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Ted Sutton Articles and Resources

There Will Be No Delaying The Corporate Transparency Act

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        Recently, a federal district court judge in National Small Business United v. Yellen (NSBU) held that the Corporate Transparency Act (CTA) was unconstitutional.[1] But does this mean that you don’t need to report any information to FinCEN?

        Unfortunately, some people think that this is the case. There are many people (including some attorneys) who are telling others that they can delay reporting their Beneficial Ownership Information (BOI) to FinCEN.

        However, this is not the case. And as it turns out, the deadlines for reporting your information have not changed.

        It is unfortunate that this misinformation has become so prevalent. However, we here at Corporate Direct believe that it is crucial to tell the truth about this case. Here are three facts that every business owner must know about this recent ruling.

  1. The ruling only applies to the named plaintiffs of the case

        The first matter is that the ruling only applies to the named plaintiffs of the case. National Small Business United (also known as the National Small Business Association) is a group of 65,000 small businesses across the country. And because the ruling only applies to these 65,000 entities, they are the only ones who do not have to report their BOI to FinCEN. As for every other business entity, they are still required to submit their BOI reports.

  1. The ruling could be overturned by the Supreme Court

        The second fact that people must know is that the NSBU case could easily be overturned once it inevitably reaches the Supreme Court.

        At the heart of the NSBU case is the issue of whether the CTA is unconstitutional. Liles Burke, the judge on the case, held that it was not. And his three grounds were that the CTA exceeded the Constitution’s limits under its foreign affairs powers, the commerce clause, and its taxing powers.

        It is worth noting that Judge Burke is a conservative judge who was appointed by President Trump. And if this case was before a liberal judge, they likely would have held the CTA to be constitutional.

        With these things in mind, how will the Supreme Court treat this case once it reaches them? While the Supreme Court does have a 6-3 conservative majority, they could still reverse Judge Burke’s holding on any of his stated grounds (especially under the commerce clause).

        Over the last few years, we have seen Chief Justice Roberts, Justice Kavanaugh, and Justice Gorsuch side with the liberal Justices on several cases before the Supreme Court. And given this recent track record, there is a good chance that at least two of them could side with the liberal justices. In this scenario, the Supreme Court could easily hold that the CTA is constitutional by a 5-4 or 6-3 decision.

  1. Other states have passed transparency acts of their own

        The third thing to know is that regardless of what the Supreme Court holds, states are beginning to enact their own transparency acts. And because corporate law has always been a creature of state law, the states are free to enact these types of corporate transparency rules.

        Many of these new rules model the CTA, and they also require reporting the same BOI to a branch of the state government.

        New York was the first state to enact such a rule. Recently, their state legislature passed the New York LLC Transparency Act (or NYLTA). NYLTA requires any LLC that is formed or registered to do business in New York to file similar BOI reports with the New York Department of State. The reporting period begins on January 1st, 2026.

       And other states are following suit. For example, the state legislatures in California and Maryland have proposed enacting similar bills. And don’t be surprised if other states propose similar bills of their own.

Conclusion

        Regrettably, there are some people out there who are providing inaccurate information on this recent ruling. But there is one thing that every business owner must know: if your business was not a named plaintiff in the case, you are still required to submit your BOI report to FinCEN. And if you don’t, your business is still subject to the CTA’s penalties. These include $10,000 in fines, and spending up to two years in jail.

        And even if the Supreme Court holds that the CTA is unconstitutional, you still may need to submit the same BOI reports to your state.

        We here at Corporate Direct care about educating our clients on the Corporate Transparency Act. For more information on the CTA, please check out our website at www.corporatedirect.com, or schedule a free 15-minute consultation with one of our incorporating specialists at https://corporatedirect.com/schedule/.

 

[1]National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.).

 

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The New Nursing Home Ownership Transparency Regulations

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Introduction

When it comes to new disclosure laws, the government is not stopping at the Corporate Transparency Act (CTA). Recently, the Center for Medicare & Medicaid Services (CMS) released new regulations for REIT’s and private equity firms who own, control, or manage nursing home facilities.

