Money Management

This self-employed writer has made some smart — and not so smart — tax moves in her day. Read on to learn more. [[{“value”:”

Paying taxes is a part of life for just about everyone. And in the course of dealing with taxes, I’ve made some pretty savvy moves in my day. But I’ve also fallen victim to some huge blunders recently, as well as in the past. Here are some of my biggest tax-related wins and screw-ups.

Win No. 1: Maxing out my solo 401(k) plan

If you’re self-employed, you have different options when it comes to saving for retirement. You could open an IRA at any financial institution that offers one. Or, you could fund a solo 401(k).

What I like about solo 401(k)s is that they come with generous contribution limits. In 2024, the limit is $69,000 if you’re under 50, or $76,500 if you’re 50 or older. By contrast, with a 401(k) through your employer, the limit is $23,000 if you’re under 50, or $30,500 if you’re 50 or older.

That said, the amount you’re entitled to contribute to a solo 401(k) hinges on your earnings. But for several years now, I’ve managed to put the maximum amount I’m personally eligible to contribute into my solo 401(k). And every dollar I’ve put into that account has shielded some of my income from taxes.

Win No. 2: Hiring a great accountant

Filing taxes was something I used to do on my own, even though I was self-employed. But eventually, I realized I was probably missing out on some big tax breaks by tackling my taxes solo.

I asked friends to recommend a great accountant and managed to find one that way. And while his fees aren’t inexpensive, what I pay for his services, I more than make up for in tax benefits I wouldn’t know to claim myself.

Failure No. 1: Forgetting to sell a bum stock before the end of the year

Last year, a stock I owned tanked, and its future looked murky. I wanted to sell that stock at a loss in my brokerage account to offset some capital gains, only I forgot. That’s right — I could’ve saved myself a nice amount of money on my 2023 tax bill, but I missed that opportunity due to…a brain fart.

I realized my mistake early this year and went and sold the stock, so I’ll still get to benefit from the loss. But now I have to wait until I file this year’s taxes to take advantage.

Failure No. 2: Underestimating my quarterly tax payments

Before I started using an accountant to do my taxes, I’d try my best to estimate my quarterly tax payments — something all self-employed people are required to do. And most years, I’d fail. That meant having to write a sizable check to the IRS each April.

Now to be clear, I happen to think that it’s better to owe a little bit of money than to get a refund. When you get a refund, it means you paid too much tax upfront and essentially gave the IRS a free loan.

But the checks I was writing to the IRS due to underestimating my quarterly payments were large. And in some cases, they messed up personal plans. One year, for example, we had to put off a home renovation because I owed the IRS a five-figure sum.

When you’re self-employed, it’s not so uncommon to have to owe the IRS a bit of money when you file your tax return. But these days, I use an accountant partly to come up with better estimates along the way, and partly to avoid the IRS penalties that can ensue for too large an underpayment.

The U.S. tax code is extremely complex, so if you feel you’re not an expert in it, don’t worry. But at the very least, read up on tax-advantaged retirement plans like IRAs and 401(k)s so you’re able to not only set money aside for your future, but also, shield some income from taxes.

Additionally, don’t hesitate to hire an accountant or tax professional if you’re nervous about filing a return on your own. You may find that what you lose in the form of their fee, you gain in the form of additional tax breaks you wouldn’t have thought to claim.

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Donating to good causes can benefit you, too. Learn how to maximize your charitable giving and save money on your taxes. [[{“value”:”

If you itemize deductions on your tax return, one of the best ways to save money and do a lot of good at the same time is to donate to charitable organizations. While it’s a well-known fact that charitable contributions are usually tax-deductible, there are some strategies you can use to maximize the value of yours.

Here are five tips in particular that can help you boost your deductions and make sure you won’t have any issues with claiming them.

1. Donate items around your home that you don’t need

One common misconception is that you can only deduct monetary donations. You can also donate property to a charitable organization and deduct their estimated value on your taxes. For example, did you clean out your closet and have a bunch of clothes that don’t fit or you almost never wear? Did you upgrade your coffee maker, but the old one still works fine? Did you get new living room furniture and now have an old couch sitting in your garage?

These are just some of the items you could donate. Be sure to get a written acknowledgement from the charity, and it doesn’t hurt to take some photos of the items you’re donating as well (just in case you need them). If you estimate the value of your donation at more than $500, you’ll have to fill out IRS Form 8283 as well.

2. Don’t forget about mileage

Unfortunately, you cannot deduct the value of your time if you volunteer for a charitable cause. However, you can take a deduction for the expense of driving there and back. If you get written confirmation from the charity documenting your service, you can deduct your actual vehicle expenses or $0.14 per mile. In most cases, the actual expenses (gas, parking, etc.) result in the higher deduction, though the flat mileage rate is much easier to work out for the deduction.

3. Be strategic about timing

Charitable deductions can only be taken in the year they were made. In other words, you can’t donate to charity in February 2024 and claim the deduction on your 2023 tax return you’re filing your taxes this year. So one of the best ways to maximize your charitable deduction is to be strategic.

If you end up in a relatively low tax bracket this year and typically donate a certain amount of money, it might be a good personal finance move to set it aside until Jan. 1 of next year. Conversely, if you anticipate being in a higher tax bracket this year than in future years, it could be a smart strategy to get aggressive with your donations.

