Money Management

For this writer, a tax refund is rare. Read on to see why that’s just fine. [[{“value”:”

At this point, we’re deep in the throes of tax season, which means a fair number of filers may have already seen their refunds hit their bank accounts. The IRS reports that as of Feb. 9, the average tax refund issued this season amounted to $1,741.

But I’m not expecting money back from the IRS when I finish my taxes this year. In fact, most years, I inevitably end up owing the IRS some money. But here’s why that doesn’t bother me at all.

A tax refund isn’t free money

I’ve seen friends of mine jump for joy over getting a tax refund. But one misconception about tax refunds is that they constitute free money from the IRS.

They don’t.

When the IRS issues you a refund, it’s simply returning money of yours that you were entitled to all along. Only instead of collecting that money as you earned it, you let the IRS borrow it interest-free. Boo.

The main reason I’m OK with a refund is that I don’t like the idea of letting the IRS sit on my money when I’m entitled to it. So even though having to write a check during tax season is annoying, to me, it’s still better than having to wait months to get my hands on the income I went out and earned.

Making sure I’m not in a jam

I’ll admit that the first time I wound up having to write the IRS a check during tax season, it came as a bit of a shock — especially since it was not a small amount and it truly caught me off guard. That was a long time ago, though, and I’ve since learned from my mistake.

See, a big reason I owed that check back in the day was that I’d gone freelance and therefore didn’t have taxes withheld from my earnings during the year. As such, it was on me to estimate my quarterly tax payments and hope for the best. Only that year, my estimates were way off.

Since then, I’ve changed my ways and signed on to work with an accountant. Now, I have a professional who helps me calculate my quarterly tax payments so they’re more accurate.

Even so, though, I do tend to owe the IRS money when I file my taxes because my income tends to vary from month to month, as well as from year to year. So what I now do is set aside an extra portion of my income every month — on top of what I’m submitting in estimated tax payment form — and stick it into a savings account earmarked for the IRS. That way, if I learn in April that I owe the agency money, I simply raid that account instead of having to scramble to come up with the cash.

The reason I like this system so much more than getting a refund is that this way, I’m earning interest in my savings account on money that’s technically earmarked for the IRS. If I were to pay more in tax and get a refund, I wouldn’t be able to earn that interest, since the IRS isn’t going to give it to me. So the way I see it, by paying the IRS during tax season, I’m still coming out ahead financially.

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Moving to a new state, buying a new car, or trying to save on car insurance premiums? Make sure your car insurance meets state standards for liability coverage. [[{“value”:”

If you’re buying a new car or moving to a new state, it’s important to get up to speed on your state’s minimum requirements for car insurance. Every state has its own rules for the minimum amount of car insurance to meet state standards. If you’re not careful, you could run afoul of state laws — and risk catastrophic financial costs.

Let’s look at a few of the most common state standards for car insurance and how you can get your car covered with the right policy.

Most states (48 out of 50) require minimum car insurance

Unless you live in Virginia or New Hampshire, your state will require you to have a minimum amount of auto liability insurance coverage. New Hampshire allows drivers to go uninsured at their own risk, while Virginia allows people to drive without auto insurance if they pay a $500 fee when renewing their car registration.

Even if your state allows it, being an uninsured driver is a recipe for financial disaster. Can you really afford to repair your own car in case of a car crash, and do you want to be on the hook for paying for other people’s car repairs and medical care out of pocket?

According to the Insurance Information Institute, as of 2022, the average auto liability claim was $5,313 for property damage and $24,211 for bodily injury. And those are just the average costs, let alone the catastrophic costs of medical bills in case someone gets severely injured and needs lengthy hospitalization and long-term care. The worst-case scenario costs of a car crash can be ruinous.

Laws and minimum regulatory standards are often for people’s own good. A world where everyone drove without insurance would be chaotic, expensive, and harmful to human life. For these reasons, it’s a good thing that 48 out of 50 states require you to have a minimum amount of auto insurance.

A common state standard: 25/50/25 liability insurance

Different states have different specific requirements for auto liability insurance. But one of the most common state standards (required by a total of 10 states), is 25/50/25 coverage. This minimum standard coverage means that your auto insurance policy must have at least:

$25,000 of bodily injury liability coverage per person$50,000 of bodily injury liability coverage per accident$25,000 of property damage liability coverage per accident

When you consider that the average liability claim involves $24,211 of bodily injury costs and $5,313 of property damage, this minimum standard might seem like enough insurance coverage. But not all car crashes are “average.” In case you get in a more severe collision, your financial vulnerability could skyrocket.

