financial

Reviewed by David Kindness
Fact checked by Vikki Velasquez

With home ownership seemingly out of reach for many young people today, parents may wonder whether they should just give their house to their children at some point? This can happen when parents downsize or move to another property. However, while such generosity may be admirable, giving a house away is a decision with serious financial consequences for everybody concerned.

Key Takeaways

• Giving your house away means you can’t sell it or access a reverse mortgage if you face unexpected financial challenges.
• Gifting your house may result in your child having a larger taxable gain if they sell the home.
• If you still have a mortgage, it might not be transferable to your child, or they might struggle to refinance it.
• Even if you give the house to your child, if you continue living there, there could be estate tax concerns or family disputes.

Before transferring ownership to your adult child, consider these factors.

1. You May Need the Money One Day

Aside from the funds you have in your retirement accounts, your home equity could be the largest asset you possess. If you give up your house, you won’t be able to sell it and harvest the cash or take out a reverse mortgage to borrow against your accumulated equity should you ever need to. Even if you are financially comfortable now, a large medical or nursing home bill late in life could leave you scrambling to come up with money to pay it.

2. You Could Be Giving Your Child a Huge Tax Bill

If you give your house to your adult child while you’re still living, their tax basis will be the same as yours: whatever you paid for the home plus the cost of any improvements you’ve made over the years. So, for example, if you bought your home 20 years ago for $300,000 and redid the kitchen to the tune of $50,000, your cost basis is $350,000. 

However, if you leave the house to your adult child in your will, rather than making a gift while you’re still alive, the cost basis will step up to the home’s fair market value at the time of your death.

Let’s say your house is worth $700,000 today and will be worth $1 million in another 10 years. A child you give the house to, and who later sells it for $1 million, will owe tax on a gain of $650,000. If they inherited the property instead, the taxable gain would be only $300,000.

In both cases, the child could generally exclude some of that gain by living in the home for at least two years before selling. The exclusion is $250,000 for an individual, $500,000 for couples who file a joint return. But even so, the difference in taxes could be substantial.

3. Your Mortgage Might Be an Obstacle

With more Americans carrying mortgage debt into their retirement years, you might still have a loan on your home by the time you consider giving it to a child. If your mortgage is transferable, your child will become responsible for it, which could be a financial burden. If it isn’t transferable, your child might have to refinance that debt, which might be even more expensive—or impossible, if your child does not have a strong credit history.

4. You Might Still Want to Live There

For estate planning purposes, you might consider giving your house to a child even if you plan to continue living in it. One reason is estate taxes. For tax year 2025, federal estate taxes only affect estates worth $13.99 million or more, so unless you own a mansion, that may not be an issue. Your state, however, may set a lower threshold. Oregon has the lowest exemption levels at $1 million.

If you do want to give your house to a child and still reside there, consult an estate-planning attorney about your options, including putting your home into a trust. One type, the qualified personal residence trust, could also allow you to freeze your home’s value for estate tax purposes, so you wouldn’t have to worry about future appreciation pushing you into estate tax territory.

Of course, there any number of potential downsides to becoming your child’s tenant. One is the potential for a family rift if you disagree on matters like home maintenance or who is responsible for what. And even if you and your child have an ideal relationship, you could find yourself at the mercy of a less-agreeable son- or daughter-in-law someday—perhaps someone who isn’t even in the picture yet.

Can My Child Sell the House Immediately After I Give It To Them?

Yes, your child can sell the house after you give it to them, but depending on the property’s value and their tax basis, they may face steep tax liabilities. If the house appreciates in value, they could owe capital gains tax on the difference between the home’s sale price and its original value (if it was gifted).

Is It Better to Gift the House or Pass It Down In My Will?

If you gift the house while you’re alive, your child may face a larger tax bill due to the capital gains tax. If you leave the house in your will, the property’s tax basis is stepped up to its market value, which can reduce potential taxes for your child. It’s often better to consult with a tax advisor to decide what’s best for your family.

If I Give My House To My Child, Can I Still Claim Tax Deductions Like Mortgage Interest or Property Tax?

Once you transfer the house to your child, you can no longer claim tax deductions for mortgage interest or property taxes on that property since you will no longer own the home.

The Bottom Line

Giving your home to your grown-up child is not a decision to be taken lightly. It is in your and your child’s best interests to consider all of the financial ramifications of such a move. Consult with a financial planner and an estate planning attorney if you plan to remain living in the home. These steps will help ensure that you make a decision that works for everyone.

Reviewed by Michael J Boyle

Mercantilism is an economic policy designed to increase a nation’s wealth through exports, which thrived in Great Britain between the 16th and 18th centuries. The country enjoyed the greatest benefits of mercantilism between 1640 and 1660 when the prevailing economic wisdom suggested that the empire’s colonies could supply raw materials and resources to the mother country and subsequently be used as export markets for the finished products.

The resulting favorable balance of trade was thought to increase national wealth and Great Britain was not alone in this line of thinking. The French, Spanish, and Portuguese competed with the British for colonies under the belief that no great nation could exist and be self-sufficient without colonial resources. Because of this heavy reliance on its colonies, Great Britain imposed restrictions on how its colonies could spend their money or distribute assets.

Key Takeaways

• Mercantilism exists to increase a country’s wealth through its exports.
• British economic growth was propelled by raw materials supplied by its colonies so the nation could export finished products.
• Mercantilism brought about many acts against humanity, including slavery and an imbalanced system of trade.
• During Great Britain’s mercantilist period, colonies faced periods of inflation and excessive taxation, which caused great distress.
• Angry and frustrated American colonists revolted against the British, which led to the American Revolution and the end of mercantilism.

British Mercantilism’s Control of Production and Trade

Mercantilism led to the adoption of enormous trade restrictions, which stunted the growth and freedom of colonial business. Much of the trade that took place before the mid-17th century was controlled by the Spanish and Dutch, including to and from England. That was until the British decided to take the reins of their own shipping rights and eliminate these other nations completely from the equation.

In the 1660s, England passed the Acts of Trade and Navigation. Also known as the Navigation Acts, they were a series of laws designed to make American colonies more dependent on manufactured products from Great Britain. In this vein, British authorities further enumerated a set of protected goods that could only be sold to British merchants, including sugar, tobacco, cotton, indigo, furs, and iron.

But Britain’s rise in the shipping wars didn’t come without a cost. In fact, there were many transgressions and human rights violations that were committed by imperial the country (not to mention other European empires) on its colonies in Africa, Asia, and the Americas during this time. One of the key things to remember, though, is that not many of these transgressions were directly rationalized by mercantilism.

Note

In Wealth of Nations, the father of modern economics Adam Smith argued that free trade promotes a flourishing economy—not mercantilism.

The Slave Trade

Slavery was a common practice throughout the history of human civilization. The earliest records date back thousands of years to Mesopotamia. The Spanish, French, and Dutch used it to take advantage of the resources in parts of the New World. When local Indigenous populations started to decline, Blacks were transported from parts of Europe and Africa to the West Indies and South America. The British also used slavery to boost their position and advance their own interests.

Trade became triangulated during the mid-1600s between the British Empire, its colonies, and foreign markets. This fostered the development of the slave trade by England in many colonies, including America. The colonies provided rum, cotton, and other products that were heavily demanded by imperialists in Africa. In turn, slaves were returned to America or the West Indies and traded for sugar and molasses.

Not only did these new resources provide England with a large source of revenue, but so too did the slave trade. English company Royal Adventurers Trading to Africa and its successor, the Royal African Company were given a monopoly in the trade of slaves as early as the 1660s.

Important

The colonists were, to some degree, seen as tenants who lived on British soil under mercantilist rule. As such, the taxes imposed by the British and the raw materials sent back to England were effectively a form of rent.

Inflation and Taxation

The British government demanded the trade of gold and silver bullion and was always seeking a positive balance of trade. As such, the colonies often had insufficient bullion left over to circulate in their own markets so they took to issuing paper currency instead. The mismanagement of printed currency resulted in periods of inflation.

Great Britain was also in a near-constant state of war. Taxation was needed to prop up the army and navy. The combination of inflation and taxation caused great colonial discontent. Some of the most notable taxes in early American history include:

• In 1733, the British Empire enacted the Molasses Act, which imposed a tax on foreign molasses imports per gallon.
• The British raised revenue by enacting the Sugar Act of 1764. Although it cut the tax on molasses, the law (also called the American Revenue Act or the American Duties Act) was enforced even more strictly.
• The Stamp Act of 1765 required all American colonists to pay a direct tax to England that would help pay for British troops in America. The act also required colonists to use stamped paper produced in England for any printed material.
• Other laws aimed at increasing revenue and ensuring the enforcement of trade regulations included the Commissioners of Customs Act 1767 and the Indemnity Act of 1767.

And of course, there were the Townshend Acts that were passed between 1767 and 1768. These laws imposed taxes on 72 different items imported by England to America, including the tax imposed on tea. The colonists revolted against the tea tax, leading to the Boston Tea Party. Angry over the tax they said provided them with no taxation and the fact that they weren’t able to control their resources and finished goods on their own, colonists dumped crates of imported British tea into Boston’s Griffin’s Wharf in 1773.

How Did Mercantilism Affect the British Colonies?

England enacted new laws during the 16th and 18th centuries, putting tariffs on imports of foreign goods and restricting shipping through English channels. As such, mercantilism became the key economic model of the time. It encouraged the colonists to purchase goods from England rather than rival nations. The colonies sent raw materials to England where they were manufactured into finished products and sold to the colonists. This allowed Britain to monopolize the slave trade, transporting slaves from English ports to America. High inflation and heavy taxation on the colonies caused a rift between the colonists and the British.

How Did Mercantilism Create Discord Between Britain and Its Colonies?

Britain used mercantilism as a way to secure its interests in the New World. Raw materials were shipped back to England where they were converted to finished goods. These products were then shipped back to the colonies as exports, which the colonists purchased. In order to continue its stronghold in America, Britain had to ensure its military was paid for and did this by imposing a series of taxes on the colonists. This included taxes on goods like molasses, sugar, and tea. Angry at being taxed without representation and not being able to control their own resources, the colonists revolted. This eventually led to the American Revolution and independence.

Why Did American Colonists Oppose British Mercantilism?

Britain used mercantilism to boost its own interests during the mid-1600s. But it was almost always at war with its rivals to keep its trade and colonial interests in place. This required a regular stream of revenue, which England received through a series of taxes imposed on the colonists. These laws required that taxes be paid by every colonist on items like sugar, molasses, tax, and printed materials. The colonists, on the other hand, were enraged that they were forced to pay taxes without having a voice in the British government. They were also angry that the British government was the one in charge of how their resources and goods were used and distributed. This discord is what led to the American Revolution.

The Bottom Line

British mercantilism flourished during the middle of the 17th century at a time when England was flexing its muscle in the New World. The idea behind this economic policy was that the colonies existed for the benefit of the Empire, providing a stream of revenue and much-needed resources.

But all this came at a cost. England’s need to enforce its trade regulations and place in the world led to the slave trade and human rights violations in America. England would ultimately pay the price, though, after frustrated colonists who were unhappy about the lack of control on their own soil revolted against heavy taxation.

