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What Is a Recourse Loan?

Car loan application

In borrowing, there are two types of debts, recourse and nonrecourse. Recourse debt holds the person borrowing money personally liable for the debt. If you default on a recourse loan, the lender will have license, or recourse, to go after your personal assets if the collateral’s value doesn’t cover the remaining amount of the loan that is due. Recourse loans are often used to finance construction or invest in real estate. Here’s what you need to know about recourse loans, how they work and how they differ from other types of loans.

What Is a Recourse Loan?

A recourse loan is a type of loan that allows the lender to go after any of a borrower’s assets if that borrower defaults on the loan. The first choice of any lender is to seize the asset that is collateral for the loan. For example, if someone stops making payments on an auto loan, the lender would take back the car and sell it.

However, if someone defaults on a hard money loan, which is a type of recourse loan, the lender might seize the borrower’s home or other assets. Then, the lender would sell it to recover the balance of the principal due. Recourse loans also allow lenders to garnish wages or access bank accounts if the full debt obligation isn’t fulfilled.

Essentially, recourse loans help lenders recover their investments if borrowers fail to pay off their loans and the collateral value attached to those loans is not enough to cover the balance due.

How Recourse Loans Work

When a borrower takes out debt, he typically has several options. Most hard money loans are recourse loans. In other words, if the borrower fails to make payments, the lender can seize the borrower’s other assets such as his home or car and sell it to recover the money borrowed for the loan.

Lenders can go after a borrower’s other assets or take legal action against a borrower. Other assets that a lender can seize might include savings accounts and checking accounts. Depending on the situation, they may also be able to garnish a borrower’s wages or take further legal action.

When a lender writes a loan’s terms and conditions, what types of assets the lender can pursue if a debtor fails to make debt payments are listed. If you are at risk of defaulting on your loan, you may want to look at the language in your loan to see what your lender might pursue and what your options are.

Recourse Loans vs. Nonrecourse Loans

Bank repo signNonrecourse loans are also secured loans, but rather than being secured by all a person’s assets, nonrecourse loans are only secured by the asset involved as collateral. For example, a mortgage is typically a nonrecourse loan, because the lender will only go after the home if a borrower stops making payments. Similarly, most auto loans are nonrecourse loans, and the bank or lender will only be able to seize the car if the borrower stops making payments.

Nonrecourse loans are riskier for lenders because they will have fewer options for getting their money back. Therefore, most lenders will only offer nonrecourse loans to people with exceedingly high credit scores.

Types of Recourse Loans

There are several types of recourse loans that you should be aware of before taking on debt. Some of the most common recourse loans are:

  • Hard money loans. Even if someone uses their hard money loan, also known as hard cash loan, to buy a property, these types of loans are typically recourse loans.
  • Auto loans. Because cars depreciate, most auto loans are recourse loans to ensure the lender receive full debt payments.

Recourse Loans Pros and Cons

For borrowers, recourse loans have both pros and and at least one con. You should evaluate each before deciding to take out a recourse loan.

Pros

Although they may seem riskier upfront, recourse loans are still attractive to borrowers.

  • Easier underwriting and approval. Because a recourse loan is less risky for lenders, the underwriting and approval process is more manageable for borrowers to navigate.
  • Lower credit score. It’s easier for people with lower credit scores to get approved for a recourse loan. This is because more collateral is available to the lender if the borrower defaults on the loan.
  • Lower interest rate. Recourse loans typically have lower interest rates than nonrecourse loans.

Con

The one major disadvantage of a recourse loan is the risk involved. With a recourse loan, the borrower is held personally liable. This means that if the borrower does default, more than just the loan’s collateral could be at stake.

The Takeaway

Hard Money Loan signLoans can be divided into two types, recourse loans and nonrecourse loans. Recourse loans, such as hard money loans, allow the lender to pursue more than what is listed as collateral in the loan agreement if a borrower defaults on the loan. Be sure to check your state’s laws about determining when a loan is in default. While there are advantages to recourse loans, which are often used to finance construction, buy vehicles or invest in real estate, such as lower interest rates and a more straightforward approval process, they carry more risk than nonrecourse loans.

Tips on Borrowing

  • Borrowing money from a lender is a significant commitment. Consider talking to a financial advisor before you take that step to be completely clear about how it will impact your finances. Finding a financial advisor doesn’t have to be difficult. In just a few minutes our financial advisor search tool can help you find a professional in your area to work with. If you’re ready, get started now.
  • For many people, taking out a mortgage is the biggest debt they incur. Our mortgage calculator will tell you how much your monthly payments will be, based on the principal, interest rate, type of mortgage and length of the term.

Photo credit: ©iStock.com/aee_werawan, ©iStock.com/PictureLake, ©iStock.com/designer491

The post What Is a Recourse Loan? appeared first on SmartAsset Blog.

Source: smartasset.com

Should You Prepay the Mortgage or Invest Instead?

It’s been a while since I last posted a mortgage match-up, so without further ado, here’s the latest installment: “Prepay the mortgage or invest instead?” There are likely thousands of articles that deal with this very subject, all with plenty of differing opinions, but we are in unprecedented times. Mortgage rates have never been lower [&hellip

The post Should You Prepay the Mortgage or Invest Instead? first appeared on The Truth About Mortgage.