How to get state standard minimum car insurance

The best car insurance companies will want to sell you an auto insurance policy that meets your state’s minimum standards — and more. After all, insurance companies make money by selling you more than just the bare minimum. Unless your car is very old and not worth repairing, getting collision insurance and comprehensive insurance coverage can often be the smartest move for your personal finances.

But if you want to see for yourself if your car insurance meets state standards, go to your state’s Department of Insurance, Insurance Division, or other state insurance regulator. Your state’s minimum car insurance requirements should be posted publicly and easy to check.

Here are a few current state-specific examples from some of America’s biggest states:

California: The California Department of Insurance website says that California drivers are required to have a minimum 15/30/5 auto liability coverage (only $5,000 for property damage liability).New York: The New York State Department of Financial Services website says that New York drivers are required to carry minimum auto liability coverage of 25/50/10.Texas: The Texas Department of Insurance website says that Texas drivers are required to have minimum auto liability coverage of 30/60/25.

Bottom line

In 2024, many people are struggling with high costs of car insurance and trying to change their policies to save money. You might be tempted to cut your liability coverage down to the state minimum to save money on premiums. But getting only the bare minimum liability coverage can be a short-sighted move that leaves you vulnerable to ruinous costs.

State minimum coverage will help you obey the law, but it won’t save your bank account from the most expensive car crashes. Talk to your insurance company and get auto insurance price quotes for higher levels of liability coverage, so you’re protected from the worst-case scenarios at the wheel.

Our best car insurance companies for 2024

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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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Saving up an emergency fund first is important. Keep reading to see the accounts to consider after you’re set with emergency savings. [[{“value”:”

When you start saving money, building up an emergency fund is usually the best thing to do first. Having three to six months of living expenses set aside can save you from most serious financial disasters. This money needs to be accessible so you can access it at any time. Ideally, it should be in a high-yield savings account so you can withdraw it when you need it.

But what about after you have your emergency fund saved? Where should your money be then? There’s actually not one right answer to this question since it depends on your goals for the funds — but a high-yield savings account, certificate of deposit, or brokerage account are all possibilities.

Here’s what you need to know to help you decide which of these accounts is right for you.

1. A high-yield savings account

Your emergency fund is not the only money that belongs in a high-yield savings account. If you have money you’re saving for other purchases and you don’t know when you’ll need the cash, these funds also belong in this type of account.

High-yield savings accounts pay a competitive rate of interest (accounts on our list offer APYs as high as 5.32% as of mid-February 2024). By choosing an institution that is backed by the FDIC or NCUA, your money is insured up to $250,000 so it’s safe. And you can access the money whenever you need or want it so you don’t have to worry about it being tied up. (Note that some savings accounts do impose monthly limits on the number of withdrawals you make, however.)

There are lots of things you might save for and need the money accessible at any given moment — such as a home repair fund or a car repair fund or even a vacation fund if you don’t know exactly when you’ll book a trip. All of this money should be in a high-yield savings account so it’s there when you need it.

2. A CD

A certificate of deposit is another great place to put your savings after you’ve got an emergency fund. CDs offer two big advantages over a high-yield savings account. Number one, the interest rates offered are usually a little higher on CDs than on savings accounts. And number two, the rate is guaranteed for the duration of the CD term, not variable like with a savings account. So if interest rates fall, you’ll still keep your high rate that was in effect when you bought the CD.

There’s a downside, though. You have to tie up your money. You have to commit to leave it invested for the duration of the CD term, which is commonly between three months and five years. And there are financial penalties, called early withdrawal penalties, if you try to take money out early.

So, a CD can be a great place to keep savings if you know absolutely for sure you aren’t going to need the money for a while. If, for example, you’re saving to buy a house in three years or throwing a wedding in six months, a 3-year or 6-month CD could be a great place for that cash.

3. A brokerage account

Finally, if you are saving for long-term goals, you should consider putting that money into a brokerage account. Brokerage accounts allow you to invest your money so you can earn a much higher rate of return. The S&P 500, for example, has averaged around a 10% annual return over the long term.

Now, the big downside is you could lose money — especially if you have a short investing timeline and can’t afford to wait out a market downturn if you happen to buy right before a crash. So, you’ll only want to put money into an investment account if you definitely aren’t going to need it for a period of several years. If you’re saving for a second home you want to buy 10 years from now, for example, or for retirement, this might be a good place for those savings.

Each of these accounts can be a great place for extra money after you’ve got your emergency account fully funded. Just be sure to consider the goals you have for the savings, so you can find the account that makes the most sense based on your timeline.

