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Web Exclusive! Five More Valuable Money Tips

By William J. Lynott
Published: August 14, 2008

1. Pass Up Credit Life Insurance When You Take Out a Business Loan

Credit life insurance is more expensive than most other types of insurance. Although such a policy does offer some protection to the borrower, the prime beneficiary is the lender. If you die before you pay off the loan, the proceeds of the policy will go directly to the lender. Nothing goes to your estate even though you paid the premiums.

Most financial advisors suggest that you offer a firm "no" when offered credit life insurance.

2. Don't Overpay Your Quarterly Estimates Just to Avoid Owing the IRS Money at Tax Time

It may feel satisfying to discover that Uncle Sam owes you money at tax time, but don't be fooled. The IRS gets the last laugh when you overpay your quarterly estimates. When you do that, you've handed them an interest-free loan at your expense.

"The least expensive way for you to pay your tax liability is to try to have estimated payments come out as close as possible to the amount owed," says CPA Tom Normoyle, Huntingdon Valley, Pa.

3. Consider Leasing Your Business Equipment

Leasing products like cars or vans for personal use is generally not economically advantageous. Most accountants agree that leasing is the most expensive way to maintain a car exclusively for personal use.

However, the rules of the game are different for business.

"The nature of business accounting is such that leasing can be the most sensible approach to many types of capital investments, including vehicles," says Normoyle. "It usually makes sense to lease, if you will be able to use the cash in your business or in your investments to earn a better return than the cost of leasing."

Talk to your tax advisor about this the next time you're considering any purchase of business equipment that might be available on a lease basis.
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4. Think Twice Before Signing Up For That Service Contract

Service contracts are the most profitable items sold by many equipment vendors and retailers. Sellers of contracts (sometimes called maintenance agreements) have a big advantage over buyers. By using repair history records, they simply add a substantial markup to the average cost for maintaining a given product, thus guaranteeing themselves a nice profit.
That's why only business owners who historically require more than the average amount of repair service for their equipment can hope to come out ahead.

If you're one of those people whose products collapse 24 hours after the warranty expires, you're a good candidate for service contracts.

5. Don't Be Afraid Of Credit

Extensive use of credit for personal affairs can be problematic. When it comes to business, it's a different matter. Even at today's interest rates, careful use of credit can be one of your most effective business-building tools.

It makes more sense to spread the cost of capital purchases out over time than to put stress on your cash flow by laying out large amounts of cash that you could put to productive business use. In addition, the costs of borrowing are legitimate tax deductions for businesses.

Credit, when used in a sensible manner, can be a powerful profit enhancer. Once you make use of business credit, it is essential that you protect your credit reputation by keeping a spotless credit history.

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