Source: thetruthaboutmortgage.com

Per Stirpes vs. Per Capita in Estate Planning

Three generations of one familyWhen creating an estate plan, one of the most basic documents you may wish to include is a will. If you have a more complicated estate, you might also need to have a trust in place. Both a will and a trust can specify how you want assets distributed among your beneficiaries. When making those decisions, it’s important to distinguish between per stirpes and per capita distributions. These are two terms you’re likely to come across when shaping your estate plan. Here’s a closer look at what per stirpes vs. per capita means.

Per Stirpes, Explained

If you’ve never heard the term per stirpes before, it’s a Latin phrase that translates to “by branch” or “by class.” When this term is applied to estate planning, it refers to the equal distribution of assets among the different branches of a family and their surviving descendants.

A per stirpes designation allows the descendants of a beneficiary to keep inherited assets within that branch of their family, even if the original beneficiary passes away. Those assets would be equally divided between the survivors.

Here’s an example of how per stirpes distributions work for estate planning. Say that you draft a will in which you designate your adult son and daughter as beneficiaries. You opt to leave your estate to them, per stirpes.

If you pass away before both of your children, then they could each claim a half share of your estate under the terms of your will. Now, assume that each of your children has two children of their own and your son passes away before you do. In that scenario, your daughter would still inherit a half share of the estate. But your son’s children would split his half of your estate, inheriting a quarter share each.

Per stirpes distributions essentially create a trickle-down effect, in which assets can be passed on to future generations if a primary beneficiary passes away. A general rule of thumb is that the flow of assets down occurs through direct descendants, rather than spouses. So, if your son were married, his children would be eligible to inherit his share of your estate, not his wife.

Per Capita, Explained

Older couple signs a will

Per capita is also a Latin term which means “by head.” When you use a per capita distribution method for estate planning, any assets you have would pass equally to the beneficiaries are still living at the time you pass away. If you’re writing a will or trust as part of your estate plan, that could include the specific beneficiaries you name as well as their descendants.

So again, say that you have a son and a daughter who each have two children. These are the only beneficiaries you plan to include in your will. Under a per capita distribution, instead of your son and daughter receiving a half share of your estate, they and your four grandchildren would each receive a one-sixth share of your assets. Those share portions would adjust accordingly if one of your children or grandchildren were to pass away before you.

Per Stirpes vs. Per Capita: Which Is Better?

Whether it makes sense to use a per stirpes or per capita distribution in your estate plan can depend largely on how you want your assets to be distributed after you’re gone. It helps to consider the pros and cons of each option.

Per Stirpes Pros:

  • Allows you to keep asset distributions within the same branch of the family
  • Eliminates the need to amend or update wills and trusts when a child is born to one of your beneficiaries or a beneficiary passes away
  • Can help to minimize the potential for infighting among beneficiaries since asset distribution takes a linear approach

Per Stirpes Cons:

  • It’s possible an unwanted person could take control of your assets (i.e., the spouse of one of your children if he or she is managing assets on behalf of a minor child)

Per Capita Pros:

  • You can specify exactly who you want to name as beneficiaries and receive part of your estate
  • Assets are distributed equally among beneficiaries, based on the value of your estate at the time you pass away
  • You can use this designation to pass on assets outside of a will, such as a 401(k) or IRA

Per Capita Cons:

  • Per capita distributions could trigger generation-skipping tax for grandchildren or other descendants who inherit part of your estate

Deciding whether it makes more sense to go with per stirpes vs. per capita distributions can ultimately depend on your personal preferences. Per stirpes distribution is typically used in family settings when you want to ensure that individual branches of the family will benefit from your estate. On the other hand, per capita distribution gives you control over which individuals or group of individuals are included as beneficiaries.

Review Beneficiary Designations Periodically

Multi-generational family

If you have a will and/or a trust, you may have named your beneficiaries. But it’s possible that you may want to change those designations at some point. If you named your son and his wife in your will, for example, but they’ve since gotten divorced you may want to update the will with a codicil to exclude his ex-wife. It’s also helpful to check the beneficiary designations on retirement accounts, investment accounts and life insurance policies after a major life change.

For example, if you get divorced then you may not want your spouse to be the beneficiary of your retirement accounts. Or if they pass away before you, you may want to update your beneficiary designations to your children or grandchildren.

The Bottom Line

Per stirpes and per capita distribution rules can help you decide what happens to your assets after you pass away. But they both work very differently. Understanding the implications of each one for your beneficiaries, including how they may be affected from a tax perspective, can help you decide which course to take.

Tips for Estate Planning

  • Consider talking to a financial advisor about how to get started with estate planning and what per stirpes vs. per capita distributions might mean for your heirs. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s financial advisor matching tool can help you connect, within minutes, with a professional advisor in your local area. If you’re ready, get started now.
  • While it’s always a good idea to consult with a financial advisor about estate planning, you can take a do-it-yourself approach to writing a will by doing it online. Here’s what you need to know about digital DIY will writing.

Photo credit: ©iStock.com/Georgijevic, ©iStock.com/monkeybusinessimages, ©iStock.com/FatCamera

The post Per Stirpes vs. Per Capita in Estate Planning appeared first on SmartAsset Blog.