These two companies dominate the global market for soft drinks

Reviewed by Margaret James

Who Rules the Global Beverage Industry?

Just two corporate powerhouses dominate the global market for soft drinks: PepsiCo. Inc. (PEP) and The Coca-Cola Corp. (KO).

Since 2004, Coca-Cola has been the market leader. Coca-Cola remains the world’s most valuable soft drink brand with a market cap of $307.22 billion as of March 9, 2025. PepsiCo. is a second at $211.814 billion. Keurig Dr. Pepper (KDP) was the third soft drink brand with a $45.234 billion market cap.

Some analysts believe that Pepsi has a shot at surpassing Coca-Cola soon, but not by selling more soda. Pepsi also has a broad lineup of snack brands like Doritos, Cheetos, and Lay’s Potato Chips.

Key Takeaways:

• PepsiCo. Inc. and The Coca-Cola Corporation are the two powerhouses controlling the bulk of the carbonated soft drink (CSD) and beverage industry.
• Both companies have a large global presence, controlling several hundred brand names each.
• Since 2004, Coca-Cola Company has been the market leader, according to industry statistics.
• Pepsi ranks second, followed by Keurig Dr. Pepper.

Understanding the Soft Drinks Industry

Soft drinks belong to the non-alcoholic beverage industry. This industry produces carbonated drinks, juice, bottled water, sports and energy drinks, and hot and iced coffee and tea. The market leaders in this industry are The Coca-Cola Corporation, PepsiCo Inc., and Keurig Dr. Pepper.

The Coca-Cola Corporation and PepsiCo are long-term competitors. Pepsi has been using its famous “Pepsi Challenge” as a promotional slogan since 1975. The challenge was originally a blind taste test in which consumers were invited to try both beverages. Pepsi was the winner, and a long-running ad campaign was born.

World’s Favorite Drinks 2023

The top-selling non-alcoholic drinks worldwide in 2023 were:

1. Coca-Cola Classic
2. Pepsi Cola
3. Red Bull
4. Monster
5. Nescafe
6. Gatorade (owned by PepsiCo)
7. Dr Pepper
8. Sprite (owned by Coca-Cola)
9. Nongfu Spring
10. Lipton

Market Share and Market Cap

Both Coca-Cola, Inc. and PepsiCo dropped in market share by about 5-6% over the trailing twelve months through the first quarter of 2024.

Coca-Cola had a market cap of $261 billion and PepsiCo had a market cap of $242 billion as of the end of the first quarter.

Healthy Directions

Their historic rivalry isn’t the only concern facing executives of Coca-Cola and PepsiCo. Consumer tastes are evolving away from sugary drinks and towards healthier alternatives and energy drinks.

Both companies are trying to evolve with them.

Coca-Cola brands now include Simply juices, smartwater, Dasani, and vitaminwater.

PepsiCo owns Quaker Foods, Tropicana, and Aquafina,

Coke vs. Pepsi: Who Sells More Soft Drinks?

Coca-Cola’s carbonated soft drinks brands dominated the U.S. market at a 69% U.S. market share in 2023, according to AdAge. Pepsi brands were a distant second at 27%.

Coke vs. Pepsi: How Are They Different as Companies?

One big difference is that Coca-Cola has stuck pretty much to non-alcoholic drinks while expanding. Its brands include Fanta, Minute Maid, Fresca, Barq’s, and Costa Coffee, among others.

PepsiCo, meanwhile, has expanded heavily into foods, particularly snack foods. Its brands include Lay’s and Ruffles potato chips, Tostitos, Starbucks Frappaccinno, and Sabra Hummus, as well as Quaker Oats.

Who Cares About the Cola Wars?

You’d be surprised. A February 2024 story in the website Deadline reports that Sony Pictures won a hot bidding war for “Cola Wars,” a movie script that tells the riveting story of underdog PepsiCo’s epic decades-long rivalry with reigning cola king Coca-Cola.

The Bottom Line

Times have changed since the development of carbonated beverages. Consumers have begun to seek out healthier alternatives. Both cola brands have seen a recent decline amid increased competition, and analysts foresee a continued downward trend for the two main brands.

However, these two companies are expected to continue to dominate the overall beverage market.

Reviewed by Margaret James
Fact checked by Betsy Petrick

Jumbo vs. Conventional Mortgages: An Overview

Jumbo and conventional mortgages are two types of financing borrowers use to purchase homes. Both loans require homeowners to meet certain eligibility requirements, including minimum credit scores, income thresholds, repayment ability, and down payments.

Both are also mortgages issued and underwritten by lenders in the private sector, as opposed to government agencies like the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA), or the USDA Rural Housing Service (RHS).

Although they may serve the same purpose—to secure a property—these two mortgage products have several key differences. Jumbo mortgages are used to purchase properties with steep price tags—often those that run into the millions of dollars. Conventional mortgages, on the other hand, are smaller and more in line with the needs of the average homebuyer. They also may be purchased by a government-sponsored enterprise (GSE) such as Fannie Mae or Freddie Mac.

Key Takeaways

• Jumbo loans are mortgages that exceed the conforming loan limits.
• Jumbo and conventional mortgages are two types of private loans borrowers use to secure properties.
• A conventional mortgage usually falls within a certain size, as set by the FHFA annually, and adheres to certain government guidelines.
• A jumbo mortgage is in excess of FHFA standards, typically starting around $650,000, and cannot be backed by government-sponsored enterprises like Fannie Mae or Freddie Mac.
• Jumbo mortgages tend to have more stringent requirements for borrowers than conventional loans do.

Jumbo Mortgages

As their name implies, jumbo mortgages are loans intended for financing high-priced properties. They involve big sums, often running into the millions. Luxury homes and those found in highly competitive local real estate markets are generally financed via jumbo mortgages.

Largely because of their size, jumbo mortgages or loans are nonconforming. That means they fall outside of Federal Housing Finance Agency (FHFA) restrictions on loan sizes and values and are, therefore, restricted from receiving backing from Fannie Mae or Freddie Mac. They also exceed the maximum conforming loan limit in their respective counties.

$806,500

The 2025 maximum conforming loan limit for a single-family home in most of the United States. Jumbo mortgages typically involve any amount higher than this limit.

Other factors that disqualify jumbos from being conforming loans may include well-off borrowers with unique needs or interest-only mortgages that culminate in balloon payments, wherein the entire borrowed balance is due at the end of the loan term. Despite this, many jumbo loans still adhere to the guidelines for qualified mortgages (like not allowing excess fees, loan terms, or negative amortization) set by the Consumer Financial Protection Bureau (CFPB).

To qualify for a jumbo loan, borrowers must have an excellent credit score. Borrowers should also be in a higher income bracket. After all, it takes a lot of money to keep up with the regular mortgage payments and other related costs. And because lending requirements have become stricter following the financial crisis, borrowers are required to have low debt-to-income (DTI) ratios.

Jumbo Loan Requirements

Because federal agencies don’t back jumbo loans, lenders take on more risk when offering them. You’ll face more stringent credit requirements if you’re trying to secure one. You’ll also need to meet some minimum requirements to qualify, including:

• Proof of income: Come prepared with two years’ worth of tax documentation or similar paperwork to prove that you have a reliable, consistent source of income. Lenders will also want to see you have enough liquid assets to cover six months’ worth of mortgage payments or more.
• Credit score and history: The higher, the better. There’s a very low probability that lenders will approve you for a jumbo mortgage if your credit score falls far below 700.
• DTI ratio: Your debt-to-income ratio (monthly debt obligations compared to your monthly income) should be no more than 43% to 45% to qualify for a conventional mortgage. Lenders will typically look for an even lower DTI for jumbo mortgages—at the most 43% and ideally 36% or even less—because the loans are so large.
• Loan to value: LTV for jumbo loans may be stricter than a conventional mortgage, often requiring an LTV of 80% or lower. This means that the loan can finance no more than 80% of the property’s purchase price.
• Down payment: Because of the LTV requirements, you will likely need to come up with at least 20% upfront as a down payment.

Conventional Mortgages

Technically, a conventional mortgage is any mortgage not backed by the federal government. So anything that’s not an FHA loan, VA loan, or a USDA loan but offered and issued by private lenders such as banks, credit unions, and mortgage companies can be considered a conventional loan or mortgage.

Unlike jumbo loans, conventional mortgages may be either conforming or nonconforming. Conforming loans are those whose size limits are set by the FHFA and whose underwriting guidelines are set by Fannie Mae and Freddie Mac. These guidelines factor in a borrower’s credit score and history, DTI, the mortgage’s loan-to-value (LTV) ratio, and one other key factor—the loan size.

Conforming loan limits are adjusted annually to keep pace with the average U.S. home price, so when prices increase, loan limits increase by the same percentage as well. For 2024, the national maximum for conforming conventional loans is $766,550 for a single-unit dwelling, an increase of $40,350 from 2023.

Important

Each year, between 100 and 200 counties around the U.S. are designated as high-cost, competitive areas. Maximum loan limits in these areas can go up to $1,209,750 in 2025, up from $1,149,825 in 2024. New York City, Los Angeles, and Nantucket are a few such locations. So, mortgages in these real estate markets would be considered “jumbo” if they exceeded these amounts.

Fannie Mae and Freddie Mac will purchase, package, and resell virtually any mortgage as long as it adheres to their conforming loan guidelines and the FHFA’s size limits. Why is this significant? Because these two government-sponsored agencies are the major market makers for mortgages, and the ability to sell a loan to them—as most lenders eventually do—makes that mortgage far less risky from the lender’s viewpoint. So they are more likely to approve an application for it and offer better terms.

Note

Upfront fees on Fannie Mae and Freddie Mac home loans changed in May 2023. Fees were increased for homebuyers with higher credit scores, such as 740 or higher, while they were decreased for homebuyers with lower credit scores, such as those below 640. Another change: Your down payment will influence what your fee is. The higher your down payment, the lower your fees, though it will still depend on your credit score. Fannie Mae provides the Loan-Level Price Adjustments on its website.

Like jumbo loans, conventional loans require a down payment, a minimum credit score, a certain income level, and a low DTI ratio. You’ll generally need a credit score of at least 620 (considered “fair”) before a lender will approve you for a conventional mortgage.

However, not all conventional mortgages conform to these guidelines, and those that don’t are considered nonconforming loans. These tend to be more difficult to qualify for than conforming mortgages because they’re not backed by the government or marketable to Fannie and Freddie, so eligibility and terms are left to the lenders.

Note

If you want to get technical, a jumbo loan is, in lender-speak, a conventional, nonconforming loan.

Jumbo vs. Conventional Loans: A Comparison

In the past, interest rates for jumbo loans were much higher than those for traditional, conventional mortgages. Although the gap has been closing, they still tend to be slightly higher. You may even find some jumbo rates that are lower than conventional rates. A mortgage calculator can show you the impact of different rates on your monthly payment.

Jumbos can cost more in other ways, though. Down payment requirements are more stringent, at one point reaching as high as 30% of the home purchase price, though it is more common now to see jumbo loans requiring a down payment of 15% to 20%, higher than the 10% to 15% that some conventional loans require (and of course far higher than the 3.5% that FHA and other federal loans allow).