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Click here to learn more about our recommended credit cards

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 get the biggest tax refund for tax year 2023? Check out these easy tips for filing an accurate, on-time tax return to increase your refund. [[{“value”:”

Tax season is here, and millions of Americans are filing their Form 1040 in hope of a tax refund. Depending on your income and personal finances, you might have a simple, straightforward tax return. But if you’re not careful, you might make costly tax mistakes.

Many Americans have misunderstandings about tax returns and tax deductions. Fortunately, there is help available for you — whether it’s free tax filing software or professional tax advice.

Let’s look at a few ways to avoid tax mistakes and maximize your refund this tax season.

1. File your tax return on time — but not too early

One of the common tax return mistakes listed on the IRS website is filing tax returns too early. Some people are so eager to get their taxes done that they file their return too soon — only to discover that they forgot to include important information.

If you file taxes too soon, you might fail to report some of your income. You might miss out on claiming valuable deductions. You might have to file an amended return to make sure you get the full tax refund that you deserve — or end up paying extra taxes.

The deadline for most taxpayers to file federal tax returns for 2023 is April 15, 2024. Take your time. Make sure you’ve gathered all the W-2s, 1099s, and other IRS tax forms that show how much income you earned and how many deductions you can take.

2. If your income is $79,000 or less, use free tax-filing software

You don’t have to struggle through your tax return alone. Tax-filing software can help you avoid mistakes and maximize your refund with an accurate return. And if your income is below a certain level, you don’t have to pay for the software.

That’s right: taxpayers with adjusted gross income (AGI) of $79,000 or less are allowed to file taxes for free. The IRS Free File program lets you choose guided tax software from a trusted IRS partner to prepare your tax return for free. Many private-sector tax software companies also let you file your taxes for free, based on your income. (State income tax returns could cost extra, though.)

3. Double-check for all available tax deductions

One advantage of using tax prep software is that it will lead you through a series of questions about your personal finances and family. This helps uncover all the possible tax deductions that you might qualify for.

A few common tax deductions that you might see on your tax return could include:

Money you put into a traditional IRA: up to $6,500 for 2023 ($7,500 if you’re age 50 or older)Money you put into a health savings account (HSA): Up to $3,850 for single coverage, or up to $7,750 for family coverage for 2023Standard deduction: $13,850 for single filers, $27,700 for married filing jointly in 2023

4. Crunch the numbers to see if you can itemize deductions

Approximately 87% of tax returns use the standard deduction, but itemized deductions can help you get a bigger tax refund. Most taxpayers do not have enough of the right kinds of deductions to be able to itemize, but it’s worth checking (and double-checking) before you file your return.

A few common types of itemized deductions include:

Home mortgage interestDonations to charityState and local taxes up to $10,000 (including real estate/property taxes if you own your home)Medical and dental expenses greater than 7.5% of your adjusted gross income (AGI)

Before you file your tax return, add up any of your itemizable deductions and see if it’s larger than the amount of your standard deduction. (Tax software should help you do this, too.) For example, if you’re a single filer who owns your own home, and you paid $8,000 of home mortgage interest and $10,000 of state and local taxes in 2023, you can itemize deductions — because $18,000 is larger than your single filer’s standard deduction of $13,850.

If you make substantial donations to charity, including your church or other faith community, you could also qualify for itemized deductions. But whether you itemize or take the standard deduction, you should always take the deduction that is the biggest number. As a taxpayer, you have the right to take the biggest deduction that you qualify for.

5. Ask for a tax-filing extension if you need more time

April 15 is not an ironclad deadline for filing your tax return. If you have a complex tax situation, a family emergency, or just need more time to get your tax paperwork in order, you can get an extension.

All taxpayers, no matter how much income you make, can use IRS Free File to request a tax-filing extension. This gives you an extra six months to file your 2023 taxes — until Oct. 15, 2024. However, keep in mind that even if you file your tax return on Oct. 15, you still have to pay any taxes owed by April 15. And if the IRS owes you a refund, you’ll have to wait even longer to get that money in your bank account.

Bottom line

Tax season isn’t most people’s idea of a good time, but it doesn’t have to be super stressful. Plan ahead, find your tax documents, and give yourself enough time to file your taxes accurately. There is free tax software available for many people who have qualifying income. And if your tax return is so complicated that you need extra time, you can file an extension.

Our picks for 2024’s best credit cards

Our experts carefully review the most popular offers and select those that are worthy of a spot in your wallet. These standout cards come with fantastic benefits like generous sign-up bonuses, long 0% intro APR periods, and robust rewards.

Click here to learn more about our recommended credit cards

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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