Source: smartasset.com

15-Year Fixed vs. 30-Year Fixed: The Pros and Cons

It’s that time again, where I take a look at a pair of popular mortgage programs to determine which may better suit certain situations. Today’s match-up: “15-year fixed mortgage vs. 30-year fixed mortgage.” As always, there is no one-size-fits-all solution because everyone is different and may have varying real estate and financial goals. For example, [&hellip

The post 15-Year Fixed vs. 30-Year Fixed: The Pros and Cons first appeared on The Truth About Mortgage.

Source: thetruthaboutmortgage.com

Parking Options When Your Community Doesn’t Have a Parking Lot

Parking is an amenity that some people don’t even think about when looking to rent an apartment. But if you want the convenience of a covered garage or a guaranteed spot for your vehicle, it has to be part of your must-haves.

When a space is not included, then it becomes a much bigger deal. Do you live in an apartment complex that doesn’t have a parking lot? No worries, we’ve got a few options for you to consider.

1. Street parking

street parking

Depending on where you live, street parking may be an available option at no cost to you. While it may be free, it’s often on a first-come, first-serve basis. This means you’ll have to try your luck and find an open parking spot.

Know ahead of time that some street parking will cost you. Think metered spaces or a permit for a block or specific neighborhood. More often than not, time restrictions on parking will be part of the deal.

Keep an eye out for signs posted with instructions. Pay attention to avoid getting a ticket, having your car booted or towed.

2. Garage or lot parking

garage parking

If your complex or apartment building doesn’t have its own garage, then paid parking in a nearby garage is an option. Or, a parking lot within walking distance of your home. Parking lots are most common near shops, bars and restaurants, according to the Parking Network.

There are parking lots that are open throughout the year, but some are also improvised. Think of when you’ve gone to an event. Where do people park for a music festival that only happens once a year? There might be an open nearby meadow for parking, for example.

Paid parking lots and garages sometimes include a parking attendant. Gated entries require a ticket to enter and leave, or a machine to pay the parking fee. For this type of parking, you’re usually charged for the amount of time that you park. If your car is there for more than a few hours, you may incur a flat fee for daily parking.

When parking in an area that requires you to take a ticket, be sure to hold onto the ticket to leave. If you lose the ticket, you may pay a flat fee, which could be more than the cost of the time you actually parked in the space.

It’s a good idea to shop around for the best rate since costs vary from garage to lot. While comparing rates, look at whether it is cheaper to pay for daily vs. hourly parking.

3. Parking apps

parking app

Source: Parknay

Parking apps are one answer, especially in a lot of urban locales. Searching for and paying for parking has become easier because of parking apps. Some apps even let you make a reservation and will provide instructions on how to redeem parking at the garage.

Parknav is an app that offers real-time predictive street parking in more than 200 cities. Search the app for an address. Parknav displays a map with nearby streets. These streets are color-coded according to the likelihood of finding parking there.

That’s only one app out of many that help you find parking. Some apps are city-specific and there are even a few that help you save money. A quick search on your phone’s app store will give you a list of useful parking apps.

4. Ditch the car for public transportation

public transportation

Although it may not be ideal for everyone, public transportation is an option. Do you live in a transit-rich city? If you live in an area that’s easily accessible by mass transit or has everything you need within a short distance, you can always sell your car and use the bus, subway, train, bike or walk.

This option may save you money and will remove the stress of having to find parking. There’s a huge variation among different cities in the price of parking.

Park wisely

Parking is a problem when you live in an apartment without dedicated spaces. It’s also an issue when you’re a two-car family and you’ve only got one reserved space. Street parking could be lacking where you live. Especially in urban areas.

Some cities want to require the unbundling of parking space rentals from housing lease agreements, reports the Seattle Transit blog, which could lead to lower rents! Whatever the case, try to avoid parking in areas that are not well lit at night, block driveways or are in prohibited areas.

If you find that parking is important to you, keep this in mind for future apartment searches. But even if your apartment complex doesn’t have a parking lot, don’t stress. Just look around and know that you have options.

The post Parking Options When Your Community Doesn’t Have a Parking Lot appeared first on Apartment Living Tips – Apartment Tips from ApartmentGuide.com.

10 Home Updates That Are Worth the Money

Homeownership is one of the most time-tested ways to build wealth in the U.S. It can help you build wealth thanks to home appreciation — but this isn’t always guaranteed (just ask anyone who bought a home right before 2008). 

Another way to build wealth through homeownership is by upgrading your home, thereby increasing its value. The idea is that when you eventually sell your home (or pass it on to your heirs) it’ll be worth even more than simply keeping up with basic home maintenance alone. 

And since you spend around 90% of your time indoors, you might as well enjoy your home a bit more while growing its value.

10 Impactful Ways to Raise Your Home’s Value

The opportunities for upgrading your home are endless. But if you’re aiming to boost your home’s value, some upgrades are better than others. You’ll also need to consider whether you feel comfortable with certain DIY projects, or if you prefer to hire a professional. 

You could rig-up a picket fence made of the leg lamps from A Christmas Story if you really wanted to, after all, but chances are it’d decrease your property value (if it didn’t burn down your house in the process, that is). 

Instead, try one of these investment-friendly upgrades, according to the 2020 Cost vs. Value Report from Remodeling Magazine:

  1. Stone Veneer
  2. Garage Door Replacement
  3. Minor Kitchen Remodel
  4. Replace Siding
  5. Replace Windows
  6. Deck Addition
  7. Replace Entry Door
  8. Replace Roof
  9. Remodel Bathroom
  10. Major Kitchen Remodel

1. Stone Veneer

Estimated cost: $9,357

It’s no secret that finding ways to add curb appeal is one of the quickest remodeling wins to increase your home’s value. Right now, one of the hottest trends is adding manufactured stone veneers to the exterior of your home, generally around the base or as accent walls. 