The higher interest rates and down payments are generally put in place primarily to offset the higher degree of risk involved with jumbos because Fannie Mae or Freddie Mac does not guarantee them.

Jumbo mortgages often have higher closing costs than normal mortgages because they are large loans.

Lenders expect more of jumbo borrowers, too. Their credit scores need to be higher (preferably above 700), their DTIs lower, and their bank account balances must cover 12 months’ worth of homeownership expenses—just about double the requirement for conventional mortgage borrowers. In other words, jumbo mortgagors are expected to be people with few debts and lots of liquid assets.

Here’s a comparison of typical terms for jumbo and conventional mortgages.

Conventional vs. Jumbo Mortgages Comparison
	Conventional Loan	Jumbo Loan
Typical Down Payment	3%-20%	10%-20%
Minimum Credit Score	620	700
Debt to Income Ratio	43%-45%	36%-43%
Cash Reserves Needed	0-6 months’ homeownership expenses	Up to 12 months’ homeownership expenses
Maximum Loan-to-Value Ratio	97%	90% or less
Backed by FNMA/FRMC?	Yes	No

How Are Jumbo Mortgage Rates Set?

Like conventional mortgages, rates are influenced based on Federal Reserve benchmarks and on individual factors such as the borrower’s credit score. Jumbo mortgage rates will rise and fall in line with the Fed’s short-term interest rates.

Additionally, because these loans cost more than half a million dollars and pose a great risk to lenders, borrowers will face more rigorous credit requirements. This includes having a much higher credit score (often at least 700) and a lower debt-to-income ratio. Lenders will also want borrowers to prove they have a certain amount of cash in reserve. The better your credit profile, the lower your jumbo mortgage rate will be.

Are Jumbo Loan Rates Higher than a Conventional Mortgage?

Jumbo loans, even though they are larger in size, often have lower interest rates today than conventional mortgages.

Which Should I Choose: A Jumbo or Conventional Loan?

A jumbo loan will automatically be applied if your mortgage exceeds $766,550. If you are buying a pricier home that exceeds the conventional loan limits, you will have to choose a jumbo loan unless you can come up with a down payment large enough to get the loan’s value under that limit.

What Are Mortgage Points?

Mortgage points, also known as discount points, are a fee borrowers pay lenders in order to receive a lower interest rate. In other words, you are prepaying interest for a period of time in order to pay less on the overall lifetime costs of your loan.

One mortgage point costs 1% of your loan amount. For instance, if you take out a loan for $500,000, you’ll pay $5,000 to reduce your rate by 0.25%. It may not seem like a huge amount, but it can add up to tens of thousands of dollars in interest over the life of the loan.

How Big a Mortgage Can I Afford?

How much you can borrow will depend on factors such as your credit score, income, assets, and the value of the property. Jumbo mortgages are generally the best for someone who is a high-income earner—essentially, someone who can afford the higher payments.

Even if lenders offer a specific loan amount, it doesn’t mean you need to purchase a home up to that limit. Carefully consider how much you want to pay and can easily afford so that you can achieve your other financial goals, like saving for retirement.

The Bottom Line

A jumbo mortgage is a large-sized loan issued by private financial institutions that’s earmarked for highly-priced properties—at around $650,000 or more. A conventional loan is a more general umbrella term for any privately issued—as opposed to federally subsidized—mortgage.

Many conventional loans are conforming: They’re within a size threshold set annually by the FHFA and can be sold to mortgage market makers Fannie Mae and Freddie Mac. Other conventional loans are not and are deemed nonconforming.

But the bottom line is that typically, conventional loans are smaller than jumbos and have less stringent requirements and standards.

Self-directed investing means you manage your investments, whereas robo-advisors automate the process for you

Fact checked by Vikki Velasquez
Reviewed by Andy Smith

Robo-Advisor vs. Self-Directed Investing: An Overview

For today’s investors, personal control and automation may seem like opposing forces.

On the one hand, self-directed investing implies investor control over their investments. They do the necessary research, select their investments, and manage their portfolios according to their preferences and investment, financial, and economic outlooks.

Self-directed investing puts control and freedom of choice in the hands of investors. It’s a more traditional way of investing.

On the other hand, robo-advisors are wholly automated digital investment platforms that deliver a hands-off approach to investors. They use complicated algorithms to make ongoing investment decisions for you. They may offer some access to human assistance.

Each of these investment approaches offers an investing solution that may be right for different people. So it’s important to understand their differences, advantages, and disadvantages.

That knowledge will help you decide which one aligns best with your personal approach to investing, your financial goals, and your comfort with risk.

Key Takeaways

• With self-directed investing, investors make their own investment choices and control how they manage their portfolios.
• It means that oversight and the potential for higher returns rest in your hands.
• However, successful self-directed investing requires significant time and effort, as well as a solid understanding of investment securities and financial markets.
• Robo-advisors provide investors with an automated, low-effort investing experience, but they may limit your investment options and come with their own set of fees.
• The choice between self-directed investing and a robo-advisor depends on your personal preferences and interest in investing, financial goals, investment knowledge, and available time.

What Is a Robo-Advisor?

At its core, a robo-advisor is a digital investment platform that uses algorithms to manage and rebalance your portfolio.

You simply set your financial goals and risk tolerance, and the robo-advisor takes care of the rest. They’re the digital equivalent of an autopilot for your investments.

Over the past few decades, robo-advisors have evolved and grown significantly. Initially, they were focused on providing automated portfolio management, but today, they offer a range of services, from tax-loss harvesting to retirement planning.

Recognizing the growing demand for a blend of technology and financial management, many traditional financial institutions have launched their own robo-advisory services.

Today, hundreds of robo-advisors are available globally, with billions of dollars in assets under management (AUM).

They offer a low-cost, accessible investment option, especially for those investors who are just starting out or prefer a hands-off approach.

By handling the complexities of investment management, robo-advisors allow you to focus on setting and achieving your financial goals.

Note

Investopedia offers a recommended list of robo-advisors. As of March 2025, Wealthfront is best overall, while Betterment is great for beginners and M1 Finance ranks highest for experienced investors. View them all here.

Advantages and Disadvantages of Robo-Advisors

Robo-advisors shine in their simplicity and ease of use. They handle the heavy lifting of investment management, making them great for beginners or those with a passive investment style.

However, they may not offer the same depth of investment choice as self-directed investing, and their fees, while typically lower than traditional advisors, can add up over time.

Pros

• Automated, hands-off investing

• Typically, low cost

• Low minimums

• Well-diversified portfolios based on proven strategies

• Takes emotion out of trading

Cons

• Lack of flexibility

• Limited asset class selections

• Lack the human touch

• Fees can add up over time

What Is Self-Directed Investing?

Self-directed investing involves managing your own investment portfolio. You choose your investments, whether stocks, bonds, exchange-traded funds (ETFs), mutual funds, or other assets, based on your own research and risk tolerance.

It’s a more hands-on approach to investing, offering you maximum control over your investments. And while considered more traditional than robo-advisors, it itself is a big step away from the classic standard of a full-service broker.

The advent of the internet and online brokerages has made self-directed investing quite accessible.

Online brokers provide a wealth of tools and resources to support individual investors, from research reports, technical analysis tools, and market data to educational content and advanced trading features.

With these at your fingertips, you can make informed decisions about how to allocate your money and manage it on an ongoing basis.

However, these resources cannot replace the fundamental need for financial literacy and an understanding of market dynamics.

For successful investing, it’s essential that you educate yourself about the variety of securities available, different asset classes, various types of risks, market trends, and investment principles.

You’re responsible for making informed decisions and managing risk. It requires time, effort, and updated financial knowledge to be done effectively.

Important

Self-directed investing is about taking ownership of your financial future. You steer your investments according to your vision, whether that involves aggressive growth strategies, conservative income generation and capital preservation, or something in-between. It’s not for everyone, but for those willing to put in the work, it offers the potential for personal satisfaction that’s hard to match.

Advantages and Disadvantages of Self-Directed Investing

Self-directed investing offers the potential for greater returns, as you have the freedom to pursue your own investment strategies.

However, it also requires a significant time investment for research and management, as well as a solid understanding of the financial markets.

Therefore, the risks are substantial, as the responsibility for investment decisions rests solely on you.

Pros

• Flexibility and autonomy

• Potential for superior returns

• Low cost

Cons

• Requires time, effort, and due diligence

• Potential for inferior returns

• Can result in overtrading or trades based on emotions

Robo-Advisor vs. Self-Directed Investing: Key Differences

Self-Directed Investing	Robo-Advisors
You control your investment decisions and are responsible for managing your own portfolio.	Robo-advisors take the driver’s seat in making decisions about your portfolio once you provide basic details.
You must construct your portfolio and rebalance it periodically.	A robo-advisor constructs, and rebalances your portfolio automatically using algorithms.
You’re completely involved in all decision-making for your investments.	Robo-advisors offer investors a completely hands-off investing opportunity.
Substantial time and effort is required to build and maintain your investing knowledge, including analyzing investments, and understanding securities and market mechanics.	Robo-advisors require minimal investing knowledge and time.
Typically, self-directed investing is less expensive, since no advisor is involved. Exception: Individual retirement accounts (IRAs), which may have higher fees than brokerage accounts.	Robo-advisors charge a monthly or annual fee, based on the value of assets in the account. It can diminish your return as it grows over time.
Self-directing investing may carry a higher risk of loss because you’re responsible for how your money is invested. Many factors can affect your efforts, such as lack of information and emotions.	Robo-advisors offer a lower-risk approach using algorithms to build a diversified portfolio that’s based on an investor’s stated risk tolerance.
Self-directed investors can react quickly to changing financial, market, and economic conditions.	Robo-advisors may not react swiftly to changing conditions due to their automation.

Robo-Advisor vs. Self-Directed Investing: Which Is Better for You?

There’s no one-size-fits-all answer to this question. If you value control, have a good grasp of investing, and are willing to put in the time, then self-directed investing may be a good fit.

If you prefer a hands-off approach or are just beginning to invest, then a robo-advisor could be a better choice.

It ultimately comes down to your personal preferences, investment goals, and lifestyle. For example, the best robo-advisors offer specialized services like tax-loss harvesting, which may be important for some investors.

Indeed, the choice between a robo-advisor and self-directed investing is personal. It’s about finding the right balance between control and convenience, risk and reward, and involvement and simplicity.

By understanding your level of interest in investing, investment style, financial goals, and lifestyle, you can make an informed decision about which approach is the best fit for you.

Remember, the goal is not just to choose a method, but to choose the one that will best help you achieve your investment and financial goals.

Should I Use a Robo-Advisor or Do It Myself?

It depends on your interest in investing, investment knowledge, time, and personal preferences. Both approaches have strengths and weaknesses.

Robo-advisors can offer low-cost, diversified, and automated portfolios that are suitable for beginners or busy investors who want to save time and hassle. Doing it yourself can give you more control, flexibility, and customization over your investments, and may cost less. But it also requires more research, monitoring, and, very importantly, discipline.