These new regulations go a step further than the CTA. This is because when these entities report their information, it will become available to the public one year after they submit it. Not only will this add an additional burden for nursing home investors, but it will also compromise these investors privacy.

However, the CMS listed several reasons for issuing these regulations that target REIT’s and private equity firms. Some of them include the staffing conditions, quality of care, uptick in Medicare costs, and the increasing sales of nursing homes by these entities.

The CMS argues that this increase in sales has led to a decrease in ownership transparency. In turn, these ownership changes have been a concern for the patient’s family members. This is because they are unsure as to who owns the facility and who provides care to their loved ones. As well, as the government fights Medicare fraud, perhaps the public disclosure will give the bad boys pause.

What data must be reported?

With all of these concerns in mind, the CMS now requires any nursing facilities enrolled in Medicare and Medicaid to report even more data relating to the ownership and management of each nursing facility. This additional data includes the following:

 

 

  1. The name, title, and period of service of each governing body’s member.

 

  1. The name, title, and period of service of each person (or entity) who is an officer, director, member, partner, trustee, or managing employee of the facility.

 

  1. The name of each person or entity who is an “additional disclosable party” of the facility.

 

  1. The organizational structure of each “additional disclosable party” of the facility.

 

  1. A relationship description of each “additional disclosable party” to both the facility; and to one another.

 

 

As you can see, these new regulations will require individuals and “additional disclosable parties” to report detailed information.

Additional Disclosable Parties

What is an “additional disclosable party?” This definition has a very broad reach, as it encompasses many different people and entities. These “additional disclosable parties” are any person or entity that:

 

 

  • Exercises operational, financial, or managerial control over the facility (or a part thereof), or provides policies or procedures for any of the facility’s operations, or provides financial or cash management services to the facility,
  • Leases or subleases real property to the facility, or owns a whole or part interest equal to or exceeding 5% of the total value of such real property, or
  • Provides management or administrative services, management or clinical consulting services, or accounting and financial services to the facility.

     

    This definition also applies to real estate investing companies who either lease the property or have any management control over the nursing homes. Because of this, every one of these “additional disclosable parties” must have an up-to-date organizational chart on hand to provide to CMS.

    As discussed earlier, these charts will also become publicly available one year after being reported. And if any of the information changes on these organizational charts, the “additional disclosable parties” will need to resubmit a new organizational chart as soon as possible. This information will also be available to the public after one year.

    Companies that are Additional Disclosable Parties

    If a company is an “additional disclosable party,” what organizational structures must they report? This depends on the type of company.

     

     

    • If the entity is a corporation, they must report its officers, directors, and shareholders who own 5% or more of the company.
    • If the entity is an LLC, it is required to report all members and managers, as well as the ownership percentages of each.
    • If the entity is an LP, it must report all general partners, and any limited partners who own 10% of more of the LP.
    • If the entity is a GP, it must report all general partners.
    • For trusts, they must report the trustee of that trust.
    • Individuals must report their contact information.
    • As for any other person or entity not listed above, they must report any “information that the secretary deems appropriate.”

       

      Effects of these new Regulations

      These new CMS regulations will certainly place an additional hardship on investors who invest in these nursing homes. And this may cause a chilling effect on these investments. There are a lot of sensible investors who do not want their personal information disclosed to the public. This is especially true if they run the risk of being directly contacted by angry family members. Because all their personal information will be available to the public, this may reduce investment into nursing homes altogether.

      This begs another question: Will the government stop here? Or will they require more people to disclose their private information to the public? Only time will tell.

       

       

      Corporate Direct has a weekly YouTube segment called Direct Answers from Corporate Direct

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      Do You Need an EIN Number Under The Corporate Transparency Act?

      Do You Need an EIN Number Under The Corporate Transparency Act?

