayers be prepared:

1. Update emergency plans. Because a disaster can strike any time, taxpayers should review emergency plans annually. Personal and business situations change over time, as do preparedness needs. When employers hire new employees or when a company or organization changes functions, they should update plans accordingly. They should also tell employees about the changes. Individuals and businesses should make plans ahead of time and be sure to practice them.

2. Create electronic copies of key documents. Taxpayers should keep a duplicate set of key documents in a safe place, such as in a waterproof container and away from the original set. Key documents include bank statements, tax returns, identification documents, and insurance policies.

Doing so is easier now that many financial institutions provide statements and documents electronically, and financial information is available on the Internet. Even if the original documents are provided only on paper, these can be scanned into a computer. This way, the taxpayer can download them to a storage device like an external hard drive or USB flash drive.

3. Document valuables and equipment. It's a good idea for a taxpayer to photograph or videotape the contents of their home, especially items of higher value. Documenting these items ahead of time will make it easier to claim any available insurance and tax benefits after the disaster strikes.

4. Payroll service providers should check fiduciary bonds.Employers who use payroll service providers should ask the provider if it has a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider. The IRS also encourages employers to create an EFTPS.gov account where they can monitor their payroll tax deposits and sign up for email alerts.

Employer Credit for Family and Medical Leave

Thanks to the passage of the Tax Cuts and Jobs Act last year, there's a new tax benefit for employers: the employer credit for paid family and medical leave. As the name implies, employers may claim the credit based on wages paid to qualifying employees while they are on family and medical leave.

Here are seven facts about this credit and how it benefits employers:

1. To claim the credit, employers must have a written policy that meets certain requirements such as:

• Providing at least two weeks of paid family and medical leave annually to all qualifying employees who work full time. This can be prorated for employees who work part-time.
• Providing paid leave that is not less than 50 percent of the wages normally paid to the employee.

2. A qualifying employee is any employee who has been employed for one year or more, and for the preceding year, had compensation that did not exceed a certain amount. To be a qualifying employee in 2019, an employee must have earned no more than $72,000 in compensation in the preceding year. Looking ahead, to be a qualifying employee in 2020, an employee must have earned no more than $75,000 in compensation in the preceding year.

3. "Family and medical leave" as defined for this particular credit, is leave that is taken for one or more of the following reasons:

• Birth of an employee's child and to care for the child.
• Placement of a child with the employee for adoption or foster care.
• To care for the employee's spouse, child, or parent who has a serious health condition.
• A serious health condition that makes the employee unable to perform the functions of his or her position.
• Any qualifying event due to an employee's spouse, child, or parent being on covered active duty - or being called to duty - in the Armed Forces.
• To care for a service member who is the employee's spouse, child, parent, or next of kin.

4. The credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per taxable year.

5. To be eligible for the credit, an employer must reduce its deduction for wages or salaries paid or incurred by the amount determined as a credit. Any wages taken into account in determining any other general business credit may not be used toward this credit.

6. The credit is generally effective for wages paid in taxable years of the employer beginning after December 31, 2017. It is not available for wages paid in taxable years beginning after December 31, 2019, i.e., starting January 1, 2020.

7. To claim the credit, employers file two forms with their tax return: Form 8994, Credit for Paid Family and Medical Leave and Form 3800, General Business Credit.

For more information about the employer credit for family and medical leave, please contact the office.

Expat Compliance With US Tax Filing Obligations

Taxpayers who relinquish citizenship without complying with their U.S. tax obligations are subject to the significant tax consequences of the U.S. expatriation tax regime. If you're an expat who has relinquished -- or intends to relinquish -- your US citizenship but still has US tax filing obligations (including owing back taxes) you'll be relieved to know there are new IRS procedures in place that allow you to come into compliance and receive relief for any back taxes owed.

Here's what you need to know:

Background

Intended for anyone who has relinquished, or intends to relinquish their United States (U.S.) citizenship, the Relief Procedures for Certain Former Citizens apply to taxpayers who want to come into compliance with their US income tax and reporting obligations and avoid being taxed as a "covered expatriate" under section 877A of the U.S. Internal Revenue Code (IRC).