You can DIY this, but it might be better to hire a professional because the materials are expensive. Plus, if you do it wrong, you could waste a lot of money and end up with a wonky result. 

2. Garage Door Replacement

Estimated cost: $3,695

If you’re not keen on spending tens of thousands of dollars, a relatively quick win you can go for is simply replacing your garage door with a better model that includes a lifetime warranty. Again, this is one that’s better left to the pros because it’s an especially dangerous job for newbie DIYers. Besides, installing it yourself is likely to void the warranty anyway.

3. Minor Kitchen Remodel

Estimated cost: $23,452

If you don’t mind sitting around in some construction dust for a little while, doing your own minor kitchen remodel is definitely within the scope of DIYers. It’s also a common home remodel on HGTV and other media. 

To reach the value-add touted by the survey, you’ll need to replace your oven or cooktop, refrigerator, cabinet doors, countertops, drawer fronts, flooring, and add new paint and trim. It requires a lot of changes, but if you have time to watch a few YouTube tutorials, you can do it yourself fairly easily. 

4. Replace Siding

Estimated cost: $14,359 to $17,008

Another big curb-appeal booster is simply replacing your home’s siding. But not all siding is created equal. Fiber-cement siding costs slightly more and recoups slightly more of the cost. The difference, however, isn’t huge and might vary for your individual case. 

Vinyl siding is easier to maintain and install, but isn’t as fire-resistant as fiber-cement — an increasingly important consideration if you live in the arid West. No matter which type you choose, you might need to rent specialized equipment, like scaffolding, unless you’re an NBA athlete working on a single-story house.

5. Replace Windows

Estimated cost: $17,641 to $21,495

Old, leaky, rackety windows aren’t great for curb appeal or energy-efficiency. That’s why replacing them can also be a good idea. If you’re nervous about smashing them (and we wouldn’t blame you), you can hire a professional. Otherwise, it’s a job that’s possible for most DIYers. 

If you have standard-sized windows, you can get ready-made windows from a home supply store. But you’ll likely need to custom-order them to fit your own home. 

6. Deck Addition

Estimated cost: $14,360 to $19,856

Decks are one of the easiest home additions to DIY, as long as you have basic carpentry and tool safety skills. You can take your time with decks since they’re outside of your home and not directly in your everyday living space. Composite decks are slightly more expensive than wooden decks but have the advantage of longevity and less maintenance necessary over the years.

7. Replace Entry Door

Estimated cost: $1,881

Another easy and low-cost project, replacing the front door gives you an instant boost to your curb appeal. Just about anyone can do it with the help of YouTube video tutorials and a good, strong arm. 

8. Replace Roof

Estimated cost: $24,700 to $40,318

Your roof is literally the cap to your home. Replacing the roof is a big job, and although hammering in shingles seems easy (and it is), it’s generally best left to the professionals. A professionally-installed roof comes with a warranty, and takes a day or two to complete.

If you DIY this home improvement project, you’ll lose the warranty, and it could take you longer to complete the job. And the longer your roofing project lingers, the longer your home is vulnerable to damage. 

Another point to remember — metal roofs are far more expensive than asphalt shingle roofs, but they also tend to last longer and require less maintenance.

9. Remodel Bathroom

Estimated cost: $21,377 to $34,643

As long as you’re not making major changes to the plumbing and electrical systems underlying the fixtures, a bathroom remodel is possible on your own. This is an especially common remodel for many DIYers, because along with the kitchen and the bedroom, it’s a daily-use room. 

10. Major Kitchen Remodel

Estimated cost: $68,490 to $135,547

If you’re looking to bring a 1950s-style kitchen into the 21st century, it’ll take a bit more than some extra spit and glue. You’ll need to make big changes, like adding in a vented range hood for those blackened-fish tacos, new recessed and under-cabinet lighting, new cabinets, and even adding in an island for better cooking options. For that reason, it’s usually better to hire a professional team who can make sure everything’s wired up right. 

Your Mileage May Vary

Here’s something to consider: on average, you’ll only recoup a portion of your cost if you complete the upgrade and then sell your home in the same year. That might seem a bit disappointing — shouldn’t you be able to recoup all of the cost, and then some?

Remember, your specific case might be very different depending on a lot of factors, like what area of your home could use work. For example, if your exterior looks tired and the siding is falling off, upgrading that rather than adding a new deck might give you a better payoff. 

Another factor affecting your return on investment is how long you let your home’s value appreciate, before selling it. Adding a stone veneer can help you recoup 96% of your cost in the first year. However, in the second year, consider whether you can boost the value of your home by more than you paid for the upgrade. 

If you plan on selling your home in the future, asking a local realtor or real estate investor which upgrades are best for your particular home can be worthwhile. After all, market conditions vary dramatically cross the country and no two homes are exactly the same. 

The post 10 Home Updates That Are Worth the Money appeared first on Good Financial Cents®.