       

      An EIN (Employer Identification Number) is like a Social Security Number for your business. You now need one to open a bank account.

       

      But there are many business owners who don’t have an EIN number. This could be from the advice of their CPA. Or maybe, somehow, they never bothered to get one. But with the passage of the Corporate Transparency Act (CTA), every business entity is now required to have an EIN.

       

      Under the CTA, companies are required to submit a Taxpayer Identification Number (or TIN) to FinCEN. This TIN can be an Employer Identification Number (EIN), a DUNS Number, or a Legal Entity Identifier (LEI). In most cases, you will use your EIN.

       

      This may come as a shock to many business owners. Many of them don’t have an EIN, and never thought they needed one. Many get by without ever obtaining an EIN. Unfortunately, this is no longer the case.

       

      And what happens if these business owners don’t get an EIN number, and then fail to file their CTA? They could face very steep penalties. These include up to $10,000 in fines, or even spending 2 years in jail.

       

      For business owners, the answer is very clear: Get an EIN number, or face the consequences.

       

      Luckily, Corporate Direct is here to help you navigate the CTA. We will perform your CTA filings, and can also obtain an EIN number for you. It’s now just one of those things: It isn’t hard, but it’s necessary.

       

       

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      Am I Really Doing Business in California? The Long Arm of the Franchise Tax Board

      The Long Arm of the Franchise Tax Board

      Dave was a young man from Washington. He had lived in Seattle his whole life, and never had any plans of leaving. In fact, Dave had just purchased a $1 million home 20 minutes from downtown Seattle.

       

      Dave had cousins in California who were avid real estate investors. They would regularly form LPs (Limited Partnerships) to syndicate deals. They would then use these LPs to buy commercial properties. To finance the purchase, they would raise money from investors and give them an equity stake in the syndicate LP.

       

      After seeing his cousins’ success, Dave asked his cousins if he could invest with them. They agreed, and allowed Dave to invest $100,000 in their next deal. Dave then set up a Wyoming LLC to invest the $100,000 into the syndicate LP, which owned a new $100 million shopping center in Southern California.

       

      The first year was very successful. The center was fully occupied and had lots of foot traffic. The monthly checks investors received from the syndicate LP were much higher than expected.

       

      Dave was happy that he invested in the deal. That was until he received a letter from the California Franchise Tax Board (FTB) demanding that he pay the $800 franchise tax for his passive Wyoming LLC.

       

      How could this be? The syndicate LP paid its $800 fee to California. His Wyoming LLC was just a passive investor in the syndicate LP. Plus, Dave had never lived in California, and he didn’t even directly own any property there! Despite all this, Dave still needed to cough up the $800 for his Wyoming LLC.

       

      This is all thanks to California’s Revenue & Tax Code Section 23101(b)(3). Under this section, any LLC (or other entity) is doing business in California if the value of its real and tangible personal property in California meets the lesser of two requirements.

       

      The first is that the property exceeds $67,000 (which is yearly adjusted for inflation). The second is that the property exceeds 25% of the taxpayer’s total real property and tangible personal property. If a passive Wyoming LLC meets either requirement, it must pay the annual $800 franchise tax since, under California’s definition, it is doing business there.

       

      Under the second requirement, Dave could argue that because he owned a $1 million home in Washington, and only invested $100,000 in California, that well over 25% of his total real property was located outside of the Golden State.

       

      However, this doesn’t matter to the FTB. And this is because he still meets the first requirement, as his interest in the syndication is worth $100,000, catching his Wyoming LLC (which was passive and had no management authority) into the tax. Dave still had to pay that darn $800 franchise tax for “doing business” in California.

       

      If you don’t live in California, but decide to invest there, you need to know about this franchise tax. If you don’t, you could end up like Dave, wondering why he should invest in California in the future.

