Money Management

Tax breaks can cut your IRS bill in a major way. Keep reading to learn how you can use them, too. [[{“value”:”

The goal when filling out your federal income tax return should be to pay what you owe — but not a penny more. You can make sure this happens by taking advantage of the numerous tax deductions, credits, and other incentives in the lengthy U.S. tax code to make sure your bill is as low as possible.

There’s no way I can discuss all of the different benefits available to taxpayers in a short article. But I can tell you the most lucrative tax breaks that I use to make sure my tax bill is as low as possible. Here’s what they are and how you can take advantage as well.

1. Retirement savings

This is (by far) the largest tax break I get each year. I’m technically self-employed, which comes with its own tax burdens, especially the self-employment tax. In a nutshell, I’m considered both the employee and employer, so I pay twice as much Social Security and Medicare tax as W-2 employees do.

On the other hand, I also get to use special retirement accounts with high contribution limits. I use a SEP-IRA for retirement savings, and other options include SIMPLE IRAs and Solo 401(k) accounts. My SEP-IRA has a sky-high contribution limit of $69,000 or 25% of compensation (whichever is less) for 2024, and while I don’t necessarily plan to max it out, that’s a lot of pre-tax income I can set aside.

If you’re not self-employed, you could still increase your retirement contributions to save money on taxes. If you have an employer-sponsored retirement plan like a 401(k) or 403(b), you can choose to have as much as $23,000 of your compensation contributed to that account, and even more if you’re 50 or older. And if you qualify, you can put as much as $7,000 into a traditional or Roth IRA for 2024 ($8,000 if you’re 50 or older).

2. Tax breaks for parents

It would be dishonest of me to say that my kids save me money. Any parent can tell you that raising children isn’t cheap — and mine aren’t to the age yet where they’re doing anything particularly expensive like driving or going to college.

However, my kids have been one of the biggest money savers when it comes to my taxes. Technically, this is a few tax breaks in one, but here’s what I save because of my kids:

Child Tax Credit: Worth $2,000 per year for each of my kids.Child and Dependent Care Credit: 2024 will be the first year when neither of my kids are in daycare, but we still pay for after-school care, and that qualifies. This tax break is worth 20% to 35% of qualifying expenses up to $3,000 for one child or $6,000 for more than one child.College savings: I regularly contribute to 529 Savings Plans for both of my children. While the contributions aren’t deductible on the federal level, most states allow 529 plan contributions to be deducted on the state tax return.

3. Tax breaks for real estate

I’m both a homeowner and a real estate investor, and there are excellent tax breaks for both. For one thing, homeowners are allowed to deduct the interest they pay on as much as $750,000 in mortgage principal. I’m fortunate to have a 3% interest rate on my mortgage, but this could be an especially big tax break for people who buy homes in the current market.

You’re also allowed to deduct any state and local taxes you pay (including real estate taxes) up to $10,000 if you itemize deductions.

If you own rental property, you can use any expenses of owning the property to help offset your rental income. This includes management fees, taxes, marketing costs, homeowners association dues, licensing fees, and more. Plus, rental properties get a special deduction called depreciation that can save you thousands of dollars.

The bottom line

There are plenty of tax deductions and credits available, and while no two taxpayers are the same, there are likely to be some breaks that you can take advantage of. Explore your options by consulting with a tax professional or making use of the best tax software. By knowing how some of the most valuable tax breaks work, you can put yourself in the best position to pay less in taxes and keep more money in your pocket.

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If you’re doing these three things, you could be losing $2,104.08 a year. Find out how to stop wasting your hard-earned cash. [[{“value”:”

You work hard for your money. You should be using it to spend on things you value, and to save and invest for your future. Unfortunately, if you’re like most people, at least some of it gets wasted in ways that add no value to your life.

In fact, there are three things you are probably wasting money on right now. Find out what they are, so you can stop the waste and put that money into your savings account or use it for fun purchases instead.

1. Unnecessary electricity

Did you know that around 10% of all energy costs of U.S. households are incurred because of phantom or vampire power? This is not nearly as cool as it sounds. Phantom or vampire power is the electricity that your devices use when they are plugged in, but not actually being used.