Source: goodfinancialcents.com

A Guide to Schedule K-1 (Form 1041)

Man prepares his tax returnsInheriting property or other assets typically involves filing the appropriate tax forms with the IRS. Schedule K-1 (Form 1041) is used to report a beneficiary’s share of an estate or trust, including income as well as credits, deductions and profits. A K-1 tax form inheritance statement must be sent out to beneficiaries at the end of the year. If you’re the beneficiary of an estate or trust, it’s important to understand what to do with this form if you receive one and what it can mean for your tax filing.

Schedule K-1 (Form 1041), Explained

Schedule K-1 (Form 1041) is an official IRS form that’s used to report a beneficiary’s share of income, deductions and credits from an estate or trust. It’s full name is “Beneficiary’s Share of Income, Deductions, Credits, etc.” The estate or trust is responsible for filing Schedule K-1 for each listed beneficiary with the IRS. And if you’re a beneficiary, you also have to receive a copy of this form.

This form is required when an estate or trust is passing tax obligations on to one or more beneficiaries. For example, if a trust holds income-producing assets such as real estate, then it may be necessary for the trustee to file Schedule K-1 for each listed beneficiary.

Whether it’s necessary to do so or not depends on the amount of income the estate generates and the residency status of the estate’s beneficiaries. If the annual gross income from the estate is less than $600, then the estate isn’t required to file Schedule K-1 tax forms for beneficiaries. On the other hand, this form has to be filed if the beneficiary is a nonresident alien, regardless of how much or how little income is reported.

Contents of Schedule K-1 Tax Form Inheritance Statements

The form itself is fairly simple, consisting of a single page with three parts. Part one records information about the estate or trust, including its name, employer identification number and the name and address of the fiduciary in charge of handling the disposition of the estate. Part Two includes the beneficiary’s name and address, along with a box to designate them as a domestic or foreign resident.

Part Three covers the beneficiary’s share of current year income, deductions and credits. That includes all of the following:

  • Interest income
  • Ordinary dividends
  • Qualified dividends
  • Net short-term capital gains
  • Net long-term capital gains
  • Unrecaptured Section 1250 gains
  • Other portfolio and nonbusiness income
  • Ordinary business income
  • Net rental real estate income
  • Other rental income
  • Directly apportioned deductions
  • Estate tax deductions
  • Final year deductions
  • Alternative minimum tax deductions
  • Credits and credit recapture

If you receive a completed Schedule K-1 (Form 1041) you can then use it to complete your Form 1040 Individual Tax Return to report any income, deductions or credits associated with inheriting assets from the estate or trust.

You wouldn’t, however, have to include a copy of this form when you file your tax return unless backup withholding was reported in Box 13, Code B. The fiduciary will send a copy to the IRS on your behalf. But you would want to keep a copy of your Schedule K-1 on hand in case there are any questions raised later about the accuracy of income, deductions or credits being reported.

Estate Income and Beneficiary Taxation

Woman prepares her tax returns

If you received a Schedule K-1 tax form, inheritance tax rules determine how much tax you’ll owe on the income from the estate. Since the estate is a pass-through entity, you’re responsible for paying income tax on the income that’s generated. The upside is that when you report amounts from Schedule K-1 on your individual tax return, you can benefit from lower tax rates for qualified dividends. And if there’s income from the estate that hasn’t been distributed or reported on Schedule K-1, then the trust or estate would be responsible for paying income tax on it instead of you.

In terms of deductions or credits that can help reduce your tax liability for income inherited from an estate, those can include things like:

  • Depreciation
  • Depletion allocations
  • Amortization
  • Estate tax deduction
  • Short-term capital losses
  • Long-term capital losses
  • Net operating losses
  • Credit for estimated taxes

Again, the fiduciary who’s completing the Schedule K-1 for each trust beneficiary should complete all of this information. But it’s important to check the information that’s included against what you have in your own records to make sure that it’s correct. If there’s an error in reporting income, deductions or credits and you use that inaccurate information to complete your tax return, you could end up paying too much or too little in taxes as a result.

If you think the information in your Schedule K-1 (Form 1041) is incorrect, you can contact the fiduciary to request an amended form. If you’ve already filed your taxes using the original form, you’d then have to file an amended return with the updated information.

Schedule K-1 Tax Form for Inheritance vs. Schedule K-1 (Form 1065)

Schedule K-1 can refer to more than one type of tax form and it’s important to understand how they differ. While Schedule K-1 (Form 1041) is used to report information related to an estate or trust’s beneficiaries, you may also receive a Schedule K-1 (Form 1065) if you run a business that’s set up as a pass-through entity.

Specifically, this type of Schedule K-1 form is used to record income, losses, credits and deductions related to the activities of an S-corporation, partnership or limited liability company (LLC). A Schedule K-1 (Form 1065) shows your share of business income and losses.

It’s possible that you could receive both types of Schedule K-1 forms in the same tax year if you run a pass-through business and you’re the beneficiary of an estate. If you’re confused about how to report the income, deductions, credits and other information from either one on your tax return, it may be helpful to get guidance from a tax professional.

The Bottom Line

Senior citizen prepares her tax returnsReceiving a Schedule K-1 tax form is something you should be prepared for if you’re the beneficiary of an estate or trust. Again, whether you will receive one of these forms depends on whether you’re a resident or nonresident alien and the amount of income the trust or estate generates. Talking to an estate planning attorney can offer more insight into how estate income is taxed as you plan a strategy for managing an inheritance.

