Money Management

Want to save money on taxes in California? Watch out for these big mistakes when filing taxes in the Golden State. [[{“value”:”

Tax season is upon us, and Californians have an extra level of tax that they have to pay: California state income tax. Unless you have a really high income (almost $700,000 for a single person), you won’t have to pay California’s top tax rate of 12.30%. But every California taxpayer needs to watch out for a few big mistakes to avoid on California income tax returns.

Let’s look at a few of the biggest California tax mistakes — and how you can have a more laid-back tax season.

Mistake No. 1: Assuming you’ll get the same federal deductions

If this is your first time filing taxes in California, you might be surprised to discover that so many of the tax breaks you take for granted on your federal return aren’t accepted by California. This can cause your California taxable income to be higher than your federal taxable income. In some important ways, the California tax authorities are more strict than the IRS.

Here are a few big differences between federal tax deductions and what California allows.

California has a lower standard deduction

The IRS allows for a much bigger standard deduction than California does. For example, while the federal standard deduction for married couples filing jointly is $27,700 for 2023, in California those couples can only take a standard deduction of $10,726. That’s a difference of $16,974!

California doesn’t allow deductions for health savings accounts (HSAs)

Putting money into a health savings account (HSA) is one of the best federal tax deductions you can get, because it’s an “above the line” deduction and there are no income limits. But your HSA won’t save you money on California taxes — California doesn’t allow any deductions for HSA contributions.

California doesn’t allow deductions of state, local, or property taxes

If you take itemized deductions on your federal tax return, you’re probably familiar with the SALT deduction for up to $10,000 of state and local taxes. This is a favorite tax break for homeowners in higher-tax states because it lets homeowners deduct some (or all) of their property taxes from their federal income.

California doesn’t allow this deduction, either. Sorry, but if you have a big, expensive home with high property taxes, you won’t get a California state tax break.

California has some special deductions that the feds don’t allow

California is not completely ungenerous to taxpayers. There are a few types of tax deductions where California actually offers higher limits and bigger benefits compared to the IRS. For example:

Home mortgage interest: Californians can deduct interest on mortgages up to $1 million (the federal limit is $750,000).Moving expenses: Anyone in California can deduct moving expenses from their state tax return; the Feds only allow some military service members to do this.Miscellaneous deductions: If you have to shell out money for certain expenses related to your job, California will let you deduct those costs — and certain other miscellaneous expenses — for amounts over 2% of your federal adjusted gross income (AGI).

Note: In California, home mortgage interest and miscellaneous deductions can only be taken if you itemize deductions at the state level.

Mistake No. 2: Trying to get tax credits that you don’t qualify for

Another big mistake on California taxes is assuming you qualify for certain tax credits that are limited by income. California offers several unique tax credits for people in various life stages, but unless your income is below a certain level, you cannot get them. Here are a few to note.

Young Child Tax Credit: You must have a qualifying child under age 6, and your earned income must be $30,931 or less.Nonrefundable renter’s credit: Your income must be $50,746 or less for single filers, or $101,492 or less for couples filing jointly, or head of household.Senior head of household credit: Older adults (age 65) who are recently widowed can get this tax credit, but only if your income is less than $92,719.

Mistake No. 3: Failing to pay taxes owed by April 15, 2024

California is surprisingly laid-back about tax filing deadlines. Everyone in California gets an automatic six-month deadline extension for filing their state taxes — you don’t have to file your 2023 California tax return until Oct. 15, 2024. That’s right! You don’t need permission, you don’t need to fill out any forms; you can just wait until October if you want.

However, if you owe taxes for 2023, if you didn’t have enough money withheld from your paycheck, if something has changed in your personal finances that has caused you to owe more money to the state of California than you had expected? You must pay your 2023 California tax bill by April 15, 2024. Paying your taxes in full and on time feels good, and it helps you avoid fees and penalties.

Bottom line

Filing a tax return can be intimidating and stressful, so why not get some help in your corner? Higher-income Californians, small business owners, or people with unusually complicated tax situations might want to hire professional tax help.

But for most everyday Californians who are nowhere near the top tax bracket, the best tax software can help you file your federal and state tax returns easily and cost-effectively. California has some good deductions and credits that you won’t want to miss — tax software can help you make sure you only pay what you owe and get every California tax break you deserve.

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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.Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.

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Closing an unused credit card can affect your finances, but these questions will help you decide if it’s worth doing. Keep reading to find out more. [[{“value”:”

If you have a credit card you aren’t using any more and you don’t plan to use in the future, you’re going to have to make a decision about its fate. Specifically, you’ll have to decide whether to close the account or keep it open.

Asking these five simple questions can help you make the right choice on that issue.