Basically, any device in your house that you leave plugged in could potentially be sucking electricity and costing you money — but the most common culprits are:

Cable boxes and DVR systemsPhone and tablet chargersPrintersDesktop computersGaming systemsAny device with an indicator light

Collectively, the costs of running all these devices all the time adds around $200 a year to the average family’s electric bills. That’s $200 you can’t use to pay off your credit cards or spend a night in a hotel or buy yourself a few new outfits.

Thankfully, you can stop wasting money on this easily. Get a power strip you can turn off when you aren’t using your devices, or just unplug them after you’re done with them.

2. Unused or underutilized streaming or subscription services

Quick, answer this question: How many streaming services and monthly subscriptions are you signed up for right this very minute? And when was the last time you used each one?

If you’re like most people, you can’t really answer either of these questions because there are just too many things we’re asked to sign up for that come with recurring payments and that can be a pain to cancel.

The average household has 4.4 active paid subscriptions, which total $52.97 per month. Around 30% of all those subscriptions are not used, and the average monthly cost of unused subscription services comes in at $25.34 per month.

There’s no reason to continue paying for months or even years for that streaming service you signed up for six months ago to watch the movie you fell asleep 15 minutes into (I’m not the only one, right?). Check your credit card and bank statements today to see what exactly you’re paying for and unsubscribe from everything you haven’t used in the last two weeks. If you end up missing the service, you can always sign up again later.

3. Food you buy but don’t eat

I once saw a meme where someone had relabeled their crisper drawer the “Vegetable Hospice,” because it was where vegetables go to die. While that may be kind of funny, the actual stats on how much food — and money — is wasted are nothing to laugh about.

More than $408 billion in food is tossed into the trash each year, with dairy products most likely to end up in the trash. Vegetables alone cause huge losses, with the average American family throwing out a shocking $1,600 per year in produce.

There are many, many better things to do with that much money than buying carrots destined to decay. You can stop food waste and its impact on your personal finances by making a meal plan and shopping with a list so you buy only the ingredients you need. Stick to that plan, and check your fridge each week to make sure you incorporate any leftovers into the upcoming week’s meal.

Collectively, the costs of these subscription services, wasted food, and phantom electricity add up to $2,104.08 in wasted funds each year. Follow these tips to get that money back now so you can end 2024 with something to show for it.

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Homeowners can save when they build equity. But additional homeownership costs may eat away at the savings. Read on for one writer’s experience. [[{“value”:”

Some homeowners pay for private mortgage insurance (PMI) for a period of time when they buy their home. PMI is required when you take out a conventional home loan and don’t make at least a 20% down payment.

This additional cost is tacked on to your monthly mortgage statement, making your home loan even more expensive. When my husband and I purchased our first home, we only put 5% down. Because of this, we’ve been paying PMI for the last four and a half years.

We’ve been making additional payments on our mortgage and recently achieved 20% home equity. Now that we owe our lender less than 80% of our home’s value, we’ve requested that the PMI expense be removed from our bill. Find out why we will notice little difference in our bank accounts.

PMI is an additional expense for many homeowners

Many personal finance experts recommend putting 20% down when buying a home to avoid having to pay PMI. It’s worth noting that PMI rates can vary, but many homeowners pay between 0.5% and 1% of the total amount borrowed each year.

Here’s an example: You buy a $250,000 home with a 10% down payment ($25,000) and take out a mortgage for $225,000. If your PMI premium is 1%, you’ll pay $2,250 yearly or $187.50 monthly.

Homeowners can contact their mortgage lenders and request PMI removal once their home loan balance is 80% of the home’s original value. Lenders must automatically terminate PMI when the principal loan balance is scheduled to reach 78% of the home’s original value. Eliminating this expense can make monthly mortgage payments more affordable.

Other homeownership expenses have increased

Not every homeowner walks away a big winner by eliminating PMI. We were paying around $560 yearly for PMI. While I’m glad we’ll no longer have to pay this additional expense, our achievement doesn’t feel like a major win.