Tips for Estate Planning

  • Consider talking to a financial advisor about the financial implications of inheriting assets. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s financial advisor matching tool can help you connect with professional advisors in your local area in minutes. If you’re ready, get started now.
  • One way to make the job of filing taxes easier is with a free, easy-to-use tax return calculator. Also, creating a trust is something you might consider as part of your own estate plan if you have significant assets you want to pass on.

Photo credit: ©iStock.com/fizkes, ©iStock.com/urbazon, ©iStock.com/dragana991

The post A Guide to Schedule K-1 (Form 1041) appeared first on SmartAsset Blog.

Source: smartasset.com

DoorDash vs. UberEats: Which App Is Right For Your Next Side Gig?

For better or worse, apps like DoorDash and Uber Eats have disrupted the food-delivery industry. Since their launch in 2013 and 2014 respectively, restaurants across the country have outsourced delivery services to independent drivers who use the apps to make extra cash.

During the pandemic, these services have seen demand like never before. For customers, the apps make ordering food from just about any restaurant as easy as opening their smartphones. For drivers, it’s almost as easy to land a delivery job hawking food from local eateries.

But before you download your next job, take some time to review the key differences between DoorDash and Uber Eats so that you can make the most of your delivery gig.

DoorDash vs Uber Eats: The Top Food Delivery Apps Duke It Out

The general premise of the two apps is almost identical: Customers place food orders at local restaurants. The apps alert drivers in the area with the order details. The first driver to accept the order picks up the food and drops it off to the customer. Simple enough, right?

Several differences are worth noting, though. Some minor and some major. We took a deep dive into those differences, looking at pay, vehicle and job requirements, available locations, driver reviews and more to help you make an informed decision before you start delivering.

And if it’s too close to call, you can always sign up for both to see which one suits you better.

Round 1: App Reviews

A woman looks at what's offered on Uber Eats.

Because the apps are so popular, they’ve amassed more than 4.1 million driver reviews. Both companies require their drivers to use different apps than customers, a huge perk when trying to get a sense of drivers’ perspective. Worker reviews from Glassdoor are also included.

DoorDash Driver (Dasher) Reviews

Feedback from Dashers is overall mixed, but there’s a clear preference for the iOS version of the app. Trends in negative reviews across all platforms show that many drivers have trouble with glitches and crashes, especially Android users, and that the nature of the work takes a toll on their vehicles. Many negative reviews mention that DoorDash’s strict performance metrics are a hassle.

Workers reviewed DoorDash more than 760,000 times.

App Store (iOS) review: 4.7 out of 5.
Google Play (Android) review: 3.3 out of 5.

Glassdoor review: 3.7 out of 5.

Uber Driver Reviews

More than 3 million drivers reviewed Uber. A caveat worth noting is that Uber has one driver app. That means it’s hard to get the opinions of only Uber Eats drivers because general Uber app reviews are mixed in. Overall, reviews are positive.

Trends in negative delivery reviews on Glassdoor indicate GPS issues and trouble contacting customer service. Several drivers mentioned problems with promotion and surge pay (bonus pay during in-demand times). Negative reviews regarding vehicle wear-and-tear are common.

App Store (iOS) review: 4.6 out of 5.

Google Play (Android) review: 3.8 out of 5.

Glassdoor review: 3.9 out of 5.

Round 2: Job and Vehicle Requirements

A woman drives for Uber.

To become a Dasher or Uber Eats driver, you have to meet a baseline of requirements. Some are vehicle related and some are age and experience related.

DoorDash

To qualify as a Dasher you must be at least 18. Dashers need to have a valid driver’s license. There are no car requirements, but auto insurance is required. In some markets you can make deliveries on scooters, bicycles and motorcycles.

Uber Eats

To make automobile deliveries, the minimum age requirement is based on your local jurisdiction, plus at least one year of driving experience. Vehicles must be no more than 20 years old. Drivers must be properly insured and can use bikes and scooters in certain markets. The age requirements are higher for those who prefer two wheels — 18 for bicycles and 19 for scooters.

Round 3: Sign-Up Process

Becoming a delivery driver for DoorDash and Uber Eats is simpler than landing a part-time job. You can complete the entire process from your smartphone or computer.

DoorDash

You can sign up to become a Dasher on the driver app. You’ll have to consent to a background and motor vehicle check (and pass both). They could take as little as a few days, but err on the side of a week or two.

After passing the checks, you’ll need to select what type of “orientation” you want. The pandemic paused in-person orientations. Depending on your market you may need to request an “activation kit” instead. Receiving your activation kit may take an extra couple of weeks, according to driver reviews.

The activation kit includes a Dasher manual, a hot bag and a credit card, which is used to pay for orders. Once you receive and set up the card through the app, you can start accepting orders.

Uber Eats

For drivers new to Uber, you can sign up on the website or through the driver app. Because of the stricter vehicle requirements, the application requires more detailed information on your ride. A background check is also required, which may take three to five business days to process.

After the background check clears and your application is approved, you’re free to start taking orders. No orientation or additional equipment is needed.

If you’re a current rideshare driver for Uber, it’s easy to start delivering with Uber Eats. You simply opt in to Uber Eats orders through the driver app and start delivering without any additional screening.