1. Does it have an annual fee?

Closing a credit card down can cause your credit score to take a hit. If there’s no annual fee on the card, there’s very little reason to close it. You can stick it in a drawer and use it once a year or so in order to make sure the card issuer doesn’t close it for you. This way, you can avoid taking the hit to your credit, since the card isn’t costing you anything.

2. Can you downgrade the card?

If the card does have an annual fee, then you may be able to call up the issuer and ask if you can downgrade the card. This would involve switching your expensive card with the annual fee to a different one in the card issuer’s lineup that doesn’t come with a charge. Your account wouldn’t be listed as closed if you did this, and while you’d likely get fewer cardholder perks, it wouldn’t matter anyway if you weren’t using the ones you had.

If you can’t downgrade and the card does have an annual fee, there are a few more factors to consider to decide if paying the fee is worth it.

3. How high is the credit limit?

It’s worth considering how high the credit limit is when deciding whether to cancel or keep a card.

See, credit utilization ratio is the second-most important factor in determining your credit score, after payment history. The utilization ratio is the amount of credit used versus credit available. It accounts for 30% of your score, and you’ll want to keep your utilization ratio below 30% to avoid hurting your score.

If you close a card that has a very high credit limit, this can do more damage than if you close an account with a lower one. Say you have two cards:

One with a $10,000 limitOne with a $1,000 limit

If you don’t use the card with the $10,000 limit but you have a $500 balance on the other card, closing your card with the $10,000 limit would change your utilization ratio from 4% ($500/$11,000) to 50% ($500/$1,000).

Consider how your credit utilization will be impacted before you decide whether to close down any card. You can also contact your creditors of the cards you want to keep open and ask if they’ll increase your credit line, which could help reduce the impact of the account closure.

4. How old is the card?

Average age of credit is another important factor in your credit score, accounting for 15% of your score. That means if you’re closing an older card, it will have more of an impact on this component of your credit score than if you’re closing a newer one.

If the card account has been open for a long time, think seriously about whether closing it is worth the hit to your credit.

5. Will you be doing any major borrowing any time soon?

Finally, think ahead to the coming few months and ask yourself if you’re going to be getting a big loan like a mortgage or a car loan. If so, doing anything to reduce your credit — like closing an old card — probably isn’t a good idea.

If you won’t be doing any major borrowing for a while, though, then you have time for your score to recover. So it may be a good time to shut down the accounts you aren’t using any longer — especially if they have annual fees.

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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 a disclosure policy.

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Want to make the most of your 401(k)? Read on to see how you can. [[{“value”:”

Having access to a 401(k) plan at work isn’t a given. And if you don’t have a 401(k), you can always save for retirement in an account you open yourself with a brokerage firm. For example, IRAs offer more flexibility for choosing your own investments.

But if you’re going to use a 401(k) as your retirement plan of choice, then it’s important to make the most of that account. Here are three moves that could help you grow your 401(k) balance really nicely.

1. Snag your full employer match

There are some people who have access to a 401(k) plan without an associated employer match. But Vanguard reports that at least within the context of its platform, 95% of workplace retirement plans offer some type of matching incentive.

It pays to put enough money into your 401(k) to claim your employer match in full. Not only can your employer match boost your balance as that money hits your account, but you can also invest that extra money over time.

So let’s say your employer puts $3,000 into your 401(k) this year because you also put $3,000 in yourself. If your 401(k) generates an average annual 10% return, which is in line with the stock market’s average return over the past 50 years, that $3,000 alone could be worth about $136,000 four decades from now.

2. Save your raise every year

Every dollar you put into your 401(k) is a dollar you can’t spend on something else. And it can be difficult to give up some of the things you enjoy or want for the promise of a comfortable retirement down the line.

That’s why a good strategy for maximizing your 401(k) is to bank your raise every year — but at the start of the year, before you’ve gotten used to that extra money. If your pay goes up $1,500 from one year to the next and you allocate that entire $1,500 boost to your 401(k), you won’t miss it. It’s an easy way to increase your contribution rate without making yourself unhappy.

3. Choose index funds as your go-to investment

One negative with 401(k)s is that they typically do not let you invest your long-term savings in individual stocks. Rather, you’re generally limited to a variety of funds, all of which can have benefits and drawbacks.

A big issue that may arise with some of your 401(k)’s fund choices is the high fees they charge. These are common in mutual funds as well as target date funds.

Index funds, on the other hand, are passively managed funds whose goal is to match the performance of the market benchmarks they’re associated with. Because of this, their fees tend to be really low, which means they shouldn’t heavily erode your returns the way mutual fund and target date fund fees might.

And if you’re worried that sticking to index funds will lead to a lower return in your 401(k), fear not. Index funds have a long history of outperforming their actively managed counterparts.

The more strategic you are with your 401(k), the larger your nest egg might end up being in retirement. Follow these tips so you’re able to enjoy your senior years with plenty of money at your disposal.

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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 a disclosure policy.

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