Edwin Beale’s primary financial goal is a familiar one. He’d like to move ahead in his career and increase his compensation. At the same time, he realizes achieving this objective would also result in a higher tax bill. “Even as things are now, I’m looking for tax relief,” he says. Therefore, he’s seeking the best of both worlds- — more income without a painful tax bite.
To turbocharge his career, the 30-year-old sales and marketing representative for a Newark, Delaware-based biotechnology company believes he needs an M.B.A. “Ideally,” he says, “I’d like to get my M.B.A. from a school, with a top program such as Duke.”
The cost, however, might run $60,000 or more. “If I keep my present job and go to school part-time, my company would pay $10,500 per year toward the degree. I’d have to pay the rest myself, perhaps by taking a student loan,” says Beale.
Another alternative: Beale, who hopes to start grad school by the fall of 2003, could become a full-time student. Such a move would enable him to rapidly earn his degree, but require him to take out huge loans as well as figure out a way to make a living. “Not only would I have my current living expenses,” he says, “I’d also have to pay for a car because I’d no longer be able to drive a company car.”
But Beale is also trying to cope with taxes, a burden that may grow heavier after he hangs his diploma on his wall. “As a single person with no dependents, I don’t have much in the way of deductions. That’s one of the reasons I bought a house a few years ago,” he says.
Currently, his house is worth more than $100,000, thanks, in part, to some sweat equity he has put into it. “My mortgage is less than $70,000, so my mortgage interest payments are relatively modest. Deductible interest payments are about $5,300 a year. If I didn’t own a house, I could take a standard deduction, so I’m not getting that much tax benefit from my mortgage interest payments,” Beale notes.
One solution Beale is now exploring is buying a bigger house with a larger mortgage in order to gain a greater tax write-off. In fact, he’s eyeing a local property selling for around $230,000. “With a little work,” says Beale, “it could be turned around for $280,000.” To buy such a property, Beale would come up with the down payment either by taking a second mortgage on his present house or borrowing from his 401(k) plan at work.
What would he do with his present home? One option would be to rent it out and move into the new one. Beale estimates he could net about $300 per month from the rental, even after making his present mortgage payments. Another avenue would be to stay in his present home and use the new one as a rental.
Beyond those main goals- — furthering his career and reducing his taxes–Beale has other financial concerns. He’d like to build