Money Management

A tax audit is something you may want to avoid. Will itemizing on your taxes increase your chances? Read on to find out. [[{“value”:”

The IRS has been sorely underfunded for years. But that’s changing for the better thanks to the Inflation Reduction Act of 2022, which allowed for $80 billion in additional IRS funding.

Part of that $80 billion is set to be earmarked to improve customer service at the IRS. But part of that money is also being allocated to ramp up tax enforcement — meaning, making sure people are paying the taxes they’re supposed to.

Now at first, you might hear news like that and think, “Great, guess that means more IRS audits.” But the IRS has already said that average earners shouldn’t expect to see their audit rate increase, since it’s high-income individuals and corporations who the agency is targeting as part of its enforcement initiative.

Still, you may be nervous about getting an audit this year — especially if you intend to itemize deductions on your tax return rather than claim the standard deduction. But in reality, itemizing deductions should not increase your audit risk if you’re honest about the expenses you claim and stick to specific, accurate numbers.

Honesty and accuracy are key

Lying on your tax return is a good way to get yourself audited. So if you claim a $4,000 deduction that’s totally bogus, then yes, you may find that the IRS wants to dig deeper into your tax return.

Similarly, let’s say you decide to claim $1,000 in office supplies as a business expense for 2023. Chances are, you didn’t spend exactly $1,000. That’s just too perfect a number. So if you put something like that on your tax return, the IRS might conduct an audit to verify that figure.

But generally speaking, itemizing deductions shouldn’t increase your audit risk if you’re truthful and accurate, and if you have a means of backing up your claims. So let’s say you invested in some business equipment and purchases in 2023 that totaled $4,322. If you have receipts for the items in question and that’s the amount they add up to, there really shouldn’t be a problem.

And even if the IRS does decide to audit you, you have a way to prove you claimed the right deduction.

Be wary of disproportionate claims

In some cases, itemized deductions could increase your audit risk if the items you’re claiming are large expenses relative to your income. But even then, if those deductions are legitimate, you should claim them. However, you may want to brace for some follow-up from the IRS where you’re asked to offer further details.

Let’s say you’re a freelance IT professional who earned $40,000 in 2023, but you’re claiming $18,500 in equipment and expenses. At first, the IRS might question your ability to spend almost half of your income on expenses (whereas claiming $18,500 on a $100,000 income may not raise such a big red flag). But if a tax professional confirms that those $18,500 in expenses are deductible, then you should go ahead and claim them as long as you have documentation.

Similarly, perhaps you’re claiming $12,000 in mortgage interest and are reporting $35,000 of income. The IRS might think something fishy is going on, since most people can’t afford to spend about one-third of their income on mortgage interest alone.

But maybe you’re a generally higher earner who lost your job in 2023 and were paying your housing expenses out of your savings account that year alone. As long as you have a legitimate explanation, you should claim the tax breaks you’re entitled to.

The idea of getting audited can be scary. But remember, most of the time, all you’re doing is verifying information or providing the IRS with more of it.

That said, if you’re going to itemize on your tax return, you may want to enlist the help of a professional to file it, rather than attempting it on your own with tax software. That way, they can make sure you’re claiming the right deductions and help you work through an audit should that scenario arise.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has positions in Target. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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Are you thinking of joining Costco? See how Costco can save you hundreds of dollars and give you a life-changing shopping experience. [[{“value”:”

Shopping at Costco doesn’t just give you better prices — it can give you a better way of life. Maybe that sounds like fanboy hyperbole. But I’ve found it to be true: Costco offers an exceptionally helpful, value-adding shopping experience that makes my life better in a multitude of ways.

Let’s look at a few reasons why I continue to be impressed with the Costco shopping experience — at the store, online, and in my everyday life.

1. Great deals on groceries and everyday essentials

Perhaps the first reason that most people think of to get a Costco membership is that it can help you save money on bulk grocery items. And this is definitely true! Costco can help you save money on groceries by buying, for example, two big loaves of bread at once, or four pounds of organic ground beef, or twenty rolls of paper towels, for a cost per item that’s significantly cheaper than a typical grocery store.

But it’s not just the low prices on groceries at Costco that matter: it’s the quality of the items. Almost everything I’ve ever bought at Costco has been high quality and reliable. Costco gives you not just “cheap” groceries, but delicious food, my all-time-favorite paper towels, lots of organic options, and a fun range of items to discover, like flavorful hummus or a big box of fresh-baked cookies.