What Are the Disadvantages of Using a Robo-Advisor?

Limited investment options, lack of flexibility, and fees are the main drawbacks of robo-advisors. They typically invest in ETFs or index funds that track the performance of a market or a sector. This means that you may not be able to invest in individual stocks, bonds, or alternative assets of interest. Moreover, robo-advisors charge an annual fee based on a percentage of your AUM, which can add up over time and reduce your returns. Robo-advisors also often lack the human touch that some clients desire.

How Expensive Are Robo-Advisors?

Robo-advisor fees vary by platform, but are generally lower than traditional human advisors. They usually charge a percentage of the assets they manage, ranging from 0% to 0.5% per year, with the typical fee being 0.25% per year of managed assets. Some robo-advisors may also offer premium plans that include access to human advisors or more advanced features, but for such they charge higher fees. For example, Betterment charges 0.25% per year for digital advice and 0.65% to add access to phone and email advice from its professionals.

How Big Is the Robo-Advisor Market?

According to Morningstar, it’s not as big as it had hoped to become, even though it has grown over the past 20 years. It cites research that shows that 2024 robo-advisor AUM were $634 billion to $754 billion. That’s a small portion of the $36.8 trillion U.S. retail market of accounts with assets ranging from $100,000 to $5 million.

The Bottom Line

Whether you choose a robo-advisor or self-directed investing, the most important thing is that your choice aligns with your financial goals, investment knowledge, and lifestyle.

Both investment options offer unique advantages. Understanding these can help you make an informed decision about which path to take on your investment journey.

Fact checked by Vikki Velasquez
Reviewed by Charlene Rhinehart

What Is the Veil of Ignorance?

The Veil of Ignorance is a thought experiment and philosophical concept introduced by the American philosopher John Rawls in his groundbreaking 1971 work, “A Theory of Justice.” It serves as a powerful tool for evaluating the fairness and impartiality of societal structures and institutions.

By compelling individuals to consider the interests of all members of society, regardless of their own personal circumstances, the Veil of Ignorance acts as a guiding principle that encourages the establishment of a more equitable, just, and compassionate world.

Key Takeaways

• The Veil of Ignorance removes personal biases, compelling individuals to consider the interests of all members of society, ensuring equitable policies and institutions.
• By considering everyone’s interests, the Veil of Ignorance promotes moral consideration and understanding, leading to fairer decision-making.
• Guided by the Veil of Ignorance, decision-makers create rules and institutions that promote fairness, equal opportunities, and social cooperation, contributing to a more just society.

Understanding the Veil of Ignorance

The philosopher Rawls suggests that we imagine that we sit behind a Veil of Ignorance that prevents us from knowing who we are and identifying with our personal circumstances. By being ignorant in this way, we can more objectively consider how societies should operate, he theorized.

Imagine a scenario in which individuals are placed behind a metaphorical veil, stripping them of knowledge about their own social status, talents, and personal characteristics. In this state of ignorance, they are tasked with designing the principles that would govern society.

The idea is that, without information about their own position, these individuals would create a just and equitable society free from personal biases and self-interest. The Veil of Ignorance challenges us to consider the moral foundations of our social systems and encourages the pursuit of a more equal and fair world for all.

Impartiality refers to the unbiased and objective treatment of all individuals or parties, without favoring any particular side due to personal beliefs, biases, or interests. It is a fundamental principle in various contexts, such as law, ethics, and decision-making, to ensure fair and equitable outcomes.

Personal biases are unconscious or conscious preferences, beliefs, or prejudices that influence an individual’s judgment, decision-making, and perception of others. These biases may stem from various factors, such as upbringing, culture, or personal experiences, and can lead to unfair or discriminatory outcomes when not acknowledged or addressed.

What Is the Fairness Principle?

The Fairness Principle, in the context of the Veil of Ignorance, is a guiding concept that emerges from Rawls’ thought experiment. It refers to the notion that when designing a society under the Veil, individuals would create rules and institutions that are fair, just, and impartial, as they lack any knowledge of their own personal circumstances or social position.

The Fairness Principle is grounded in two fundamental ideas:

• Equality: In the original position, behind the Veil of Ignorance, individuals would naturally strive for equal basic rights and liberties for everyone, regardless of their personal characteristics or social status. This is because they would want to ensure that they would be treated fairly and have access to the same opportunities as others, regardless of who they turn out to be in the actual society.
• Social cooperation: The Fairness Principle also emphasizes the importance of social cooperation and mutual benefit. When designing society without knowledge of each person’s specific circumstances, individuals would aim to create systems that benefit everyone and minimize inequalities. They would recognize that a fair distribution of resources and opportunities leads to a more stable, harmonious, and prosperous society.

A prosperous society is one characterized by economic growth, wealth, high living standards, and overall well-being for its citizens, ensuring a thriving and stable environment.

How the Veil of Ignorance Impacts the Fairness Principle

The Veil of Ignorance directly affects the Fairness Principle by creating a hypothetical scenario in which individuals do not know their personal circumstances, social position, or specific talents. This lack of information compels them to design a society that is just, impartial, and fair, as they can’t tailor the rules to benefit themselves or any particular group.

The impact of the Veil of Ignorance on the Fairness Principle can be observed in several ways:

• Objective perspective: By removing personal biases and self-interest, the Veil of Ignorance allows individuals to approach societal design objectively. This impartiality leads to the creation of fair principles and policies that treat everyone equally, regardless of individual characteristics or background.
• Protection of vulnerable groups: When designing a society under the Veil of Ignorance, individuals would naturally want to ensure that even the least advantaged members are protected and provided for, as they also could potentially find themselves in such a position. This promotes fairness by minimizing inequalities and ensuring that everyone has access to essential resources and opportunities.
• Emphasis on basic rights and liberties: The uncertainty about one’s own position in society leads individuals to prioritize equal basic rights and liberties for all, as they would want to guarantee that they have access to these fundamental freedoms and protections, irrespective of their eventual social standing.
• Focus on mutual benefit: The Veil of Ignorance encourages individuals to create a society that fosters social cooperation and mutual benefit. By recognizing that everyone’s well-being is interconnected, individuals would strive for policies and systems that are fair, equitable, and beneficial to all members of society.

Important

Mutual benefit refers to a situation in which all parties involved gain advantages or positive outcomes, fostering cooperation and shared success.

Fairness Principle vs. Tragedy of the Commons

We can draw parallels between the Fairness Principle and the “Tragedy of the Commons,” a concept coined by ecologist Garrett Hardin. This theory suggests that shared resources are prone to overuse unless there’s a fair distribution system. People lack motivation to preserve free resources for others.

Hardin uses the illustration of communal land used by villagers for their cattle. Everyone aims to maximize the land’s utility by grazing as many cattle as possible. However, the land is limited, and eventually, it can’t support any more livestock due to overgrazing.

Applying the Veil of Ignorance principle, people would likely decide to divide the common land evenly among themselves, and limit the number of cattle each one could graze, to prevent depletion.

Ways To Apply The Veil of Ignorance

The concepts of the Veil of Ignorance and the Fairness Principle can be applied to various real-life situations to promote impartiality, justice, and equality. Here are three ways to use these
ideas:

• Policy-making: When developing public policies or legislation, decision-makers can use the Veil of Ignorance as a guiding principle to ensure that their proposals are unbiased and fair. By considering how they would design policies if they had no knowledge of their own personal circumstances, they can create rules that benefit the entire population, rather than favoring specific groups or individuals. This approach can be applied to areas such as education, healthcare, taxation, and social welfare.
• Workplace equality: Organizations can apply the concept of the Veil of Ignorance to create fair and inclusive work environments. By implementing policies and practices that treat all employees equally, regardless of their race, gender, age, or other characteristics, employers can foster diversity, equity, and fairness within the workplace. This might involve measures such as unbiased recruitment processes, equal pay for equal work, and inclusive professional development opportunities.
• Community development: In local communities, the Veil of Ignorance can be used as a framework for decision-making related to resource allocation, community projects, and social programs. By considering the needs and interests of all community members, including the most vulnerable and marginalized, leaders can work toward creating a more just and equitable environment where everyone has access to essential services and opportunities. This might involve supporting affordable housing initiatives, investing in public transportation, or promoting accessible recreational facilities.

By applying the concept of the Veil of Ignorance and the Fairness Principle to these different contexts, we can cultivate a greater sense of justice, impartiality, and equality in our societies, ensuring that the needs and rights of all individuals are taken into consideration in our decision-making processes.

Note

Economic efficiency is the optimal resource allocation that maximizes societal welfare and minimizes waste, promoting productivity, growth, and an improved standard of living.

Criticisms of The Veil of Ignorance

While the Veil of Ignorance and the Fairness Principle have been widely praised for promoting impartiality and justice, they have also faced various criticisms. Some of the main critiques include:

• Oversimplification of human nature: Critics argue that the Veil of Ignorance assumes people are purely rational beings who will always prioritize fairness and equality when designing a society. However, human nature is complex, and individuals may still be influenced by personal biases, emotions, and cultural values, even when attempting to make impartial decisions.
• Lack of concrete guidance: Some critics contend that the Veil of Ignorance offers a limited framework for creating specific policies and institutions, as it focuses on abstract principles rather than concrete solutions. While it encourages fairness and impartiality, it doesn’t provide detailed guidance on how to achieve these goals in practice.
• Cultural relativism: Another criticism is that the Veil of Ignorance may not account for cultural differences and values, as it assumes that there are universally agreed-upon principles of justice and fairness. Different societies may have varying conceptions of what constitutes a just and equitable society, so applying the Veil of Ignorance across diverse cultures could lead to conflicts and misunderstandings.
• Individual vs. group rights: Critics argue that the Veil of Ignorance primarily focuses on individual rights and liberties, potentially overlooking the importance of group rights and collective interests. In some cases, prioritizing individual freedoms may come at the expense of communal values and social cohesion.
• Economic efficiency: Some critics claim that the Fairness Principle, particularly Rawls’ Difference Principle, may undermine economic efficiency and incentives for productivity. By prioritizing the well-being of the least advantaged members of society, it could potentially discourage innovation and hard work, as individuals may feel that their efforts won’t be adequately rewarded.

Despite these criticisms, the Veil of Ignorance and the Fairness Principle remain influential concepts in moral and political philosophy, providing valuable insights into how we can strive for a more just and equitable society.

However, it is essential to consider the criticisms when applying these concepts to real-world situations, ensuring that we take a nuanced and comprehensive approach to achieving fairness and justice.

What Is the Veil of Ignorance and Its Purpose?

The Veil of Ignorance’s purpose is to ensure fairness and impartiality when designing societal structures and institutions. By imagining ourselves behind a veil where we lack knowledge of our social status, talents, or personal circumstances, we are more inclined to create a society that treats everyone fairly and equally, irrespective of their background. The philosopher John Rawls believed that this concept would lead to the development of just principles and policies that prioritize equal rights, social cooperation, and the well-being of all members of society, including the least advantaged.

Who Popularized the Veil of Ignorance?

The Veil of Ignorance was popularized by the American philosopher John Rawls through his seminal work “A Theory of Justice,” published in 1971. The concept has since become a key idea in moral and political philosophy, influencing discussions on fairness, equality, and social justice.

