Count on Your CPA for Financial Literacy

Published On: June 26th, 2023Categories: Accounting, Individual, Small Business, Taxes

Life is often viewed as a series of stages – childhood, graduation, parenthood, and retirement, to name a few. Like the points on a clock, time moves us from one stage to the next. No matter what “time” it is in your life cycle, you probably share a common worry: money. Managing money for today is one thing; making decisions to ensure adequate funds for the next stage is quite another.

The CPA Commitment. As trusted advisors, CPAs across the country have made a commitment to increase financial literacy. How? By volunteering to educate the public about financial issues and the decisions that must be made at every stage of life. With the recent interest rate increases made by the Federal Reserve, it is time once again to actively manage your savings to ensure you are getting the most for your money. Here are some tips to consider.

Maximize the kiddie tax opportunity. Remember, the first $1,150 of your child’s unearned income such as interest and dividends is tax-free and the next $1,150 is taxed at your child’s tax rate. Leverage this information by using the Unified Gifts to Minors Act to manage a savings account in their name. Just understand that when your child reaches adulthood, the account transfers to them.
Look into tax-advantaged bonds. Municipal bonds, most of which are exempt from federal income tax, are starting to make a comeback. In addition, bonds within your home state may also be exempt from state taxes. So, with higher interest rates, review the tax benefit of these bonds versus higher interest, taxable alternatives. But understand the underlying risk of individual bonds in case the municipality is unable to pay back the debt.
CDs are making a comeback. Banks are competing for your deposits once again. But what is new this time around are higher, often unpublished, penalties for early withdrawal. So, before you leap at that great rate, understand the cost if you need the funds before maturity. Also, understand the true after-tax interest rate.
U.S. Treasury Securities. U.S. Treasury investments are generally not subject to state or local tax. So as rates go up, and if banks look uncertain to you, you may wish to consider this tax-advantaged savings alternative. And investing in Treasury alternatives is now easier than ever by visiting www.treasurydirect.gov.

With savings alternatives at interest rates of 4% to 5%, savers now have many choices to manage their money. The key message: review your options, apply an after-tax calculation to understand your true return, and know your risks!

You may be thinking “Why do I need a CPA?” For each milestone, the profession has solid, practical advice to share. You might say CPAs are once again emphasizing the term “public” in their title. Reach out if we can assist you in managing life’s financial challenges and opportunities.

About the Author: Shelly Spata, CPA

Shelly Spata joined the firm in 1998, and her name went on the door in 1999. She now serves as the Managing Partner of the firm. "As a business owner myself, I understand the complexities and challenges business owners face, and I strive to add value by helping clients understand their financial statements, manage tax consequences, and clearly see the financial and tax ramifications — both positive and negative — of decisions they make," she explains. "Without good financial information, it’s like driving a car blind, but with good information, clients are able to maximize profits."