Since purchasing our home four and a half years ago, our homeowners insurance and property taxes have increased. This is not uncommon. We’re now paying around $300 more each year for these costs. Our municipal property taxes are set to increase again soon, too.

When that happens, we’ll pay an additional $250 yearly for our property taxes, meaning we’ll pay around $550 more yearly on insurance and property tax expenses compared to what we were paying four and a half years ago when we were brand-new homeowners.

It’s unfortunate that we will feel little financial impact now that we’ve eliminated our $560 yearly PMI costs. But I’m still glad we will no longer pay this expense. Why? If we see a continued increase in homeownership costs, we’ll be more financially prepared to handle them now that we don’t pay PMI.

Ditching PMI can be a win

I’m writing about my experience as a reminder to homeowners that homeownership costs can and do change. It’s common for utilities, property taxes, home insurance, and other expenses to rise. Before buying a home, make sure you have an emergency fund so you can handle any unexpected expenses that come your way.

For those who can afford to do so, eliminating PMI is worthwhile. My husband and I are lucky to have a modest home loan bill, and our PMI premiums were extremely affordable — we paid 0.38% of our total loan amount each year. But that’s not the case for every homeowner. Those with much pricier homes and higher premiums could save thousands of dollars yearly by eliminating additional PMI expenses.

Want to get rid of PMI? You can do this faster by making extra payments toward the principal of your home loan. Even if your home insurance and property taxes increase, a more affordable mortgage payment could be a win for your wallet.

If you’re considering buying a home, check out The Ascent’s first-time home buyers guide.

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Tax identity theft cost Americans billions last year. Here’s a simple step you can take to reduce your risk this year. [[{“value”:”

Letting someone else file your tax return sounds like a pretty sweet deal — unless that person is an identity thief after your refund. It happens more often than you’d think. Last year, the IRS flagged 1.1 million tax returns with refunds totaling $6.3 billion for additional review due to suspected identity theft. More than 12,000 of these were confirmed as of March 2, 2023.

No one wants to be in that situation. Fortunately, the IRS has developed a strategy that can reduce your risk of tax identity theft. Roughly 6.1 million Americans took advantage of it last year. Here’s how to decide if it’s right for you this tax season.

It’s like a password for your tax return

To combat tax identity theft, the IRS created Identity Protection (IP) PINs. These are six-digit, personalized numbers that you must enter when filing your tax return, either electronically or on paper. A return filed without the code won’t be accepted.

The government automatically gives these PINs to confirmed victims of tax identity theft to help them avoid becoming a victim again in the future. But anyone can apply for an IP PIN for free as long as they have a valid Social Security number or individual taxpayer identification number (ITIN).

It’s not a must-have. You can file your taxes without an IP PIN as long as you haven’t been a victim of tax identity theft before. But it can happen to anyone. This is a simple step that’s worth the effort if you’re concerned about having your identity — or your tax refund — stolen.

How to apply for an IP PIN

The simplest way to apply for an IP PIN is to use the IRS’s online tool. You’ll have to answer some identity verification questions so the government can ensure it’s assigning the code to you and not someone impersonating you. This entails answering multiple-choice questions about things like the streets you used to live on and the bank you have your mortgage through.

If you run into problems with the online tool, you can also fill out Form 15227 and mail it to the IRS. Or you can request in-person identity verification at a local Taxpayer Assistance Center.

Once your application is approved, the IRS will assign you a six-digit IP PIN good for your 2023 tax return. Next year, you’ll have to log back into your account to get your new IP PIN for your 2024 taxes.

Currently, there’s no way to opt out of the IP PIN program. So once you apply for one, you’re committing to taking this extra step with every tax return you file going forward.

How to enter your IP PIN on your tax return

If you’re filing your taxes on your own using tax software, the program should ask you whether you have an IP PIN and prompt you to enter it where appropriate. If multiple people on your return have IP PINs, you must enter each one correctly to file your return.