Intended Use

The Relief Procedures for Certain Former Citizens apply only to individuals (not estates, trusts, corporations, partnerships, and other entities) who:

• Have not filed U.S. tax returns as U.S. citizens or residents;
• owe a limited amount of back taxes to the United States; and
• have net assets of less than $2 million.

Furthermore, only those US taxpayers whose past compliance failures were non-willful can take advantage of these new procedures. Typically, this situation involves someone born in the United States to foreign parents or someone born outside the United States to U.S. citizen parents, who may be unaware of their status as U.S. citizens or the consequences of such status.

The Details

Eligible individuals wishing to use these relief procedures are required to file outstanding U.S. tax returns, including all required schedules and information returns, for the five years preceding and their year of expatriation. Provided that the taxpayer's tax liability does not exceed a total of $25,000 for the six years in question, the taxpayer is relieved from paying U.S. taxes. The purpose of these procedures is to provide relief for certain former citizens. Individuals who qualify for these procedures will not be assessed penalties and interest.

There is no specific termination date associated with the new IRS procedures; however, a closing date will be announced prior to ending the procedures. Also, individuals who relinquished their U.S. citizenship any time after March 18, 2010, are eligible as long as they satisfy the other criteria of the procedures.

Relinquishing U.S. citizenship and the tax consequences that follow are serious matters that involve irrevocable decisions. Please contact the office if you have any questions about this topic.

Rental Real Estate Qualifies as a Business

A safe harbor is now available for taxpayers seeking to claim the section 199A deduction with respect to a "rental real estate enterprise." What this means is that certain interests in rental real estate - including interests in mixed-use property - are allowed to be treated as a trade or business for purposes of the qualified business income deduction under section 199A of the Internal Revenue Code.

Rental Real Estate Enterprise Defined

For the purposes of this safe harbor, a rental real estate enterprise is defined as an interest in real property held to generate rental or lease income. It may consist of an interest in a single property or interests in multiple properties. The taxpayer or a relevant pass-through entity (RPE) relying on this revenue procedure must hold each interest directly or through an entity disregarded as an entity separate from its owner, such as a limited liability company with a single member.

Qualifying for the Safe Harbor

The following requirements must be met by taxpayers or RPEs to qualify for this safe harbor:

• Separate books and records are maintained to reflect income and expenses for each rental real estate enterprise.
• For rental real estate enterprises that have been in existence less than four years, 250 or more hours of rental services are performed per year. For other rental real estate enterprises, 250 or more hours of rental services are performed in at least three of the past five years.
• The taxpayer maintains contemporaneous records, including time reports, logs, or similar documents, regarding the following: hours of all services performed; description of all services performed; dates on which such services were performed; and who performed the services.
• The taxpayer or RPE attaches a statement to the return filed for the tax year(s) the safe harbor is relied upon.

If all the safe harbor requirements are met, an interest in rental real estate will be treated as a single trade or business for purposes of the section 199A deduction. If an interest in real estate fails to satisfy all the requirements of the safe harbor, it may still be treated as a trade or business for purposes of the section 199A deduction if it otherwise meets the definition of a trade or business in the Section 199A regulations.

Help is just a phone call away.

If you would like more information about the qualified business income deduction, safe harbor requirements, or any other aspect of tax reform, don't hesitate to call.

Creating Statement Charges in QuickBooks

Depending on what kind of business you have, you probably have a preferred way of billing customers. If they walk into your shop and present a credit card or cash, you create sales receipts. If they order off your website, they might receive an electronic receipt. Or your arrangement may be such that you send invoices.

There's another way that's especially useful if your customers are responsible for paying recurring charges, like an ongoing service contract that's billed monthly. You can enter those financial obligations directly as statement charges.

As you know, QuickBooks can create statements, summaries of a customer's activity. These are generated automatically from the invoices, receipts, payments, and other transactions you've recorded over a given period of time. But did you know you can manually add charges to statements? Here's how it works.

Creating a Statement Charge

Click the Statement Charges icon on the home page or open the Customers menu and select Enter Statement Charges. Your Accounts Receivable register appears. Open the list in the field next to Customer:Job by clicking on the down arrow and select the correct Customer:Job.

Warning: If the item will be attached to a specific job, not just a customer, be sure you choose the correct job. QuickBooks maintains a separate register for each.