Can the Veil of Ignorance Be Applied Conceptually for the Greater Good?

Yes. By encouraging decision-makers to imagine themselves in a position where they are unaware of their own personal circumstances, this thought experiment promotes impartiality and fairness in the development of policies and institutions. The approach helps ensure that the principles and systems created serve the interests of all members of society, including the least advantaged. Nevertheless, you need to know the limitations of the Veil of Ignorance.

The Bottom Line

Using the Veil of Ignorance, individuals can approach decisions with a more objective perspective, as they disregard personal biases and self-interest. This leads to the creation of policies and systems that emphasize equal opportunities, protection of vulnerable groups, and a focus on mutual benefit. The concept serves as a valuable tool in various contexts, such as policy-making, workplace equality, and community development, helping to cultivate a more just and equitable society.

However, it’s crucial to consider its limitations, such as potential oversimplification of human nature and cultural relativism, to ensure a comprehensive and nuanced approach when applying the Veil of Ignorance to real-world situations.

Fact checked by Vikki Velasquez
Reviewed by Andy Smith

What Are Real Estate Syndicates?

A real estate syndicate is a partnership where investors pool their money to buy and manage properties. Typically, a sponsor (sometimes called a syndicator) scouts for prospects, raises capital, and manages the assets, while passive investors deliver much of the equity for the syndicate. Investing in property through syndication allows you to get in on deals that may otherwise be inaccessible. Syndicates can be a more hands-off investment, with professionals overseeing the day-to-day management.

Key Takeaways

• Real estate syndication offers investors the opportunity to pool their funds and invest in larger properties.
• Investing in real estate syndicates can supply passive income and potential tax benefits.
• It is important to research and evaluate the track record and credibility thoroughly of the syndicate’s sponsors before investing.
• Real estate syndication has risks, including illiquidity, dependence on the syndicate’s performance, and conflicts of interest.
• Investors should consider alternative investment options, such as real estate investment trusts (REITs) and direct property ownership, before deciding on real estate syndication.

Factors to Consider Before Investing in Real Estate Syndicates

Conducting careful due diligence is crucial before handing over hard-earned money in any investment, including a real estate syndicate. Failing to research key elements of any deal can lead to subpar or even negative investments. Here are some important aspects to evaluate:

Track Record of Sponsors

The experience, credentials, and past performance of the sponsors of the syndication need to be examined closely. Review their background to understand their investing experience, education, industry connections, and previous results. More experienced sponsors tend to perform better over time and have done so through good and bad market cycles.

Request the background on previous projects to evaluate actual net returns to investors after fees. Verify claimed returns with independent audits or directly contacting past investors. Sponsors with a strong history of achieving projected internal rates of return show more trustworthiness; they also don’t need to worry about giving you the information you need. Records, not promises, are the coin of the realm here.

Investment Strategy and Financial Projections

Understand the specific business plan and underwriting assumptions for the project. Carefully review projected costs, revenues, appreciation rates, capitalization rates, debt terms, occupancy rates, and other financial projections to determine if they are reasonable. Stress test assumptions to account for economic fluctuations. What would be the worst-case scenario? How devastating would it be for your investment? Ensure the sponsors have a sound method for their projections.

Be wary of sponsors making unrealistic projections since their goal may be collecting large fees, not the long-term health of the syndicate. Experienced syndicators tend to outline conservative growth estimates and focus more on downside protection than maximizing projected returns.

Property Fundamentals

Research all details available on the property being considered: location, asset class (e.g., multifamily, retail, office, etc.), history of tenancy, occupancy rates, debt levels, cap rates, and net operating income. Evaluate current leases to determine revenue stability. Analyze the industries of the tenants to account for economic risks; diversification among the tenants, if possible, is a plus.

Generally, properties with higher occupancy rates in growing metro areas make safer investments. Territories experiencing population and job growth and solid market fundamentals will be more likely to have sustainable rental demand and better appreciation over the investment term.

Fees

Syndicates can charge fees for services like acquisition, asset management, property disposition, refinancing coordination, tenant coordination, audit preparation, and capital raising. Carefully analyze the fee structure to determine the overall costs so that the sponsors’ incentives are properly aligned with yours.

Note

Reputable sponsors focus more on the success of the investment over quick profits from excessive fees. The fee terms should be clearly explained in the offering documents.

Benefits of Investing in Real Estate Syndications

Access to Institutional-Grade Properties

Real estate syndication can enable the pooling of capital for single high-quality properties worth potentially $10 million to $100+ million, sums out of reach for most individual investors.

Top sponsors leverage extensive networks and industry expertise to source exclusive off-market prospects before they hit the listings. Pooling funds gives you a seat at the table for investing in class A institutional properties, usually only accessible to large institutions or REITs.

Potential for Leveraged Returns

Professionally managed real estate syndicates can have strong leveraged returns. Cash-on-cash yields from rental income and back-end appreciation tend to increase over time.

When leverage is strategically employed, annual returns can be doubled or tripled. The ability to employ leverage to enhance equity returns is a key benefit driving investors to commercial real estate investing.

Tax Benefits

Commercial real estate investments can increase after-tax returns through depreciation shields, deferred capital gains, and cost recovery deductions. Capital gains taxes can also be deferred through 1031 exchanges when there’s a sale of the new property.

Important

For assets held until death, heirs can typically inherit properties at a stepped-up cost basis, greatly reducing tax exposure. Savvy syndicate sponsors structure deals to maximize your after-tax cash flow and returns.

Diversification

Investing in real estate helps to diversify your portfolio, and its returns fluctuate according to their own rhythm. Their returns don’t necessarily correlate with those of stocks and bonds.

In addition, property values and rent tend to rise with inflation over time. This provides a potential hedge when rising prices are affecting traditional securities. Hence, diversifying into private real estate investments can lower a portfolio’s risk-adjusted returns.

Passive Income Generation

Most real estate syndicates only need you to invest your capital if you’re a limited partner. There are ordinarily no further obligations. Thus, you can passively earn attractive property yields without personally sourcing or managing assets.

Risks and Challenges of Investing in Real Estate Syndicates

Illiquidity of Investments

The illiquid nature of private real estate investments is perhaps their biggest drawback. Most syndicates have a projected hold period of five to seven years or more. Your investment, then, will likely remain locked up for the entire duration with little opportunity to exit early.

Nevertheless, events in your life may mean that you need your funds sooner. Without a secondary market, the only option would be finding a buyer to take over the remaining stake—a difficult task. Thus, you have to calculate this as part of your risk and be comfortable with your money being out of reach during the period of the syndicate deal.

Reliance on Sponsor Credibility and Performance

Investors depend wholly on the skill and experience of the syndication sponsor for their returns. Even with the best due diligence, sponsors may fail to execute business plans after unforeseen events.

Subpar operators could mismanage properties, and soon, they will be over-leveraged, have high vacancies, or require unexpected capital infusions. Transparency and clear, consistent communication about property operations will be key. In addition, ill-equipped sponsors can spread themselves too thin across many projects. Alternatively, there’s the chance of fraud.

Assessing the sponsor’s character and competence takes significant due diligence. It would be best to analyze past deals, speak with industry references, and verify all background claims. Look for key signs of integrity: strict adherence to Securities and Exchange Commission (SEC) guidelines, transparent reporting, aligned incentives, and testimonials from previous investors. If the sponsor isn’t fully transparent or if you find reasons to think the sponsor isn’t fully trustworthy, walk away. There are many investment vehicles available that won’t leave you with misgivings at the start.

Despite your best efforts, newer syndicators can still be difficult to evaluate until they have finished a few successful projects. As such, the risk of a problem sponsor is another reason why it’s important to diversify across different syndicates or other investment vehicles as part of a long-term, prudent investment plan.

Conflicts of Interest

Syndication fees can pose conflicts of interest regarding how the sponsor is compensated. Sponsors may choose to flip properties prematurely instead of doing what’s best for the asset over the long term. Alternatively, they may over-leverage properties by pulling out cash, leading to a greater risk of default.

Also, the sponsor may decide to act as a broker on both the buying and selling sides, drawing commissions from both transactions. Look for fee terms to ensure a fair alignment between your interests and those of the sponsors with incentives like profit splits.

Structuring a Real Estate Syndicate

Limited Liability Companies (LLCs)

Limited liability companies (LLCs) are favored for their simplicity and flexibility in managing and protecting against personal liability. In an LLC, there are generally two key roles: the general partner (GP) or syndicator, who manages the investment, and the limited partners (LPs), the investors. The GP handles acquiring, managing, and eventually selling the property, while LPs provide capital and share in the profits, usually without participating in day-to-day management.

All members of the LLC have an ownership interest in the company and enjoy limited liability protection. This means that your personal assets are generally protected from the company’s liabilities.

Limited Partnerships (LPs)

LPs are like LLCs, but some legal and tax differences exist. In a limited partnership, there are still GPs and LPs. However, GPs have unlimited liability and are responsible for managing the partnership, while LPs have limited liability and typically don’t participate in management.

LPs can offer more favorable treatment for passive losses, which can be particularly beneficial in some real estate investments. As an LP, you may be able to use passive activity losses to offset passive income, a benefit that can be more restricted in LLCs. Moreover, income distributed to LPs is typically not subject to self-employment tax, though LLC members may be liable for this tax for their share of the LLC’s income. This difference can result in significant tax savings for LPs.

Corporations

Corporations are less common in real estate syndication but can offer more structure, with shareholders, directors, and officers. As an investor, you’ll become a shareholder with a stake in the corporation. Directors make major decisions, while officers handle daily operations. This structure offers liability protection but can be less tax-efficient and more complex for real estate investments.

Trusts

Trusts are used in specific scenarios, like estate planning or when specific legal protections are desired. In these cases, the trustee manages the property held in the trust, while the beneficiaries (investors) receive income generated by the trust’s assets.

Types of Real Estate Syndicates

Real estate syndicates come in several forms, each with unique risks and rewards in particular circumstances. Understanding these differences is key to choosing the right investment path.

Debt Syndicate

In debt (mortgage) syndication, investors essentially act as lenders. They pool their money to offer loans for real estate projects. The borrower could be a property owner or a developer. The investment is secured by the property itself, much like a residential mortgage. Investors earn money from the interest paid on the loan.

The risk with debt investing is generally lower compared with equity syndications since creditors are prioritized in repayments. In equity investments, the profit potential can be higher. However, the potential returns are usually capped at the agreed-upon interest rate.

Equity Real Estate Syndicate

Equity syndicates are the most common, involving direct fractional ownership in an investment property. Investors receive periodic income distributions and back-end proceeds from the eventual sale of the asset.

Returns depend on how well the property performs and the appreciation of its value over time. Investors receive returns as rental income and a share of the property’s sale price once sold. The syndicator usually manages the property and deals with tenants, maintenance, and other operational details.

Equity syndicates carry a higher risk than debt but benefit from leverage and upside potential. The risk in equity syndicates is typically higher since returns depend on the property’s performance, which is related to conditions in the market. However, the potential for higher returns is significant, especially if the property increases in value.