When using a tax professional, wait until you’ve reviewed the return and confirmed its accuracy before handing over your IP PIN. Some identity thieves pose as tax preparers to steal your information. Checking over your return before it’s submitted is the easiest way to avoid this. And be careful not to give out your IP PIN to anyone except your tax preparer.

If you have any questions about your IP PIN, you can consult the IRS’s FAQs or contact the IRS for further information.

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Do you have bad memories about money, or feel triggered by looking at your bank account? You might have financial trauma. See how to overcome money taboos. [[{“value”:”

Money is one of the big taboos of American life, because everyone needs money to live, and everyone usually wants more of it, but many people struggle to talk about it. A recent survey from Wells Fargo and The Female Quotient, called “Our Secret Numbers,” explored the ways that people talk about money (or not), especially how men and women tend to view money differently.

This survey found one big little-known problem that can drive a lot of people’s unhealthy financial choices: financial trauma.

What is financial trauma?

Financial trauma is a kind of intense response to financial distress. “Trauma” is a strong word for it, but it’s accurate: Some people have had so much financial stress in their lives that they exhibit similar symptoms to PTSD. Financial trauma can even be carried between multiple generations.

People tend to have a lot of emotional baggage about money. Think of people in your own life: Do you have some friends who are confident and carefree about money, and others who are too frugal, bordering on being frightened to spend? What money lessons (helpful or harmful) did you learn from your own parents?

Every family has its own hidden language of money: how people invest, how people spend, and how people feel about their personal finances. Some people grow up in poverty or comfortably middle class; some people grow up in a family that can afford to take vacations and own expensive cars, while other families suffer economic misfortune.

All of these life experiences can contribute to a sense of “not having enough money” or worrying that your money might go away. For example, some research has shown that when a parent loses a job, it can cause long-term harm to the unemployed parent’s children. Children whose fathers lose their jobs are more likely to have to repeat a grade in school, get suspended or expelled from school, and become less likely to enroll in college.

How financial trauma affects your personal finances

Financial trauma happens when money seems so uncertain and unstable, when people have no foundation under them, when there is no limit to how scary things can get. When children grow up seeing their parents get laid off (or even lose the roof over their heads) at any time, it can cause many people to develop a mindset of fear and scarcity around money.

Financial trauma can manifest itself in your personal finances in several ways. Some people are afraid to spend, to the point that they have lots of money in the bank but don’t know how to enjoy it. No matter how much they save, they never feel safe. Other people put on an appearance of having lots of money (expensive clothes, luxury cars, lavish vacations), but have nothing saved for retirement. Others end up recklessly “doom-spending” because they don’t see the point in saving for an uncertain future — but this kind of spending isn’t healthy self-care, it’s self-sabotage.

How to overcome financial trauma

According to the survey from Wells Fargo and The Female Quotient, the first step to overcoming financial trauma is recognizing the signs. Are you afraid to check your bank account or talk about money? Do you have bad memories of growing up in a home where your parents were stressed and depressed about money? Did you inherit bad financial habits? Do you have limiting beliefs about whether you “deserve” to have a good-paying job and a financially abundant life?

Financial trauma is not your fault, and you are not alone. Many people have grown up with unhelpful attitudes or negative social conditioning about money. One way to fight financial trauma is to break through the money taboos. The Wells Fargo and Female Quotient survey found that people who are unhappy with their personal finances are less likely to share details of their financial lives with others (like their salary, debt amounts, or credit score).

But your money problems don’t have to be a dirty secret or a source of shame. Many people are struggling to save as much as they’d like, to invest for the future, and to feel better about their monthly finances. If you can find a few trusted friends to talk about money with, you might realize that many people are in a similar situation. You don’t have to feel alone. You can find a sympathetic ear, and maybe help each other work toward your financial goals.

Too often, people treat spending money like a fun social activity and view saving money as a form of solitary suffering. What if you could help heal your financial trauma by flipping this script, and turn financial wellness into a social activity? Find a group of friends who are willing to share financial goals and hold each other accountable. You can:

Host potluck dinners instead of dining out.Sign up for budgeting apps together.Show each other how you’re improving your credit score with credit monitoring services.Open high-yield savings accounts and do a fun savings challenge as a group.