Figure 1: Consider creating a statement charge instead of an invoice for recurring transactions that will not be billed immediately.

Change the date if necessary and open the Item list (or click if you haven't created an item record yet). Select the one you want and enter a quantity (Qty) . QuickBooks should fill in the rate and description. The TYPE column will automatically contain STMTCH (statement charge). Click Record when you're done. The next time you create a statement for that Customer:Job, you'll see the transaction you just entered.

Statement Charge Limitations

Before you decide to use statement charges, keep in mind that:

• You can't include some information that would appear on an invoice, like sales tax and discounts.
• Even if your charge relates to hours you worked for the customer, QuickBooks will not open a reminder window containing that information the next time you create an invoice for the customer.
You'd have to Enter Time by creating a single activity or entering the hours on a timesheet.
• You still have to bill the customers.

Billing the Customer

There are two ways to bill customers for statement charges. You can, of course, just generate statements that include the date(s) of the charge(s). The next time you create a statement for customers who have manually-entered statement charges, it will contain them, along with any other activity like invoices and payments.

Statements have been covered before, but if you need assistance, please call and a QuickBooks professional will go over this QuickBooks feature with you. This means you'll have to enter a statement charge every month if it's to be a recurring one. Instead, you can treat them as memorized transactions, so they're automatically entered in the register. If you're billing multiple customers for the same service every month, for example, this would work well.

First, you'll need to create a Group that contains all of those customers. Open the Lists menu and select Memorized Transaction List. Right-click anywhere on that screen and click on New Group. This box will open.

Figure 2: If you regularly bill customers for the same service, like a monthly subscription, you can create a Group and memorize the transactions.

Give your Group a Name and click the button in front of Automate Transaction Entry. Open the list in the field next to How Often and select the billing interval. Choose the Next Date to indicate when this group billing should begin. If the charges should be entered on a limited basis, enter the Number Remaining. And be sure to fill in the Days In Advance To Enter if that's applicable. Click OK.

Next, you'll assign the customers who should be billed monthly to your Group. Click Statement Charges on the home page again to open your A/R register. Select each customer one at a time and right-click on the statement charge that you want to recur monthly, then select Memorize Stmt Charge. In the window that opens, give the transaction a new Name if you'd like (this will not affect the transaction, only how it's listed). Click on the button in front of Add to Group and select the Group name from the drop-down list. Repeat for each customer you want to include.

Keeping Track

If periodic statements are your primary customer billing method, this system should work fine. But if you also send invoices and/or collect payment at the time of the sale, you'll need to remember that your statement charges must be billed on a regular basis, too. If you need help going over your customer billing procedures to determine whether you're using QuickBooks' tools wisely -or whether some changes could improve your collection of payments, please call.

Tax Due Dates for October 2019

October 10

Employees who work for tips - If you received $20 or more in tips during September, report them to your employer. You can use Form 4070.

October 15

Individuals - If you have an automatic 6-month extension to file your income tax return for 2018, file Form 1040 and pay any tax, interest, and penalties due.

Corporations - File a 2018 calendar year income tax return (Form 1120) and pay any tax, interest, and penalties due. This due date applies only if you timely requested an automatic 6-month extension.

Employers Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in September.

Employers Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in September.

October 31

Employers - Social Security, Medicare, and withheld income tax. File form 941 for the third quarter of 2019. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until November 12 to file the return.

Certain Small Employers - Deposit any undeposited tax if your tax liability is $2,500 or more for 2019 but less than $2,500 for the third quarter.

Employers - Federal Unemployment Tax. Deposit the tax owed through September if more than $500.

Five Facts About Student Loans You May Not Know

Student loan debt is an ongoing crisis in America, with outstanding student debt exceeding 1.3 trillion dollars. This is an increase of two and a half times what it was just ten years ago.

This increase is due to a variety of factors. Foremost among these factors is the steadily increasing cost of higher education, accompanied by a larger than ever percentage of high school graduates attending college.
Here are some key issues facing students today and look at some of the key statistics surrounding student debt in America.Compared with people who do not have student debt, those with student loans are less optimistic about the value of the college degrees they hold.