       

       

      Corporate Direct has a weekly YouTube segment called Direct Answers from Corporate Direct

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      California Non-Residents Beware: You May Still Need to File a Tax Return

      California Non-Residents Beware: You May Still Need to File a Tax Return

       

      Every American needs to file a federal tax return with the federal government. And if you live in California, you are required to fill out Form 540 for your individual state income taxes.

       

      This makes sense. If you’re a resident of California, you’ll file a tax return and pay income taxes to the state.

       

      But here’s what many people don’t know: even some California nonresidents need to file a return there. If you earned any income in California but live outside of it, you are required to file Form 540 NR with the California Franchise Tax Board.

       

      This form allows the state to see the income from all of the nonresident’s sources. From here, the state then parses out the California tax on a ratio.

       

      For any nonresident who wants to invest in California, this serves as a warning. If you live out of the Golden State but own property there, California would still like to see where every penny of your income came from. Perhaps this is another reason why people are hesitant to invest there.

       

      Corporate Direct has a weekly YouTube segment called Direct Answers from Corporate Direct

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      Trusts and S-Corps

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      Given the restrictions on the ownership of S-Corporation stock, it may be difficult for grantors to store such stock into a trust. However, upon proper election, the IRS regulations allow for two types of trusts to remedy this issue.

       

      Qualified Subchapter S Trust (§ 1361(d))

      The first such trust is the Qualified Subchapter S Trust (QSST). A QSST is a trust that requires only one beneficiary who must be a United States resident. The beneficiary is required to make the QSST election within 2.5 months of the trust receiving stock. A Sample QSST election form is included below.

       

      Electing Small Business Trust (§ 1361(e))

      The second type of trust is the Electing Small Business Trust (ESBT). An ESBT is a trust that allows for multiple beneficiaries, and the beneficiary can be an individual, estate or a charitable organization. The trustee is required to make the ESBT election within 2.5 months of the trust receiving stock.

       

      Why the ESBT is better than the QSST

      ESBTs are preferred over QSSTs for the simple reason that ESBTs are the more flexible option. QSSTs can only have one beneficiary that must be an individual. In addition, the children of the QSSTs beneficiary are barred from becoming beneficiaries. On the other hand, an ESBTs can have multiple beneficiaries including individuals, estates, and charitable organizations, and children of ESBT beneficiaries can become beneficiaries in the future.

      It is worth noting that one must be careful when making such an election. Failure to make these elections in a timely manner may result in the corporation losing its Subchapter S status, which could impose the double tax under Subchapter C. Angering other shareholders this way is not a position that you want to be in.

       

      Who is the beneficiary?
      Who makes the election?
      Benefits
      Drawbacks
      Qualified Subchapter S Trust (§ 1361(d))
      • Only one individual who is a resident of the US
      • The beneficiary, within 2.5 months • Fills out Form 2553
      • If income is not distributed, beneficiary is taxed at their income rate • Separate with respect to each corporation
      • Only one beneficiary is allowed • Beneficiaries’ children can’t be beneficiaries • Beneficiary taxed on entirety of share
      Electing Small Business Trust (§ 1361(e))
      • Can be an individual, estate, or charitable organization
      • The trustee, within 2.5 months • Fills out Form 2553
      • Multiple beneficiaries are allowed • Beneficiaries’ children can be beneficiaries • If given the power to withdraw, beneficiaries are taxed at their own rate
      • If income is not distributed, beneficiary is taxed at the highest rate • The interest in the ESBT cannot be acquired by purchase.