Round 4: Pay and Tipping

The two apps handle pay a little differently, both in how you get paid and how you pay for customers’ orders when you pick them up. Neither company offers guaranteed wages (unless you live in California).

DoorDash

As of Fall 2019, the company switched to a payment model where Dashers earn a higher base pay per order in addition to keeping 100% of their tips. Previously, a customer’s tip would subsidize the Dasher’s base pay.

Check out how this food delivery driver may $8,000 in one month.

Dashers report earning between $11 and $15 an hour depending on location, but those earnings aren’t guaranteed. Pay is based on how many orders you accept per hour and how much customers tip you. DoorDash pays weekly through direct deposit, or you can access your earnings early through Fast Pay, for $1.99.

When picking up orders, you may be required to pay for the order using the company red card from your activation kit.

Uber Eats

Depending on your location, you can expect to earn $11 to $14 an hour on average. Again, those wages aren’t guaranteed because your earnings are based on orders and tips. With Uber Eats, you pocket 100% of your customers’ tips. You get paid weekly via direct deposit, or you can pay a fee to access your earnings early through Instant Pay for 50 cents.

You won’t be involved in the payment process for food orders. Partner restaurants are reimbursed directly by Uber.

Round 5: Available Locations

People walk alongside a lake and tall buildings.

This one’s easy. Both services are available in most big cities in all 50 states.

Previously, DoorDash and Uber Eats ran driver support centers in major metro areas of most states. In 2020, many of these centers closed due to the coronavirus. Some still exist, but neither company offers a comprehensive, public list of remaining locations.

Final Round: Additional Perks

Promotional offers are popular with both DoorDash and Uber, but they’re temporary and vary by location. Aside from sign-up bonuses and referral codes, here are a couple perks that are here to stay.

DoorDash

A few perks unique to DoorDash include grocery delivery options, automatic insurance coverage and health care services.

After you’re screened and accepted as a Dasher, you can choose to deliver food in any city where DoorDash operates, meaning there are no hard location requirements. The company also launched grocery delivery services in some Midwest and West Coast areas.

Dashers also get supplemental auto insurance and occupational accident insurance for accidents or injuries that fall outside your current auto insurance. The insurance plan covers up to $1 million in medical costs, a weekly payment of $500 for disabilities and $150,000 to dependents for fatal accidents. Coverage is automatic. There are no deductibles or premiums.

While DoorDash doesn’t offer health insurance, the company does partner with Stride Health, which provides free health care advising and assistance to Dashers who need help finding affordable insurance plans.

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Uber Eats

Uber Eats drivers get a variety of discounts and may be eligible for Uber Pro perks.

All Uber drivers receive discounts for vehicle maintenance and phone service plans. Uber also partners with Stride Health to provide health plans and tax advice. Drivers automatically receive supplemental auto insurance, which covers up to $1 million in damages. There’s a $1,000 deductible before benefits pay out.

Uber Pro perks have recently expanded to all of Uber’s markets across the U.S. Only top-rated drivers receive Pro perks like tuition and gas reimbursement, and the program is designed for Uber drivers primarily, not Uber Eats drivers.

If you drive for both Uber and Uber Eats, your food deliveries may apply to Uber Pro, but Uber-Eats-only drivers aren’t eligible.

Final Decision in DoorDash vs Uber Eats

Ding! Ding! It was an even match-up. Uber Eats and DoorDash were neck and neck throughout. No knockout punches. A good few jabs by DoorDash’s insurance coverage and grocery options and a couple of hooks by Uber’s overall ratings and ability to switch to ridesharing.

The decision goes to our judges. (That’s you.)

There are a lot more delivery options out there. Here’s how the top 10 delivery apps stack up.

Adam Hardy is a staff writer at The Penny Hoarder. He covers the gig economy, remote work and other unique ways to make money. Read his ​latest articles here, or say hi on Twitter @hardyjournalism.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com

How to Get Approved for Credit in a Financial Downturn

In a recession it’s common for many people to rely on credit cards and loans to balance their finances. It’s the ultimate catch-22 since, during a recession, these financial products can be even harder to qualify for.

This holds true, according to historical data from the Federal Reserve Bank of St. Louis. It found that during the 2007 recession, loan growth at traditional banks decreased and remained deflated over the next four years. 

Credit can be a powerful tool to help you make ends meet and keep moving forward financially. Here’s what you can do if you’re struggling to access credit during a weak economy.

Lending becomes riskier in a weak economy. Does this mean you’re completely out of luck if you have bad credit? Not necessarily, but you might need to take the time to understand all of your alternatives.

How Does a Financial Downturn Affect Lending?

Giving someone a loan or approving them for a credit card carries a certain amount of risk for a lender. After all, there’s a chance you could stop making payments and the lender could lose all the funds you borrowed, especially with unsecured loans. 

For lenders, this concept is called, “delinquency”. They’re constantly trying to get their delinquency rate lower; in a booming economy, the delinquency rate at commercial banks is usually under 2%. 

Lending becomes riskier in a weak economy. There are all sorts of reasons a person might stop paying their loan or credit card bills. You might lose your job, or unexpected medical bills might demand more of your budget. Because lenders know the chances of anyone becoming delinquent are much higher in a weak economy, they tend to restrict their lending criteria so they’re only serving the lowest-risk borrowers. That can leave people with poor credit in a tough financial position.