Commercial vs. Residential Real Estate Syndication

Commercial syndication involves apartments, office buildings, retail centers, self-storage, and other income-generating properties. These assets depend on business activity, which can fluctuate in line with the economy. However, the longer-term leases generally used for these properties can add income stability.

Residential syndicates focus more on home rentals, single-family houses, or small multifamily buildings. Residential investments can have higher vacancy rates and expenses without commercial lease contracts, making underwriting more complex.

Land Syndicate

Land syndication is the purchasing of vacant land for future development or farming. Investors in these syndicates anticipate that the land will increase in value as the demand for housing, commercial space, or agriculture grows. Given the unpredictability of correctly speculating on land value, these investments are a higher risk.

Affordable Housing Syndicate

Some sponsors specialize in affordable housing apartment communities that qualify for tax credits or other government subsidies. These investments support socially responsible objectives around accessible housing and come with downside protection and stable, capped returns. What you get in exchange is less in potential profits.

Opportunity Zone Syndicate

These investments target economically distressed areas designated as qualified opportunity zones, which use compelling tax incentives to bring in investors. Capital gains can be deferred until 2026 and potentially exempt from 15% of the gains if held for seven years. Opportunity zone deals can provide outsized returns, but they have potentially greater risks in unproven markets.

Evaluating Sponsor Credibility and Track Record

Conducting thorough sponsor due diligence is important before your involvement in a syndication. Warning signs like exaggerated return claims, frequent missteps, or lack of transparency should raise red flags.

Here are signs of sponsor credibility:

• Five or more years of real estate investing experience across several market cycles
• Strong industry reputation with references from investors, brokers, and partners
• Adherence to securities regulations and accredited investor requirements
• Willingness to share documents like past financial reports, projections, and private placement memorandums (PPM)
• Evidence of successful exits and realized returns from previous projects

Verify sponsor backgrounds on the Financial Industry Regulatory Authority’s (FINRA’s) BrokerCheck and confirm SEC-registered investment advisor status. Trustworthy sponsors, careful with their reputation, will focus more on long-term returns than quickly racking up fees.

Reviewing Investment Strategy and Projections

The syndicate’s business plan and projections should demonstrate a deep knowledge of the market and focus on achievable targets. Here are key areas to evaluate:

• Conservative revenue and expense growth assumptions
• Detailed explanations justifying all projection line items
• An analysis testing diverse economic scenarios
• Leverage levels below 50% loan-to-value (LTV) ratio
• Minimum five-year hold period for suitable asset appreciation

Request examples of underwriting for past investments. Note, however, that sponsors may have proprietary models not shared publicly. Nevertheless, the methodology and care taken should reflect experience and expertise. Reviewing strategy and forecasts prevents speculation risk and builds trust around return goals.

Joining a Syndicate

Once satisfied with your due diligence, you can start with a few key steps.

For most syndicates, you must have accredited investor status. If so, confirm that you qualify as an accredited investor: You have had a minimum of $200,000 in individual income for the past two years or $300,000 in household income, and there’s an expectation that you can maintain it. Or you have a net worth of over $1 million, excluding your primary residence (with a spouse or partner). For entities, $5 million in assets also clears the eligibility bar. Meeting SEC accreditation standards makes investors automatically considered “sophisticated” enough to evaluate complex deals.

Next, request access to the PPM, which has comprehensive details on offering terms, property and market characteristics, risks, sponsor backgrounds, and more. Legal disclaimers are also given that emphasize how the investment is speculative, illiquid, and only suitable for those willing to accept high risk for higher returns.

Once you’re agreeable to the proposed terms and have carefully reviewed them with a financial advisor or lawyer (preferably both), you can sign the required paperwork. Subscriptions are typically filled on a first-come basis once investment capital minimums are met, usually $50,000 to $250,000 for individual investors. Partners with active syndicate roles may put in more given their added responsibilities.

Finally, fund your investment commitment when required by the syndicators, which is once the deal becomes fully subscribed. Consider diversifying across several syndicates at appropriate allocation sizes to mitigate isolated property risk.

Syndication vs. Other Real Estate Investments

Real Estate Investment Trusts (REITs)

REITs are companies that own and operate real estate assets and trade like stocks on public exchanges. Investors can buy shares in REITs to participate in portfolios of very different property types, with many REIT shares listed and traded on major stock exchanges. REITs are legally required to pay investors 90% of their operating income in the form of dividends each year.

• Pros: Higher liquidity; lower investment minimums; professional management; stable cash flow
• Cons: No influence on assets; vulnerable to market swings; lower returns

Direct Rental Property Ownership

You might also choose to acquire rental properties yourself, picking among single-family homes, apartments, retail store locations, and more. You would own these assets and manage them without any fund sponsor involvement. Returns depend greatly on location, asset selection, and management skills, either yours or a property manager that you hire.

• Pros: Greater control; all gains realized; pride in ownership
• Cons: Hands-on management; unlimited liability; smaller properties

Real Estate Crowdfunding

A newer option, real estate crowdfunding, essentially enables syndication sponsorship roles to be re-created by an online platform company. These are often open to non-accredited investors. Sponsors use crowdfunding platforms to source deals, raise capital, and manage regulatory paperwork. Returns may be higher given the added risk from less seasoned operators or projects that couldn’t find more traditional lending sources.

• Pros: Low investment minimums (can be as low as $1,000); online access and ease of selection; pre-vetted deals
• Cons: Potentially untested or poorly vetted sponsors and platforms; fees can be higher; offerings may be more speculative or high risk

Example of Real Estate Syndicate

The Dental Real Estate Syndicate specializes in acquiring and managing high-quality, geographically diversified dental real estate. They handle all aspects of property management and maintenance while overseeing financial operations, including the distribution of tax-advantaged quarterly dividends to investors. In 2025, Dental announced it would expand into the Southeastern and Southern Sunbelt regions.

In February 2025, the company published a survey of dentists who own dental real estate. The survey was sent to 2,000 dentists, with 431 respondents (22%) participating. Most respondents indicated that they acquired real estate to maintain control over their practice location and financial future. However, 81% stated they were unlikely to acquire additional dental real estate, reflecting concerns about management complexity, financial risks, and market uncertainties. For this reason, syndicates like Dental can exist to not only help alleviate the financial burden of acquiring real estate but oversee operational functions as well.

What Are the Potential Tax Benefits of Real Estate Syndication?

The main tax benefits are depreciation deductions that lower your taxable income and deferred capital gains tax when properties are sold. You can also conduct 1031 exchanges to defer taxes after sales by reinvesting proceeds into another property. Under certain conditions, investors in real estate syndicates may be eligible for a pass-through tax deduction, allowing you to deduct up to 20% of your business income.

What Happens If I Need to Sell My Stake in a Real Estate Syndicate?

Liquidity is very limited since most syndications have five- to seven-year timelines. Trying to sell shares before the end of that period would be extremely difficult without a buyer lined up. This is one of the tradeoffs with this kind of investment, so you’ll have to be comfortable with your capital being unusable for the syndication period. In certain cases, a syndicate might refinance the property, providing a partial cash-out option for you.

Can Anyone Invest in a Real Estate Syndicate?

No. Current SEC regulations generally require investors to be accredited ($200,000 individual income, $300,000 joint income, or $1 million net worth) before buying shares in riskier, illiquid private real estate offerings. This is because of their more complex structure and illiquidity. Non-accredited investors can explore some private offerings in real estate; they also have options like REITs and crowdfunding.

The Bottom Line

Real estate syndicates allow investors to pool resources and access larger properties, providing the potential for passive income and significant tax benefits, such as depreciation and pass-through deductions. Meanwhile, the property would be managed by professional syndicators who handle all aspects except for your initial capital investment. Nevertheless, you should be clear about the risks involved, including the illiquidity of these investments, reliance on the syndicate’s performance, and possible conflicts of interest.

To make an informed decision, conducting thorough due diligence is key. This includes scrutinizing the syndication sponsors’ track record and credibility, understanding the property fundamentals, and evaluating the investment strategy and fee structure. While real estate syndicates offer the potential for attractive returns and portfolio diversification, they require a commitment to long-term investment and an understanding of their complex nature, making them more suited to investors prepared for a hands-off yet significant commitment in real estate.

Native Americans are subject to federal income taxes, while tribes set their own sales taxes

Fact checked by Suzanne Kvilhaug
Reviewed by Andy Smith

Some forms of taxation can work differently for Native American people because of their unique status within the United States.

Tribes, as sovereign governments, are exempt from taxes. But, in general, individuals are expected to submit the same income taxes as others living in the U.S. However, there are exceptions to this general rule.

For example, lands held in trust by the government for the benefit of Native Americans are spared from taxes. Native Americans who own some of this land don’t have to pay property taxes on it.

Key Takeaways

• As sovereign governments, tribes set their own sales taxes.
• Individuals, in contrast, are required to pay federal taxes to the U.S. government.
• Revenue from lands held in trust is not taxed by the U.S. government.

Individuals and Tribes

Native Americans are expected to pay taxes to the federal government.

In the eyes of the U.S. government, all members of tribes were recognized as citizens beginning in 1924 with the passage of the Indian Citizenship Act. That law means Native Americans are expected to pay federal income tax.

But there’s an exception. Notably, tribal members do not pay taxes on income from lands held in trust, where the title is held by the U.S. Department of the Interior on behalf of tribes or individuals.

The U.S. holds around 55 million surface acres and 59 million acres of subsurface mineral estate in trust. The money that this land generates is intended to benefit Native Americans, and it is not taxed. This means that if a tribe operates a casino on trust land, it doesn’t pay taxes on that land or the proceeds.

Important

In contrast to individual tribal members, federally recognized tribes are sovereign and therefore are immune from tax obligations. This means that the tribes themselves do not pay federal or state taxes.

The tribal tax base is typically the consequence of agreements made with states and local governments. Because their lands are held in trust, tribes do not levy property taxes. This leaves them without the usual sources of tax revenue for a government. As a result, many tribes have turned to sales and excise taxes.

Due to the high levels of poverty and unemployment on tribal lands, advocates argue that these sources of tax revenue are inadequate to fund basic tribal government services. In practice, different tribes have different policies, meaning that some Indigenous people are released from obligations like sales taxes for purchases that occur on reservations, though for transactions outside of reservations, they would still pay local and state sales taxes.

Federal Income Taxes

For the most part, income taxes for Native Americans are the same as for other U.S. citizens.

The major exception is for income derived from a specific trust or treaty. The United States holds land as trust assets for tribes, which can be leased out to corporations. Federal taxes are not levied on income from such business arrangements, though interest income, capital gain income, and some royalties are subject to federal and state taxes.

State Taxes

As with federal taxes, tribes do not have to pay state taxes. By law, without explicit permission from Congress, states cannot impose taxes on tribes.

But just like the federal government, a state can individually tax Native Americans who live within the state’s territory, rather than on a reservation.

Sales Taxes

Tribes themselves are exempt from sales taxes for purchases on reservation land.

However, states can collect sales tax from transactions with nontribal members even when the point of purchase occurs on tribal land. But the tribal government doesn’t have responsibility for collecting the tax.