      SAMPLE QSST ELECTION

      Internal Revenue Service Center

      RE: QUALIFIED SUBCHAPTER S TRUST ELECTION

      The current income beneficiary of the         Trust hereby elects under IRC § 1361(d)(2) to treat the trust as a qualified Subchapter S trust pursuant to IRC § 1361(c)(2)(A)(i). The following information is provided:

      Current Income Beneficiary:

      Name

      Address

      Taxpayer identification number

       

      Trust:

      Name

      Address

      Taxpayer Identification Number

       

      S Corporation:

      Name

      Address

      Taxpayer Identification Number

       

      This election is made under IRC § 1361(d)(2) to be effective as of [date]             . On

      [date] the stock of _____ was transferred to the ______ Trust, which meets all the requirements of Reg. § 1.1361 – 1(j)(6)(ii)( E)(1), (2), and (3) as follows:

       

      1. All trust income will be or is required to be distributed currently to one individual beneficiary who is a citizen or resident of the U.S.
      2. During the life of the current income beneficiary, there is only one income beneficiary of the trust.
      3. Any corpus distributed during the life of the current income beneficiary may be distributed only to that income beneficiary.
      4. The current income beneficiary’s income interest in the trust terminates on the earlier of that beneficiary’s death or the termination of the trust.
      5. If the trust terminates during the life of the current income beneficiary, the trust will distribute all of its assets to that income beneficiary.
      6. No distribution by the trust (income or corpus) will be in satisfaction of the grantor’s legal obligation to support the income beneficiary.

      ___________________          ________________            ___________
      Signature of beneficiary          Name of beneficiary   Date

       

       

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      California Residents: Your Out of State LLC Will Face Double Taxation

      California Residents: Your Out of State LLC Will Face Double Taxation

      California residents beware! If you own an interest in an out of state LLC and sell it, you will have to pay even more in taxes.

       

      The California Office of Tax Appeals (OTA) recently held such in Matter of Buehler, OTA Case No. 21067960, 2-23-OTA-215P (pending precedential) (issued Feb. 28, 2023).

       

      In Buehler, Mr. Buehler, a California resident, owned an interest in a Massachusetts LLC. He was also one of the LLC’s three managers. The LLC provided portfolio management services and had an office in Massachusetts.

       

      Buehler then sold his interest in the LLC, and paid taxes in Massachusetts. But because Buehler was a California resident, the Golden State wanted their share too.

       

      The OTA found that Buehler’s interest in the LLC constituted intangible property. Because it was intangible property, Buehler’s interest was subject to California income tax. In order to avoid this tax, the LLC interest would have to acquire a “business situs” in Massachusetts.

       

      The OTA defined having a “business situs” as “being localized in connection with a business, trade, or profession in the state so that its substantial use and value attach to and become an asset of the business, trade or profession in the state.” If a person has a business situs in that state, they can avoid being subject to California income tax.

       

      Despite the fact that Buehler was a managing partner of the LLC, and the LLC owned property in Massachusetts, Buehler still did not acquire a “business situs” in Massachusetts.

       

      The OTA held that because Buehler’s LLC interest did not acquire a “business situs” in Massachusetts, the sale of the interest is subject to California income tax.

       

      This has far-reaching consequences for California residents. If you sell your out-of-state LLC interests, you will face double taxation. This is true, no matter how active or passive that interest may be.

       

       

      Corporate Direct has a weekly YouTube segment called Direct Answers from Corporate Direct

      In this segment, we educate people on corporate law, business formation, real estate, wealth building, and asset protection. And if you have any general questions about something, please feel free to leave a comment on one of our videos!

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      The Cascading Charging Order Explained

      The Cascading Charging Order Explained

      Real estate investors and business owners always run the risk of being sued. If they’re not protected, a courtroom loss can lead to a loss of personal assets. Even if they use a strong LLC, the victor in a car wreck case, for example, may try to get a charging order. And if their holding LLC owns an operating LLC, that same winner may try and get a cascading charging order against one or more operating LLCs. If they succeed with this remedy, it could really harm business owners. But first, what are charging orders and cascading charging orders, and what do they do?

       

      What is a Charging Order?

      A charging order is simply a lien on distributions from a business. So, if any distributions are made to the LLC owner, the person with the charging order will get them instead. The court ‘charges’ the LLC owner to make distributions to the car wreck victim. But when would this apply? Here is a chart to help explain this concept:

      Capture1

      In this chart, Joe owns a Wyoming LLC. That Wyoming LLC owns two operating LLCs. Wyoming is a stronger asset protection state, where the charging order is the exclusive remedy.