Having friends in your corner can help all of you make faster progress toward healthier personal finances. And it might help defeat some of that financial trauma.

Bottom line

No matter what kind of money lessons you learned growing up, as a hard-working adult, you deserve to have a better relationship with your money. And it’s not too late to change your personal finances for the better! By talking openly about your money stresses and financial trauma, you can get on a path to better financial wellness.

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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.Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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The 2024 market will likely be similar to 2023’s rough ride. Here are a few ways to handle it. [[{“value”:”

A few more optimistic experts are predicting an uptick in inventory this year that may make housing prices go down a bit. Most, however, are saying that this year will be only marginally better, if at all, than 2023.

I was one of the folks navigating the rough waters of last year’s housing market, so I can offer some insight on what 2024 may be like. Here’s my advice.

1. Be thoughtful, but decisive

Although there’s been some waning in demand thanks to higher interest rates, there are still more home buyers than home sellers. Any property of decent quality that isn’t vastly overpriced is going to sell quickly.

During my search last summer, houses would hit the market on Saturday and have multiple offers by Monday. This leaves you very little time for contemplation before making one of the biggest purchases of your life. Make sure you know exactly what you need out of your new home so you can decide quickly whether a given property will suit those needs.

Finding the perfect house, especially when inventory is short, is next to impossible. Compromise where you can. That said, don’t let haste push you to compromise on must-haves that will significantly impact your quality of life.

2. Actively watch the listings

Speaking of quick sales: With houses often turning around in days in desirable areas, spotting a potential fit quickly is key. Choose a real estate app or website and check it regularly.

Even better, set up notifications so you’re alerted as soon as a property meeting your criteria hits the site.

While a great real estate agent will send you relevant listings as they hit the MLS, even the best agents can miss things. Being proactive on your end can make sure nothing falls through the cracks.

3. Watch out for signs of a quick flip

Sure, it’s nice to walk into a house that’s been recently remodeled and see all the “new” features. You’ll need to be cautious, however; there’s a good chance all those “updates” are only skin deep.

In case you haven’t seen the hundreds of shows on TV about it, house flipping has become hugely popular. Folks will buy up older homes, do a bunch of superficial updates as quickly as possible — generally with the same low-end finishes as every other flip — then sell at an inflated price.

Meanwhile, the plumbing is still 100 years old and there’s mold hidden behind the new paint job.

Look up the house’s listing on Zillow or another real estate site; the sales history is often listed here. If the house was sold within the last year for way less than it’s selling for now, it’s likely a flip. Be cautious and get a very thorough inspection.

4. Never skip the inspection, even if you lose the listing

It’s become disturbingly trendy to waive the inspection contingency as a way to stand out for competitive listings. This is a no-good, terrible, very bad idea.

The home inspection is the part where a professional comes in and points out all the things that are wrong with the house, including potential safety issues. Without an inspection, you’re buying a potential ticking time bomb of problems.

Things are going to break or go wrong that you don’t anticipate even with an inspection. But not knowing about a roof, plumbing, electrical, or foundational issue? That could be catastrophically expensive (not to mention dangerous).

5. Don’t let rates scare you off

Look, I get it. We had mortgage lenders offering record-low rates for a decade. So the current rates seem astronomical — especially if you’re already a homeowner with a sub-3% rate.

Sadly, that’s the reality now. And it will continue to be the reality for many years.

Yes, the Fed has signaled that it’s likely done increasing rates. There is even some talk about possibly lowering rates this year (not holding my breath on this one, personally). On the off chance that rates do drop, I wouldn’t expect it to be a significant decrease. And I seriously doubt we’ll get back to sub-3% rates anytime soon — if ever.

In other words, if you put off buying a new home because of mortgage rates, you’re going to be waiting a while.

Getting to the other side

Buying a house is never easy. But millions of people do it every year — and you can, too. As long as you’re prepared, patient, and flexible, you can navigate even 2024’s rocky housing market and find your next home.

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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.
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