Money Management

When you can deduct interest, it saves you money since the government subsidizes some of the cost. But can you deduct mortgage interest? Find out here. [[{“value”:”

If you have a mortgage, you already know that you pay interest to your mortgage lender for the privilege of borrowing money for your home. Depending on how big your mortgage is, what your interest rate is, and where you are in your payment process, your interest costs could equal thousands of dollars every year.

As you send this interest money to your lender each month, you may be wondering if you can deduct the interest from your tax bill. And the answer is, it depends — but in some cases you are able to do so.

Here’s when you can deduct mortgage interest

If you pay interest on a mortgage loan for a primary residence or second home, you are typically allowed to deduct the interest costs from your taxable income when you file your tax return. You are allowed to deduct the full amount of interest on mortgages up to $750,000 or on mortgages up to $1 million if you had incurred the debt prior to Dec. 16, 2017.

If you file your taxes as married filing separately, the amount you can deduct is lower though. Under those circumstances, you are only allowed to deduct mortgage interest on loan amounts up to $375,000 or up to $500,000 if you obtained the loan before Dec. 16, 2017.

Your mortgage lender should send you a document called the Form 1098, Mortgage Interest Statement, which will detail the amount of interest that you paid over the course of the year. You can use this form when you are doing your tax preparation. Tax software will ask you for the information from the form if you’re doing your own returns, or you can give the form to an accountant or tax professional who is helping you.

There’s an important limitation in who can deduct mortgage interest

There is some potential bad news, though. You are only allowed to deduct mortgage interest if you itemize on your taxes. This means you do not claim the standard deduction but you instead claim a deduction for specific things (like for mortgage interest and for state and local taxes).

Since the standard deduction is $13,850 for single tax filters and $27,700 for married tax filers for the 2023 tax year (the year for which you’ll be filing in 2024), you would need to have enough itemized deductions to add up to more than that amount in order for it to make any sense for you to itemize.

It’s a lot more work to itemize since you have to provide details on specific transactions that qualify you for deductions — and you’d never want to do it if you weren’t getting more money taken off your taxable income as a result. Otherwise, you’d put in extra effort for less tax savings.

Because the standard deduction is so high, the vast majority of taxpayers just claim it instead of itemizing. In fact, IRS data showed that 87.3% of tax returns claim the standard deduction instead of itemizing in the 2020 tax year — which means no mortgage interest would be deductible for close to 9 in 10 people filing returns.

Ultimately, you should not count on being able to deduct mortgage interest, even though it’s allowed, unless you know you have lots of other deductions that justify itemizing. If you’re one of the lucky Americans finding yourself able to itemize your taxes this year, it’s nice to know you’ll get this extra government help paying for your home.

Alert: our top-rated cash back card now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

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.

“}]] Read More 

Taxes can be stressful, especially if complications arise. Learn how to solve three common tax problems. [[{“value”:”

Doing your taxes isn’t fun even in the best-case scenario, but for most people, they’re at least not too painful. You spend a couple of hours entering data into your tax software, file your return, and get a refund check a few weeks later. But that’s not how it plays out for everyone.

If you run into any of the following three problems, doing your taxes can turn into a real nightmare. Fortunately, there are steps you can take to minimize the damage. Here’s what you need to know.

1. You don’t have what you need to file your return

Gathering your tax documents is the first step to filing your return. You’ll need your W-2 if you’re traditionally employed or 1099s if you’re self-employed. You could also have other documents related to property taxes, mortgage interest, savings account interest, higher education costs, and so on. It all depends on your situation.

Legally, employers must send you your tax documentation by the end of January, so you definitely should have gotten yours by now. If you haven’t or you’ve misplaced yours, you should take steps to track it down immediately. Contact your employer if necessary or see if you can look up the information yourself through online accounts.

The tax deadline isn’t until April 15, 2024, so you still have time to file. But if you fear you’re not going to finish yours in time, you can always request an extension. You do this through the IRS Free File system, not your tax software. This will give you an additional six months to file your return, but it doesn’t extend the time you have to pay any outstanding tax debt. If you fail to pay what, if anything, you think you’ll owe by April 15th, you could face penalties.

2. You have an unexpected tax bill

Many Americans get tax refunds, but some face unexpected tax bills. This could be a serious problem if you don’t have the cash you need to pay the debt on hand. But don’t let that stop you from filing your return. Go ahead and file as normal so you can avoid the IRS’s failure-to-file penalty.

Then, check out the payment plan options available to you. Most borrowers can choose from short-term payment plans that give them 120 days to pay what they owe or long-term payment plans with agreed-upon monthly payments. You could also try making an offer in compromise, where you tell the IRS what you can afford to pay. If it accepts your offer, you’re off the hook for the rest.

Keep in mind that you’ll still rack up failure to pay penalties even if you’re on a payment plan. This is worth 0.5% of your unpaid debt per month, up to a maximum of 25% of the taxes owed.

3. Your identity is stolen

Identity thieves love tax season because they can fraudulently file returns in other people’s names. Many claim deductions and credits you don’t actually qualify for to inflate the refund and then have the money sent to them instead. You may not know it’s happened until you try to file your real return and it’s rejected.

If this happens to you, fill out Form 14039 and mail it, along with a paper copy of your correct tax return, to the IRS. It might take some more time to get your refund and get everything straightened out, but at least you won’t get in legal trouble for what the identity thief did.

You should also report the incident to the Federal Trade Commission (FTC). And check to make sure that your financial accounts haven’t been compromised. It’s a good idea to change all your passwords to your online accounts to prevent thieves from gaining access to them.