Of those surveyed by Pew Research, half (51%) of those survey participants between the ages of 25 and 29 with at least one degree and some outstanding loan debt state that the value of the college education they earned is worth the price they paid for it. To put this statistic in perspective, consider the corresponding fact that about 70% of survey participants who did not hold student loan debt but did hold a degree believed their education to have been worth the financial cost.

Is it Worth Taking Out a Loan?

Young people who have graduated from college with student loan debt usually come from a higher income family than those who did not earn a bachelor's degree. For many students, using student loans is the only realistic way to make a seemingly impossible college education dream into a reality. The significant trade-offs of student loans can sometimes be worthwhile if the degree earned translates directly to a higher income earning potential later on in life.

Overall, people who are between 25 and 29 years and hold at least a bachelor's degree are more likely to have a higher total family income. This is the value of the graduate's income in addition to those incomes of a partner or spouse who lives with them in the same home. Approximately two thirds of those with student loan debt live in households with incomes of greater than $50,000, whereas only 40% of those without a bachelor's degree earn that amount at a household level.

However, graduates who carry student loan debt are still less likely to obtain a household income of that level than those who graduate debt free. The students who graduate debt free are 77% likely to obtain a household income of greater than $50,000 per year. Another interesting fact is that college graduates are more likely to get married than people who did not graduate from college, and statistically, those who are married earn more than those who are not married.

Nearly one third of people without a bachelor's degree earn less than $25,000 at the household level, whereas less than a tenth (8%) of those with a bachelor's degree earn under that amount. This key statistic goes to show that the value of earning a bachelor's degree can be quite dramatic when it comes to household income later on in life.

Getting a Degree Means Two Jobs?

College graduates who hold student loans are more likely to hold a second job or to struggle financially than those without student loan debt. Approximately one fifth, or 20% of people who have graduated with a bachelor's degree and hold student loan debt report having to hold a second job to make ends meet or to repay their student loans. Those graduates who do not hold any outstanding student loan debt are only 11% likely to hold that second job. This statistic also applies for young adults overall, regardless of college education. This goes to show that holding student loan debt means you are more likely to hold a second job than any other demographic group.

A Degree Does Not Guarantee Financial Security

Students who graduate with student loan debt also hold a more pessimistic outlook as it pertains to their personal financial situation when compared to graduates who do not currently hold student loan debt. Of the graduates with outstanding debt, only a bit more than a quarter (27$) report that they are living comfortably, while nearly half (45%) of those who do not have outstanding debt but are of the same age group demographic report living comfortably.

Better School, More Loans

Outstanding student loan debt varies dramatically, particularly according to degree obtained. In a survey conducted in 2016 by Pew Research, the average graduate with student loan debt had an outstanding balance of $17,000. However, this median number doesn't tell the whole story. About one quarter of those surveyed reported owing a total of more than $43,000, while another quarter reported outstanding balances of under $7,000. Students who earned a bachelor's degree or less reported owing totals of less than $10,000, while those who earned a post-graduate degree reported debts of $45,000 on average. Those with a bachelor's degree only reported owing totals of $25,000 on average. This goes to show that the amount borrowed by students for education varies widely depending on the institution attended and degree earned.

Almost four out of every ten adults under age 30 owes student loan debt.
Of adults between the ages of 18-29, 37% report that they currently have student loan debt remaining from their own education. This percentage does not include those who used credit cards or other loans to pay for their educational expenses, but rather only those who took out specific student loans to pay for their college education.

Increased Risk Factors

As people get older, outstanding student loan debt becomes less common. Roughly one out of every five people aged 30-44 (22%) still has outstanding student loan debt, and this number dwindles to a just 4% when adults over the age of 45 are surveyed. While it may appear that these reductions in student loan debt among older demographics is simply due to those loans being paid off, the reality is more complicated.

Research done by the National Institution of Education Statistics has shown that students of today are far more likely to take out student loan debt to finance their college education than previous generations were. Roughly two thirds of students entering college during the 2011-2012 school year took out new student loan debt, which represents a sharp increase from the roughly half that took out student loans twenty years prior in the 1989-1990 school year. This shows an upward trend in the need for student loans to pay for college education in today's economy.

How has student loan debt affected you and your family members? We would love to hear from you in the comments below!