Some have argued that these taxes represent “the latest variation on centuries of wealth extraction” because the collection of these taxes by states discourages tribal governments from levying their own tax for fear of scaring away economic activity. Instead, many tribes have struck revenue-sharing agreements with state governments. Each year, these practices siphon hundreds of millions of dollars away from tribal governments, according to an estimate from The Center for Public Integrity, an investigative reporting organization.

Property Taxes

Real estate taxes rest on the same criteria as other forms of tax liability.

Native American lands held in trust are considered immune from taxation. However, since it is the trust or sovereignty status that establishes the immunity, Native Americans would be expected to pay property taxes on lands not held in trust or on reservations. 

Tribal Casinos

Tribal casinos are a significant revenue stream for a number of tribes.

Tribal casinos are likewise free from U.S. taxes. However, for the right to operate, tribal casinos sometimes pay “gaming exclusivity fees” based on profits. These can be significant sums.

For example, Oklahoma collected over $210 million in fees for tribal gaming exclusivity rights for fiscal year 2024. Those fees came from $3.47 billion in revenue, according to an estimate from the state of Oklahoma.

Do Native Americans Pay Property Taxes on a Reservation?

Native Americans living on reservations are exempt from U.S. property taxes. These lands are usually held in tax-exempt trusts.

Do Native Americans Pay Taxes on Cars?

If the sale of a car takes place in Indian Country, then the Native American will not need to pay tax on the vehicle. But even on reservation land, Native Americans have to pay fuel taxes in most states.

Do Native Americans File Tax Returns?

Yes, Native Americans have to file tax returns. The Internal Revenue Service (IRS) notes that “As a general rule, Native Americans are subject to federal income tax just like every other American.”

Could Native American Tax Statuses Change in 2025?

President Donald Trump’s administration could have a number of impacts on Native Americans. Tax issues include the status of tribally chartered corporations and clarification of the Tribal General Welfare Exclusion Act of 2014.

The Bottom Line

U.S. recognition of tribal sovereignty presents a potentially confusing tax situation. In general, though, tribal members are expected to pay federal tax, despite some exemptions—such as sales taxes for interactions on tribal land, or income from land held in trust. Tribal governments, on the other hand, cannot be taxed by either states or the federal government.

Fact checked by Vikki Velasquez
Reviewed by Samantha Silberstein

Many traditional gender roles have disappeared but one gender-based distinction remains: the wage gap. Women earned about 84 cents in 2023 for every dollar men earned as reported by the U.S. Bureau of Labor Statistics. 

The Investopedia and REAL SIMPLE 2024 Her Money Mindset survey found that 54% of women surveyed said they were struggling to cover at least one monthly expense and 44% said they had just $250 or less after covering bills each month. Sixty percent of women had never asked for a raise and fewer than one in four women who had talked with their friends about money were transparent about how much they earned.

Women can take control of their incomes, however, and they can support other women who are doing the same. Individual actions can build barrier-busting wealth.

Key Takeaways

• The wage gap refers to the disparity in earnings between men and women in the workplace.
• Societal factors play a significant role in perpetuating the wage gap.
• Negotiation skills are crucial for women to achieve fair compensation and benefits.
• Skills development and education can help bridge the wage gap.
• Pay equity depends on improving workplace policies and practices.

Understanding the Gender Wage Gap

The gender wage gap is the difference between what men and women earn. The most common way to analyze and express the gap is to measure the difference in median earnings of women versus men.

Congress and state governments have passed several laws to address the gap. The Equal Pay Act of 1963 prohibits employers from paying men and women different wages for performing similar duties under similar conditions. The gender pay gap persists despite these efforts.

Women earned 71 cents for every dollar earned by men in the United States in 2023, according to a 2025 report released by the National Women’s Law Center. The difference varies widely by region, however. California and Vermont have the smallest gaps where women earn 85 cents or more for every dollar earned by men. Women in Louisiana and Utah lag far behind, earning 71 and 73 cents respectively.

Societal Factors

Society has come a long way in treating men and women fairly but biases take generations to entirely disappear and women still face numerous challenges.

Gender Discrimination

Women generally have to work harder to gain equal recognition and women who advocate for more compensation or better treatment are often cast as troublesome or unaccommodating.

Racial Discrimination

The wage gap is worse for many women of color than it is for White women. Black and Latina women earn median weekly pay of $978 and $844 respectively as of the fourth quarter of 2024, according to racial wage gap data from the U.S. Bureau of Labor Statistics. This compared with median weekly earnings of $1,094 for white women and $1,321 for white men.

Motherhood

Having a baby also has a significant impact on a woman’s earnings. Research from the U.S. Census Bureau indicates that the gender pay gap within a couple doubles between two years before a child’s birth and one year after. The wage gap continues to grow until the child is 10 years old, representing a massive loss of income over the mother’s career.

Occupational Segregation

Unequal compensation for equal work is a core issue but access to equal work is also a primary driver. The National Partnership for Women and Families found that women made up 63.6% of the workforce in the 20 lowest-paying jobs in 2023 compared to only 30% of the workforce in the 20 highest-paying jobs.

Unpaid Family Care

Women are more likely than men to take career breaks to care for aging or sick family members. Long breaks in employment can raise questions with prospective employers or cause women to lag behind industry trends and new skills, further depressing wages.

Impact of Workplace Policies

Many federal and state laws prohibit discrimination in pay but certain workplace conditions persist to prevent the gender wage gap from shrinking.

Salary History

Some states prohibit employers from asking prospective employees about their salary history and research has found that this ban has helped narrow the wage gap. Many companies work around this by asking applicants for pay expectations, however. This can lead to a perpetuation of women being underpaid if they don’t feel comfortable asking for a higher salary.

Pay Transparency

The historical secrecy of salaries and its taboo nature as a topic of discussion have frequently left women in the dark about how large the gender wage gap is. The National Bureau of Economic Research found that pay transparency laws reduced the gap by 20% to 40%.

Individual vs. Group Salary Negotiations

Data also shows that women fare better with collectively negotiated compensation. Women in unions earn an average of 89.6% of their male counterparts’ wages compared to non-unionized women earning 82% of their male counterparts’ wages.

Note

The gender wage gap doesn’t just lead to a smaller paycheck for women every two weeks. It has lifelong consequences. Female workers amass less wealth than their male counterparts and have less financial stability as they earn less during any given period.

Talk About What You Earn

Reducing the gender wage gap is a complex problem but there are some ways in which women can help themselves and each other to reach wage parity with men.

The Investopedia and REAL SIMPLE 2024 Her Money Mindset survey found that only 15% of the women who talk about money with their friends will mention if they’re asking for a raise or promotion and only 24% discuss how much they earn.

Discussing raises and salaries can be very beneficial for all parties involved and it can be a powerful tool. You can learn a lot by comparing notes: how often and how much people are negotiating in raises, what sort of salary and bonus structures are out there, and whether you’re making less than market standards.

Note

Thirty-one percent of women who took the Her Money Mindset survey said they think it’s important for women to talk to their friends about money.

The hardest part may be breaking the ice but you can bring up the issue by casually incorporating a financial topic into a conversation to get a pulse for how your friends feel. It also can be helpful to set ground rules such as agreeing to confidentiality.

Negotiate Higher Compensation

The 2024 Her Money Mindset survey found that 60% of women have never asked for a raise and 69% have never requested a promotion. Women with higher household income levels were more likely to have asked for a raise or promotion.

“I don’t think people realize the impact that the gender wealth gap can have on our lifetime earnings,” says Gloria Carcia Cisneros, a certified financial planner and wealth manager at Lourd Murray. “When you start with a lower base salary, it means that for all the subsequent pay increases, you are getting less than someone who is getting the same percentage increase but has negotiated higher pay from the beginning.” 

She also notes that companies expect candidates to negotiate. “The earlier the better. Make sure you start negotiating in your 20s and 30s to take advantage of the exponential growth.”  

Note

Investopedia and REAL SIMPLE’s survey found that 30% of women in the millennial generation and younger have a goal to get a raise and/or promotion in the next three years.

One negotiating tip from Michelle Kruger, certified financial planner and senior financial planner at Gratus Capital, is using benefits as a tool for negotiating salary. “Bring cost differences like an increased health insurance premium or a lower 401(k) match to your potential new employer’s attention,” Kruger says. “Calculate the value of the lost benefits to you and ask for a commensurate increase in the offer.”

Consider these key strategies when asking for a raise:

1. Prepare in advance: Collect data for comparable jobs at your company and in your industry. Plan the key points you want to make and be ready for pushback.
2. Be assertive: Treat your boss with respect but ensure that it’s mutual and advocate for yourself.
3. Practice: Ask a friend to roleplay your boss and rehearse your talking points. Make sure they throw you some curveball questions.
4. Negotiate: Bosses often have budget constraints that limit how flexible they can be. Push for your desired salary but be ready to make concessions elsewhere such as additional paid time off or other benefits.
5. Time your request: Set yourself up for success by asking for a raise when it’s likely you’ll get a positive reaction. You’ll face more resistance if your company just went through a round of layoffs or the economy is trending down.

Enhance Your Skills and Education

The next step is to bolster what you can do at work by enhancing your skills or seeking further education. Learning new skills can help break down occupational segregation in many cases.

Office managers and executive assistants are often women, many of whom have extensive business experience and a wide range of abilities. They end up pigeonholed in administrative jobs, however, limiting their earning potential. They can advance their careers and shrink the wage gap by developing specialized skills in accounting, human resources, or project management.

Women have a range of options for building their skills and resumes:

• Professional certifications: Professional certifications offer a concrete way to increase earning potential by demonstrating specific skills and qualifications to prospective employers.
• Company-sponsored development: Many companies cover some or all of the costs of professional development courses. Everyone benefits because employees learn more skills and employers gain access to those skills.
• Returning to school: Going back to college might seem daunting but ongoing education can fit any schedule with the proliferation of online learning. Finishing a degree or getting a new one can open up opportunities to earn more.

Build Wealth by Investing

Setting money aside for investments can be hard when you’re juggling multiple financial goals or just trying to make ends meet. Investing helps women close the wage gap in several ways, however.

It allows women more freedom to make career choices as they amass more wealth. Women can explore more lucrative opportunities and advance professionally when they’re not tied to a job just to keep bills paid,

Many types of investments don’t just grow over time. They also generate income. Passive income can supplement wages from employment and increase overall wealth whether it’s dividends from stocks or rent earned from real estate.

A high-yield savings account can be a good option if you’re just starting out. You’ll see compounding gains from interest as time goes on. The money is FDIC-insured so there’s no risk of loss. And it’s easy to access if an emergency comes up and you need the funds. You can diversify into other investments as time goes on:

• Index funds spread your money across groups of different stocks, insulating you from the risk of one company hurting your portfolio.
• Individual stocks can perform well but require more research and active management.
• Bonds are a relatively stable investment but they have smaller payoffs and take time to mature.
• Crypto has the potential for large gains but the lack of regulation introduces significant risk.
• Real estate often has a high cost of entry but it generates income over time.

Financial advisors generally recommend a diverse portfolio based on the investor’s age. Younger investors can afford more risk. Older investors tend to move toward more stable choices like bonds.