      Now let’s say that Joe got into a car accident. If the car wreck victim were to sue Joe and win, they could get a charging order on Joe’s Wyoming LLC. The chart below explains this concept:

      Capture3

      However, the charging order limits what that car wreck victim can do. They don’t have the right to manage Joe’s business. And they don’t have the right to demand or vote that Joe’s business pay them. The only way they get paid is if Joe makes a distribution from the entity. And if Joe doesn’t make any distributions, the car wreck victim doesn’t get paid. As you can see, the charging order is a very powerful tool for protection.

       

       What is a Cascading Charging Order?

      Now that we discussed what a charging order is, what exactly is a cascading charging order? And how does it differ from a regular charging order?

      With a regular charging order, the car wreck victim can place it on any businesses that Joe directly owns. However, a cascading charging order is different. This applies where the car wreck victim tries to place a charging order on the operating companies that Joe indirectly owns.

      While Joe doesn’t directly own the operating LLCs, the car wreck victim may still try to place a cascading charging order on it. This is because Joe indirectly owns the operating LLC through Joe’s direct ownership of the Wyoming LLC. The diagram below illustrates this concept:

      Capture2

      But can the car wreck victim do this? One recent Texas case addressed this issue.

       

      Bran v. Spectrum MH, LLC

      One recent Texas case, Bran v. Spectrum MH LLC, dealt with this issue.[1] In Bran, the parties settled the dispute through arbitration. The arbitrator ruled in favor of Spectrum, and awarded a judgment worth $1.5 Million against Bran.

      To collect this judgment, Spectrum appointed a receiver. What the receiver did next was deemed to be out of line. Instead of placing a charging order against the businesses that Bran directly owned, the receiver reached the accounts of businesses that Bran indirectly owned. Bran then filed an emergency appeal.

      On appeal, the issue before the Texas Court of Appeals was whether the receiver could get a cascading charging order to reach the assets of the businesses that Bran indirectly owned.

      The Court of Appeals ruled that the receiver could not. Instead, the receiver could only reach the assets that Bran directly owned. The court also noted that before the receiver could attach a charging order against a specific entity, Spectrum must prove that Bran had an ownership interest in those entities. This means that if Bran indirectly owned an interest in an entity, the receiver could not reach that entity’s assets.

      In Bran, the cascading charging order was off limits. The court also mentioned that the charging order was the exclusive (or only) remedy that the receiver had. This means that the receiver could only collect the $1.5 Million judgment from assets that Bran directly owned.

       

      What This Means For You

      Many real estate investors and business owners have an entity structure where they directly own one holding entity, and that entity owns one or more operating entities. When the business owner is sued personally, some courts (like Texas) have held that a person can’t reach that second entity via the cascading charging order.

      This structure that involves a Wyoming holding company is very advantageous for business owners, because it limits what a creditor can collect when they are personally sued. And because courts are beginning to block these cascading charging orders, having this structure is a great asset protection strategy.

       

      [1] Bran v. Spectrum MH LLC, 2023 WL 5487421 (Tex.App., 14th Distr,, August 24,. 2023).

      California Physicians Beware: You May Have Additional Requirements

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      If you practice medicine in California, you may have additional hoops to jump through. The Medical Board of California requires physicians who practice under a name different from their own to obtain a Fictitious Name Permit (FNP). If you do not have this permit, you may be cited for unprofessional conduct.

       

      Let’s use John Smith as an example. If John is an orthopedic surgeon, and forms a professional corporation called “California Orthopedics,” John must obtain an FNP.

       

      A person must obtain an FNP though the Medical Board of California. The application requires the entity type, the articles of incorporation, a $70 check, and a hard copy of the application with your signature on the page. In total, the application process may take up to 8 weeks.