If you have any questions about your personal tax situation, it’s best to run them by a tax professional. But don’t put it off much longer. Get started as soon as possible so you have plenty of time to deal with any challenges that may arise.

Alert: our top-rated cash back card now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

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.

“}]] Read More 

CDs have their drawbacks, but you may want to consider one today for one specific reason. Read on to learn more. [[{“value”:”

There are pros and cons to putting money into a certificate of deposit (CD) as opposed to a regular savings account. The upside of a CD is potentially getting a higher interest rate on your money, and having that rate guaranteed for the duration of your CD’s term. With a savings account, you can start out earning a certain APY only to see it shrink over time.

On the other hand, with a CD, you’re committing to keeping your money in the bank for a preset period of time. And there can be costly penalties for cashing out a CD before its maturity date. Also, while locking in a specific APY on your money can be a good thing, you run the risk of getting stuck with a lower return if interest rates rise after you put your CD in place. For example, if you open a 1-year CD at 4.50% but rates for that same CD term rise to 4.75% a month later, you’re stuck earning less on your money for the remaining 11 months of your CD’s term.

But even if you’re not a big fan of CDs in general, right now is a pretty good time to put one in place. Here’s why.

Interest rates are only likely to fall from here

Over the past couple of years, the Federal Reserve implemented numerous interest rate hikes in an effort to slow the pace of inflation. And the central bank’s efforts have worked. Though inflation continues to linger, it’s not nearly as problematic as it was back in 2022, when living costs really began to soar.

Because of this, the Fed is likely done raising interest rates, and has in fact signaled that interest rate cuts could happen later this year. As such, now’s really a good time to put money into a CD.

The CD rates that are available to savers today may not be available later this year once rate cuts take effect. So while opening a CD can mean getting stuck with a lower interest rate on your money, that’s unlikely to be the case if you lock in a CD in the coming weeks.

Should your money go into a CD?

If you have savings that are earmarked for emergency expenses or situations, then those funds should sit in a savings account, not a CD. That’s because you need to leave yourself with access to that money at all times. If you put it into a CD and an emergency strikes, you’ll risk a penalty for taking a withdrawal before your CD’s maturity date.

However, if you have money that isn’t part of your emergency fund, and you don’t need it for other near-term goals, then it pays to consider putting it into a CD. What’s more, you may want to consider a longer-term CD while rates remain competitive.

These days, you may be more likely to find a more favorable APY for a 1-year CD than, say, a 4-year or 5-year CD. But in four or five years, the APYs on CDs and savings accounts might pale in comparison to the rates being offered today. So it wouldn’t be a bad idea to open a longer-term CD if that aligns with your savings goals and strategies.

Either way, it’s a good idea to open your next CD before the Fed cuts interest rates. We don’t know exactly when that will be, but 2024 is definitely on the table. So you may want to take action sooner rather than later.

These savings accounts are FDIC insured and could earn you 11x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts could earn you 11x the national average savings account rate. Click here to uncover the best-in-class accounts that landed a spot on our short list of the best savings accounts for 2024.

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.

“}]] Read More 

Being late with a tax return could have serious consequences. Read on to learn more. [[{“value”:”

This year, taxes are due on April 15. So if you haven’t begun to work on your 2023 return yet, don’t panic — there’s still ample time to get the job done by the deadline.

However, you may still end up being late with your tax return this year due to a variety of reasons. And if so, you may be wondering what the consequences will look like. The answer is, it depends on whether you owe the IRS money or are due a refund.

When you’re due a tax refund

When the IRS owes you money and you’re late filing taxes, nothing happens. The reason there’s no penalty is that the IRS simply gets to hang onto your money a bit longer. Unsurprisingly, the agency doesn’t mind doing that.

It pays to be timely with your tax return so you get your tax refund in a timely manner. But if you need an extra couple of weeks to get the job done, it’s not the end of the world — especially if you’re managing OK financially without your refund check.

When you owe the IRS money

If you owe money on your 2023 taxes and don’t submit your return by April 15, the IRS can slap you with a big penalty. The failure-to-file penalty equals 5% of the sum you owe for each month or partial month your return is late, up to a total of 25%.

Let’s say you owe the IRS $1,000 from 2023 and you file your taxes two weeks late this year. That means you’ll have to pay an extra $50. If your tax return is six weeks late, you’ll pay a penalty of $100 — $50 for the first month you’re late and another $50 for the partial month you’re late.

Request an extension if you don’t think you’ll be on time

If you’re not sure whether you’ll owe the IRS money from 2023 or get a refund, and you really don’t think you can get your taxes done by April 15, then your best bet is to request a tax extension by the filing deadline. That automatically gives you an extra six months to submit your return without incurring a failure-to-file penalty.

To be clear, though, a tax extension will not give you extra time to pay your tax bill. So let’s say you owe the IRS $1,000, you get an extension, and you file your tax return on May 15. In that case, you won’t be charged the aforementioned $100 for failing to file on time. But you will be charged interest and penalties (different penalties than the failure-to-file penalty) for paying that sum four weeks after you were supposed to.

Meanwhile, if you’re planning to intentionally file your taxes late because you owe the IRS money and don’t have the cash in savings to pay up right away, don’t do that. All you’ll do is incur penalties for no good reason.

Instead, submit your tax return on April 15 and contact the IRS about getting onto a payment plan that has you paying off your tax bill over time. There are different options that may be available to you depending on the sum you owe.

Alert: our top-rated cash back card now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

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.

“}]] Read More