Support Women in Leadership

Women made up 46.9% of the American workforce in 2024 but they remain underrepresented in the upper echelons of business. Only 10.6% of CEOs and 30.4% of board members at Fortune 500 companies are female. Breaking through the glass ceiling isn’t easy, but it has an immense payoff.

Elise Awwad serves as DeVry University’s president and CEO. She started her career with the company as an admissions advisor. Awwad says that while working her way up in the company, “I recognized the need to support other women in the workplace…The male-dominated culture is still prevalent in many tech companies and can make women feel like they don’t belong.” 

She established EDGE (Empowerment, Diversity, Growth, and Excellence) in 2019, a network of leadership scholars and professionals who promote the enhanced career experience and advancement of women in leadership roles at DeVry and in the broader community. She also spearheaded DeVry’s Women+Tech Scholars program, created to “empower women through mentorship, job search resources, credentialing, and scholarships, encouraging them to take the first step toward a tech-focused career.”

Debbie Sanders, COO of Visory Health, also notes the importance of advocacy and support for career advancement. “Look for a mentor and look for positions and jobs where you feel supported and will be respected and compensated for the great ideas and hard work you put forth,” Sanders says. “Getting places in your career usually means not only do you need to excel at what you do but also have someone in an executive position to support you as internal politics increase.” 

What Countries Have the Highest Gender Wage Gap?

Not every country provides reliable wage data but Korea had the highest gender pay gap at 31.2% in 2022. The only other country above 25% was Israel at 25.4%, according to the Organisation for Economic Cooperation and Development (OECD).

Which Countries Have the Lowest Gender Wage Gap?

Belgium’s gender wage gap of 1.2% was the smallest in the world in 2022 based on the same OECD data. It’s joined by four other countries under 5%: Costa Rica at 1.4%, Colombia at 1.9%, Bulgaria at 2.5%, and Norway at 4.5%.

How Has the Gender Pay Gap Changed Over Time?

Women made significant gains in the later part of the 20th century. Pew Research found that women’s earnings relative to men’s rose from 65% to 80% between 1982 and 2002. The gap remained relatively stable, hovering between 80% and 85%, over the next 20 years, however.

Researchers haven’t found evidence of any single factor causing the stagnation.

The Bottom Line

There’s no quick solution to closing the gender wage gap and much of the struggle unfortunately involves deeply rooted cultural biases. Every woman has to advocate for herself by negotiating higher pay and building personal wealth. Women can fight collectively to empower their peers in leadership and lift each other up.

Systemic change takes years but we can build a workforce where our daughters and granddaughters receive equal pay with our sons and grandsons through continued efforts for equality.

It looks promising but existing AI applications still require human oversight

Fact checked by Vikki Velasquez
Reviewed by JeFreda R. Brown

Artificial intelligence (AI) technology is making a big impact on businesses in many respects, including the preparation and filing of business taxes.

The Internal Revenue Service (IRS) is evaluating AI’s potential applications for tax administration while considering how to minimize any associated risks.

The technology promises businesses easier tax prep and filing, while streamlined tax administration could mean shorter customer wait times and more efficient services.

However, AI in business tax applications has its limitations and concerns some professionals. Human expertise and oversight are still necessary.

Key Takeaways

• AI is setting up to play a significant future role in streamlining the tax preparation process for businesses.
• It may help to ensure tax compliance and identify potential tax risks and errors.
• AI does help improve the accuracy and efficiency of categorizing transactions and data processing.
• But AI’s ability to analyze and interpret complex business tax scenarios is limited, so human oversight and expertise remain crucial.
• There are several tax prep software options available on the market that incorporate AI, with more startups and solutions on the horizon.

How AI Can Help Tax Preparation and Filing

AI-powered call bots and online chatbots, such as those used by the IRS and H&R Block, offer to assist business taxpayers with answers to frequently asked questions and other routine tax prep queries.

With the goal of facilitating and enhancing 24/7 customer service, they’re used to shorten taxpayer wait times and free human agents to focus on more complex cases.

Automation enabled by artificial intelligence is also speeding up the delivery of taxpayer refunds by the IRS. Since 2022, the agency has used AI to digitize paper tax returns and accelerate their processing.

AI-Based Tax Preparation Software

Many tax software products incorporate AI to streamline the tax preparation process for business taxpayers.

However, due to the often complex nature of business taxes, most tax software uses AI only as a virtual assistant or for specific applications. It does not use it to make tax calculations.

Furthermore, some of those involved in business tax prep and filing have concluded that AI can’t interpret data effectively or make useful recommendations yet.

There’s no doubt that ongoing, powerful advances in AI will drive greater and better use of it in tax prep software.

Examples

Intuit Assist, an AI assistant in certain TurboTax and Quickbooks software packages, uses traditional and generative AI that answers tax questions, analyzes data to find deductions and credits, and checks for mistakes in tax returns.

H&R Block, offers AI Tax Assist, which provides AI-generative chat at any stage of the tax preparation process.

Reconcile is software with AI-powered tools for entrepreneurs and individuals who manage multiple income streams. It offers tax assistance and broader financial assistance. Its chatbot answers questions and provides custom recommendations.

FlyFin is an AI- and CPA-powered tax filing product aimed at self-employed individuals and business owners. The AI tool categorizes expenses, uncovers tax deductions, and answers questions.

One AI business tax assistant with more to offer is TaxGPT. It handles time consuming tax research to update you on regulatory changes and ensure tax compliance, analyzes your business tax documents, and secures them for document management.

TaxGPT creates customized content for internal emails or IRS communications and produces tax documents and reports for your business. It helps you to respond to inquiries from clients, vendors, and other business contacts quickly and efficiently.

AI-Powered Business Tax Software
Software	Plans and Pricing	Target User	Overview
Intuit Assist	Varies by software and pricing package	Self-employed individuals and small business owners	AI assistant included in select TurboTax and QuickBooks plans
H&R Block AI Tax Assist	Included in $55 Deluxe Online package and higher	Self-employed individuals and small business owners	AI assistant that provides 24/7 real-time tax preparation support
Reconcile	Monthly fee of $30	Entrepreneurs and individuals managing multiple income streams	AI tax assistant, automated bookkeeping, and AI-powered financial analysis
FlyFin	Pricing information available in the app	Freelancers, self-employed individuals, and business owners	AI-powered tax tools plus review and tax filing by a CPA
TaxGPT	Contact sales team for pricing	Small, mid-market, and enterprise businesses	AI-powered tax support for research, document management, and communications

Tax Compliance

AI-driven analysis and automated transaction categorization can help businesses with tax compliance and to file their taxes on time.

TaxJar is software that aims to help small to midsized ecommerce businesses manage their sales tax compliance across jurisdictions. It automatically calculates sales tax rates, classifies products, and does multistate filing.

It can also integrate with different ecommerce and enterprise resource planning (ERP) platforms.

AI that’s able to process and analyze vast amounts of data will also be able to keep track of changing regulations and tax requirements to ensure that businesses are in compliance.

Closing the Tax Gap

While AI has improved the efficiency of customer service and data retrieval for businesses, it’s also helping the IRS combat fraud and close the gap between businesses that pay the taxes that they owe and those that do not. The agency uses AI to pinpoint large partnership returns—particularly difficult to assess due to their complexities—for audits.

Benefits and Limitations of AI for Business Taxes

Benefits

AI can improve the tax preparation and filing process for businesses in several ways:

• Streamlining data: AI-powered business tax software tools can import and analyze financial or sales data from other sources, including customer relationship management (CRM), ERP, and ecommerce platforms.
• Increasing accuracy: AI can keep up to date on changing regulations and is a useful tool for confirming regulatory compliance in relevant jurisdictions and filing years for things like sales tax and specific tax provisions.
• Driving efficiency: Data entry and organization tasks such as categorizing expenses and sales can be automated with AI to save businesses time.

Limitations

However, AI technology also presents potential issues and raises concern:

• Potential to present false information: AI has generated errors and nonsensical information (referred to as AI hallucination), which can have serious implications for business tax filing.
• Limited ability to analyze and interpret: Generative AI models are limited in their ability to analyze tax regulations and interpret context or relationships between tax code sections that might override one another. As such, they are not a substitute for consulting a trained tax expert, particularly for a complex tax situation.

Important

Business taxpayers should not rely exclusively on AI to prepare or file their taxes.

The Future of AI for Business Taxes

As AI technology continues to advance, some trends are emerging for AI-powered business tax applications.

For one, more and more tax agencies are using AI virtual assistants to cut down on customer queries so that their human agents can focus their attention on addressing more complex cases.

However, there is a lot of room for improvement, as many AI tools generate incorrect or irrelevant answers to straightforward tax queries.

Second, there are also more AI startups looking to harness AI for business tax preparation. One example is april, a company offering embeddable tax filing software to the fintech, financial services, and employee benefits industries.

Third, the potential impact that AI could have on reducing the effort and expense for businesses of tax preparation and filing could be huge.

The Taxpayer Advocate Service (TAS) estimated that the average small business spent roughly 82 hours and $2,900 on tax compliance in the 2022 financial year, while business entities in the U.S. spent a cumulative 1.14 billion hours and $48.3 billion on tax preparation.

In 2024, the IRS estimated that it took a business 105 hours on average to complete Form 1120, the tax return for corporations. Small corporations spent 55 hours working on it while large corporations took 830 hours (more than 20 weeks) to get it done.

And as for what businesses had to spend, according to the Tax Foundation, “The compliance cost of business (corporate) income tax returns is nearly $119 billion. Their quarterly tax filings cost $44.7 billion to comply with while depreciation schedules cost another $25 billion.”

As such, ongoing AI improvements in accuracy and efficiency could have a major material impact on the day-to-day operations and budgets of businesses.

What Are the Benefits of AI-Based Tax Software Over Regular Tax Software?

AI promises benefits such as increased efficiency and accuracy for tax filing, as well as the streamlined processing of financial and sales data. But, AI’s reliability in tax software is still a work in progress. Be sure to maintain human oversight when preparing your business taxes and consult an expert when needed.

What Is the Most Popular AI-Based Tax Preparation Software?

Popular tax preparation software tools like TurboTax and H&R Block have introduced AI assistants within some of their packages. Other business tax preparation software tools include Reconcile, FlyFin, and TaxGPT.

Will AI Replace Accountants?

Not any time soon. A 2023 survey of tax and accounting professionals revealed that, while ChatGPT may prove useful for basic research applications, it cannot replace the judgment of experienced professionals needed for complex tax scenarios. And a 2024 review of TurboTax and H&R Block’s AI tools revealed that they often gave wrong or irrelevant answers to basic tax questions.

The Bottom Line

As more AI startups enter the tax software space and AI technology continues to develop, taxpayers and tax agencies alike may be able to take advantage of the increased efficiency, data analysis capabilities, automated workflows, and more that AI has to offer.

Even the IRS is looking to AI to identify “compliance threats” and reduce the number of unnecessary audits it conducts.

While AI has been implemented in several tax software products and offers promising future applications for business taxes, the complex nature of tax preparation and filing warrants continued human oversight and interpretation.