2. Surprising finds on high-end items

Speaking of fun discoveries: shopping at Costco often feels like a treasure hunt. You never know what surprisingly low-priced high-end items you can find. Whether it’s a big screen TV, a new MacBook laptop, a new refrigerator, a gas grill, or luxurious patio furniture, Costco can outfit your home with the level of comfort and convenience that you desire.

One of my favorite purchases that I’ve ever made at Costco was a piece of furniture: a futon couch that my family sits on every day in our TV room. It’s a versatile, supportive couch that converts easily to a flat bed for guests to sleep on. It’s one of the most durable, comfortable, longest-lasting pieces of furniture I’ve ever had, and we got it at Costco.

3. Confident savings on big-ticket purchases

Do you need to buy new tires? What about new window coverings for your home, an international dream vacation package, or a new car? You can buy all of these big-ticket items at or through Costco. And for me, the biggest reason to buy high-priced items at Costco is not just the cost savings: it’s the time savings and psychological benefits.

I buy higher-cost items at Costco because I trust Costco, and I don’t want to spend a lot of time doing research and shopping around. I don’t want to haggle. Costco saves me time and relieves the “mental load” of worrying about making the right choice, because I have confidence that Costco will give me a good price on excellent products. Even if Costco’s price is not the absolute lowest on a particular item, I get a lot of extra value from shopping at Costco overall — being in the Costco “ecosystem” is worth it.

Costco also offers a generous warranty and “concierge service” for a lot of the appliances and electronics that it sells, like TVs or computers. So if something goes wrong with your new purchase, Costco has your back. (And it has a generous return policy, too!)

4. Affordable healthcare

As a longtime freelancer and small business owner, I’ve spent most of my life worrying about healthcare costs. Costco has even improved my life in this way, by helping my family get affordable healthcare.

Costco has an on-site doctor of optometry for low-cost eye exams right there at the warehouse. And the Costco pharmacy offers low-cost vaccinations and the potential for hundreds of dollars per year of savings on prescription drugs and over-the-counter medications. Depending on your healthcare situation, Costco can help you save big.

And even if you have good insurance, Costco can still be a great place to do your eye exams and pharmacy pickups.

5. A happier, more relaxed shopping experience

I’ve always found Costco to be a happy, energizing place to spend time. Sure, like any big store, sometimes it’s crowded and noisy, but most people at Costco (customers and staff) are in a good mood. Costco is known for paying people well and being a great place to work, and it shows in the upbeat attitude and demeanor of Costco employees — you’re going to get friendly, helpful, detail-oriented customer service at Costco.

Costco employees are happy with their jobs, and that makes it a happier place to shop. It just feels like a well-run company where people have a safety net under them, where employees can relax and do their best work, instead of being overworked and understaffed, and having their pay and benefits constantly cut down to the bone.

When I’m deciding where to spend money, I don’t always want the “cheapest” option. I want to support companies that treat people right, where the employees can build careers and get pay raises and actually get ahead in life. Costco seems to be one of the best.

Bottom line

Whether you want to save money on groceries, tires, appliances, or even healthcare, Costco can be a great place to shop. But for me, it’s not just the low prices, it’s the high-quality shopping experience that makes Costco so great. Costco membership only costs $5 or $10 per month, depending on your chosen membership tier. This is a price worth paying. Costco can improve your personal finances — and your entire life — in surprising ways.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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You could be laid off from your job at any time. Read on for ways to be prepared. [[{“value”:”

Given that the U.S. labor market is in pretty decent shape, you might assume that a layoff isn’t something you really have to worry about much these days. But in a recent Monster report, 26% of respondents said their companies were directly affected by layoffs in the past year. That’s not exactly a small percentage.

Getting laid off can constitute an emotional blow as well as a financial one. And while you may not exactly be able to prepare for the former, you can take steps to prepare for the latter. If you’re not sure you’re set up to withstand a layoff, ask yourself these key questions.

1. Can my savings cover three months of essential bills?

You may have some money in your savings account to cover emergency expenses or a period of unemployment. But do you have enough cash reserves to pay for three full months of essential expenses? If not, then you may want to make it a priority to boost your emergency fund now, while you’re still employed.

The reason it’s important to have three months’ worth of savings is that for many skilled roles, it takes time to submit applications, go through what could be a series of interviews, and get through the red tape of receiving a job offer. So you want to make sure you can pay your bills during that time and avoid debt.