Before approving you for a loan, lenders typically look at criteria such as:

  • Income stability 
  • Debt-to-income ratio
  • Credit score
  • Co-signers, if applicable
  • Down payment size (for loans, like a mortgage)

Does this mean you’re completely out of luck if you have bad credit? Not necessarily, but you might need to take the time to understand all of your alternatives.

5 Ways to Help Get Your Credit Application Approved 

Although every lender has different approval criteria, these strategies speak to typical commonalities across most lenders.

1. Pay Off Debt 

Paying off some of your debt might feel bold, but it can be helpful when it comes to an application for credit. Repaying your debt reduces your debt-to-income ratio, typically an important metric lenders look at for loans such as a mortgage. Also, paying off debt could help improve your credit utilization ratio, which is a measure of how much available credit you’re currently using right now. If you’re using most of the credit that’s available to you, that could indicate you don’t have enough cash on hand. 

Not sure what debt-to-income ratio to aim for? The Consumer Financial Protection Bureau suggests keeping yours no higher than 43%. 

2. Find a Cosigner

For those with poor credit, a trusted cosigner can make the difference between getting approved for credit or starting back at square one. 

When someone cosigns for your loan they’ll need to provide information on their income, employment and credit score — as if they were applying for the loan on their own. Ideally, their credit score and income should be higher than yours. This gives your lender enough confidence to write the loan knowing that, if you can’t make your payments, your cosigner is liable for the bill. 

Since your cosigner is legally responsible for your debt, their credit is negatively impacted if you stop making payments. For this reason, many people are wary of cosigning.

In a recession, it might be difficult to find someone with enough financial stability to cosign for you. If you go this route, have a candid conversation with your prospective cosigner in advance about expectations in the worst-case scenario. 

3. Raise Your Credit Score 

If your credit score just isn’t high enough to qualify for conventional credit you could take some time to focus on improving it. Raising your credit score might sound daunting, but it’s definitely possible. 

Here are some strategies you can pursue:

  • Report your rent payments. Rent payments aren’t typically included as part of the equation when calculating your credit score, but they can be. Some companies, like Rental Kharma, will report your timely rent payments to credit reporting agencies. Showing a history of positive payment can help improve your credit score. 
  • Make sure your credit report is updated. It’s not uncommon for your credit report to have mistakes in it that can artificially deflate your credit score. Request a free copy of your credit report every year, which you can do online through Experian Free Credit Report. If you find inaccuracies, disputing them could help improve your credit score. 
  • Bring all of your payments current. If you’ve fallen behind on any payments, bringing everything current is an important part of improving your credit score. If your lender or credit card company is reporting late payments a long history of this can damage your credit score. When possible speak to your creditor to work out a solution, before you anticipate being late on a payment.
  • Use a credit repair agency. If tackling your credit score is overwhelming you could opt to work with a reputable credit repair agency to help you get back on track. Be sure to compare credit repair agencies before moving forward with one. Companies that offer a free consultation and have a strong track record are ideal to work with.

Raising your credit isn’t an immediate solution — it’s not going to help you get a loan or qualify for a credit card tomorrow. However, making these changes now can start to add up over time. 

4. Find an Online Lender or Credit Union

Although traditional banks can be strict with their lending policies, some smaller lenders or credit unions offer some flexibility. For example, credit unions are authorized to provide Payday Loan Alternatives (PALs). These are small-dollar, short-term loans available to borrowers who’ve been a member of qualifying credit unions for at least a month.

Some online lenders might also have more relaxed criteria for writing loans in a weak economy. However, you should remember that if you have bad credit you’re likely considered a riskier applicant, which means a higher interest rate. Before signing for a line of credit, compare several lenders on the basis of your quoted APR — which includes any fees like an origination fee, your loan’s term, and any additional fees, such as late fees. 

5. Increase Your Down Payment

If you’re trying to apply for a mortgage or auto loan, increasing your down payment could help if you’re having a tough time getting approved. 

When you increase your down payment, you essentially decrease the size of your loan, and lower the lender’s risk. If you don’t have enough cash on hand to increase your down payment, this might mean opting for a less expensive car or home so that the lump sum down payment that you have covers a greater proportion of the purchase cost. 

Loans vs. Credit Cards: Differences in Credit Approval

Not all types of credit are created equal. Personal loans are considered installment credit and are repaid in fixed payments over a set period of time. Credit cards are considered revolving credit, you can keep borrowing to your approved limit as long as you make your minimum payments. 

When it comes to credit approvals, one benefit loans have over credit cards is that you might be able to get a secured loan. A secured loan means the lender has some piece of collateral they can recover from you should you stop making payments. 

The collateral could be your home, car or other valuable asset, like jewelry or equipment. Having that security might give the lender more flexibility in some situations because they know that, in the worst case scenario, they could sell the collateral item to recover their loss. 

The Bottom Line

Borrowing during a financial downturn can be difficult and it might not always be the answer to your situation. Adding to your debt load in a weak economy is a risk. For example, you could unexpectedly lose your job and not be able to pay your bills. Having an added monthly debt payment in your budget can add another challenge to your financial situation.

However, if you can afford to borrow funds during an economic recession, reduced interest rates in these situations can lessen the overall cost of borrowing.

These tips can help tidy your finances so you’re a more attractive borrower to lenders. There’s no guarantee your application will be accepted, but improving your finances now gives you a greater borrowing advantage in the future.

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