       

      On top of the FNP, you may also need a DBA. If you practice under a name different than the one listed on the Secretary of State’s website, you will need to file a DBA with the county where you conduct business.

       

      Back to the example above. If John’s professional corporation is called “California Orthopedics” but he advertises his practice as “Bay Area Orthopedics,” John will also need to obtain a DBA on top of his FNP.

       

      When starting a medical practice in California, obtaining these permits are things that you may not think about. However, they will save you from any unnecessary hardships in the future.

       

      Corporate Direct has a weekly YouTube segment called Direct Answers from Corporate Direct

      In this segment, we educate people on corporate law, business formation, real estate, wealth building, and asset protection. And if you have any general questions about something, please feel free to leave a comment on one of our videos!

      For more of these updates, click the link below and subscribe to our YouTube channel.

      Spending Money in College: Mistakes & Solutions for College Students

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      For most people, college is the first time to gain independence from your parents. But when college kids have this sort of freedom, they are prone to making many mistakes. And many of these mistakes involve money.

      While many of these financial mistakes are made, they can certainly be avoided. In this article, we discuss the most common types of financial mistakes, and what you can do to avoid them.

       

      Mistake #1: Not having a budget

      The first mistake college students make is not capping how much money they spend each month. College students tend to rack up the bill on a lot of items, which can include food, coffee, and alcohol. And the solution to this problem is quite simple:

      Solution: Create a budget

      When college students create a budget, they can both track their expenses and see where their money is going. Having this in place will likely stop them from overspending. And it’s very easy to do. In fact, there are several different apps out there that can help college students create a budget and track what they buy.

      Mistake #2: Impulse spending

      The second mistake is when college students make purchases on a whim. This can happen when college students don’t track their expenses, or make impulse purchases with a credit card. When college students do this, they aren’t thinking of the long-term impact of their purchases. And this drains their funds very quickly.

      Solution: Pay off the credit card in full

      The best solution to a college student’s impulse spending is making sure that they pay off their credit card bill in full every month. Doing this will teach them a few things. First, it will teach them to use the card responsibly. When this happens, they won’t make as many bad purchases, and they may avoid any high-interest debt in the future. Second, it will teach them to live within their means. When college students live frugally, their monthly credit card bills will end up being much lower.

      Mistake #3: Financial aid mistakes

      Mistake #3 involves making mistakes with financial aid. One such mistake involves using the financial aid on nonessential items, including clothes and electronics. And once college students graduate, it is also common for them to ignore repaying their student loans.

      Solution: Know the terms of the financial aid

      In order to prevent the misuse of financial aid, college students must understand the aid they are receiving. This involves reading the terms of the aid they are receiving. Once college students do this, they will understand what they can and can’t use the aid for, what the interest rates are, and when they must pay off their loans. And when college students become aware of these things, they will likely spend their aid wisely. They may even start paying off their debts during college.

      Mistake #4: Not setting aside money

      The fourth mistake involves not setting aside money for the future. Unfortunately, colleges don’t teach financial education. Because of this, college students don’t fully understand the importance of investing and having an emergency fund.

      Solution: Set up new accounts

      To solve this problem, college students can set up new accounts. First, they can set up a savings account. If any unexpected expenses pop up, the funds from the savings account can cover them. Second, they can set up an investment portfolio. Every month, college students can transfer funds into the account. Over time, their portfolios will likely increase in value. When college students do these things, it will help them financially both in the present and in the future.

      Mistake #5: Relying too heavily on their parents

      The fifth and final mistake college students make is only relying on their parents for money. When this happens, college students have no independence because they only have one source of income.

      Solution: Get a part-time job

      One way to solve this issue would be for college students to get a part-time job. Once this happens, they will have a second stream of income. This can be used to cover other expenses like groceries, rent, and vacations.

      Conclusion

      College is the time for people to learn to be independent and functioning adults. If college students implement these solutions, they will be much more financially savvy both in college and in their adult life.

       

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