Now, you may be thinking, “But won’t I get severance and unemployment if I’m laid off?” And the answer is, it depends.

You may not be eligible for severance depending on your company’s policy, your industry, or the length of your employment stint. And even if you qualify for unemployment benefits, those might only replace a small portion of your missing paycheck. So it’s really important to aim for enough savings to cover three months of bills.

2. Are my skills up to date?

Maybe you’ve been coasting at work but are well aware that building certain skills will serve you well. Or maybe you were up on certain skills in the past but have let them lapse as your specific daily tasks took a different direction.

Think about the core requirements of your role and make sure your skills are such that you’d be able to perform well in another workplace environment. If not, prioritize the skills you need to build or brush up on, and then make an effort to get up to speed.

3. Are my online profiles and resume current?

If you get laid off, you may want to dive right into the job application process — for the sake of your personal finances and mental health. And that may be possible if you update your resume and online profiles now.

Take a look at your current resume, remove tasks and experiences that no longer apply or are relevant, and update that document to reflect the work you’ve been doing most recently. Make sure to highlight any awards you’ve received or new skills you’ve developed.

Similarly, you might have a profile on LinkedIn or industry-specific sites. Make sure those profiles are updated so you can immediately begin a job search should you need to. Also, if you want to ask people for endorsements, do it now. If you wait, you might catch certain contacts during a busy time, thereby delaying that process.

Getting laid off isn’t an easy thing to cope with — financially or otherwise. But if you take these steps to prepare, it might make the process much easier.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Credit card debt can be challenging to get out of, especially now. Here are three strategies you can try. [[{“value”:”

Credit card debt is a huge problem in the U.S., with the average American family owing $8,590. That’s tough to pay back on its own, but it’s even tougher when you add in the interest credit card issuers tack on every month.

Those rates have been climbing steadily over the last decade and have now reached an all-time high, according to the Consumer Financial Protection Bureau. The average credit card interest rate in 2023 was 22.8%, compared to just 12.9% in 2013. This makes getting out of credit card debt a real challenge, but the following three tips could help you do it.

1. Try the debt avalanche method

This is the simplest solution to credit card debt if you’re able to swing it. You start by reviewing your budget and looking for areas to reduce costs. A budgeting app could help you keep track of where your money is going if you don’t want to do this manually.

Then, you take any extra money you’re saving and put it toward your credit card debt. You pay the minimum balance on all your cards to avoid late fees. Then, you put any extra cash toward the card with the highest interest rate first. When that’s paid off, you move onto the card with the next-highest interest rate, and so on.

Another option is the debt snowball method. It’s essentially the same as the avalanche method but you put your extra cash toward the card with the lowest balance first. This can help you feel as if you’re making progress by reducing the number of debts you have more quickly, but you could pay more in interest this way.

2. Open a balance transfer card

This strategy pairs well with the previous one. Balance transfer cards temporarily halt the growth of your balance, so all the money you pay in each month goes toward reducing your principal. But this doesn’t last forever. The 0% introductory interest rate usually only lasts for a few months. If you don’t pay the full balance off in time, your remaining debt will begin to accrue interest at the standard interest rate.

Balance transfer cards also have one-time fees (often 3% to 5% of the balance you transfer), and this gets added to your principal. In addition, you cannot open a balance transfer card with an issuer you currently owe. You need to work with a new credit card company.

Choose a card you’re interested in and check its cardholder agreement to find out how much you could pay to do a balance transfer. And if you have any questions, reach out to the issuer for clarification before you open the card.

3. Take out a personal loan

Personal loans give you regular monthly payments, so they’re a great option if you’re trying to stop your balance from ballooning any further. You don’t need any collateral for these loans either. But because of that, their interest rates are higher than other types of installment loans, like mortgages or car loans.

Personal loans have closing costs and you’ll pay interest as well. But you may be able to spread your payments out over several months or years so you don’t have to pay too much every month.

Each lender sets its own loan terms and interest rates, so it’s best to get quotes from several of the top providers before settling on one. Be sure you understand how much you’ll pay per month and overall before you take out the loan.

No matter what strategy you choose, it’s important to take things one day at a time. Getting out of credit card debt is a process, so celebrate the small victories along the way. You may also want to be careful about what you charge to your credit cards going forward so you can avoid racking up new debt.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Kailey Hagen has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Avalanche. The Motley Fool has a disclosure policy.

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