4. Get a receipt

In order to claim a charitable deduction, you need to obtain proof of your contributions. I mentioned this briefly in the context of donating property, but cash donations of $250 or more require written confirmation from the charity. If you donated less than $250, a receipt or bank statement is sufficient.

As a general rule, the larger your charitable deduction is, the higher the probability that the IRS will want to see proof. This is especially true if your donation was high relative to your income. In other words, if you made $60,000 last year and donated $10,000 of it to charity, you should absolutely take the deduction when you file your tax return — but make sure you can back it up.

5. Donate stock you own

You don’t just have to donate cash or physical items to get a tax break. If you donate assets you own that have gone up in value, you can get a double tax benefit.

Consider this example. Let’s say you paid $1,000 to buy stock several years ago, and now that stock is worth $3,000. If you were to sell that stock today, you’d have a $2,000 taxable gain to report on your taxes. However, if you donate the stock to your favorite charitable organization, you don’t have to pay any capital gains at all and you get a tax deduction for the donation equal to the stock’s full market value.

The bottom line

Charitable giving can be a great way to support the causes you’re passionate about while saving money on your taxes at the same time. By using these strategies, you can make your deductions higher and more valuable, and make sure you’ll be in a good position to document them if the IRS asks.

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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.Matthew Frankel, CFP® 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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Did you know you can give your child future financial security by starting now? Find out how to pave their way to success. [[{“value”:”

Creating a future where your child can attain millionaire status doesn’t necessarily mean you need to be exceptionally wealthy from the start. In fact, with some savvy financial strategies and proactive planning, you can lay a solid foundation for your child’s prosperous future (something I’m hoping to do for my 5-year-old son). You just need to utilize the right financial tools and opportunities that are often overlooked or underutilized.

Here are three key ways to set your kid up to be a millionaire with just a few dollars a day.

1. Employ your child

If you’re a business owner, a smart strategy to boost your child’s financial future is to employ them in your business. Picture them as a model for your advertisements, for instance. This move is smart, not just because they’re your child, but because it makes financial sense, too.

Here’s the cool part: When you hire your child, you get to cut down on your business taxes. It’s like the government patting you on the back for being a savvy parent–business owner. And for your kid? They can earn up to $13,850 a year without paying a dime in taxes. That’s a lot of money for someone who’s still in school. And if you take the following steps to invest it strategically, your child will be well on their way to being a millionaire.

2. Invest in a custodial Roth IRA

Now, let’s put $6,500 of that $13,850 into a custodial Roth IRA account. A custodial Roth IRA offers an excellent avenue for long-term savings for your child, especially if they have earned income. This can be through various means, such as modeling or working for your business. The Roth IRA is particularly advantageous due to its tax structure. Contributions are made with after-tax dollars, but the earnings and withdrawals during retirement are tax-free.

The power of this approach lies in the magic of compound interest. For example, if you contributed the 2023 maximum amount of $6,500 annually to your child’s Roth IRA, with an assumed 7% annual return, the investment can grow substantially. An initial investment of $117,000 over 18 years can balloon to nearly $221,000 by the time your child turns 18. If these funds are left untouched until retirement, the amount could potentially grow to around $5 million, demonstrating the profound impact of early and consistent investing.

Another bonus is that your child can withdraw up to $10,000 from the account penalty-free to help buy their first home.

3. Utilize a UTMA account

A UTMA account is another flexible tool for investing in your child’s future. This account allows you to gift your child various assets, such as money, real estate, or fine art, without needing a guardian or trustee. One of the key advantages of a UTMA account is its favorable tax treatment. The first $1,250 of the child’s unearned income from the account is tax-free, and the next $1,250 is taxed at the child’s lower tax rate.

Starting with a modest annual contribution, say $1,000 of that $7,350 left over after contributing to the Roth IRA, and assuming a 7% annual growth, the investment in a UTMA account can grow significantly over the years. By the time your child reaches 18, this investment could be around $34,000. If left to grow until age 65, the total could surpass $800,000. However, it’s important to be aware of the potential tax implications and the effect on college financial aid, as the money in a UTMA account is considered the child’s asset.

How else can you set your child up for success?

Using these money moves — hiring your kiddo, saving in a Roth IRA, and stashing cash in a UTMA — isn’t just a set-it-and-forget-it kind of deal. You’ve got to get the hang of the little details and how taxes play into this. Starting early is key, and keeping up with regular contributions is like putting fuel in the tank. And where do you put your money? That’s important, too — you want to be smart about it.

It’s highly advisable to seek guidance from a financial advisor or tax professional. They can provide personalized advice, ensuring these strategies are optimally tailored to your circumstances. Additionally, they’ll keep you informed about any changes in tax laws or contribution limits, which is crucial for staying on track.

If you play your cards right with these methods, you’re not just saving up some money for your kid. You’re setting them up on an exciting road to becoming a millionaire.

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Opening a CD could be a savvy financial move. But read on to see what questions you should run through first. [[{“value”:”

Because certificate of deposit (CD) rates are pretty attractive these days, a good number of people are looking at opening one before rates start to fall. You may be interested in opening your first CD soon. And that’s a move that could work out well for you financially. But before you take that leap, make sure to answer these key questions.

1. Am I sure I don’t need the money for something else?

When you open a CD, you commit to keeping your money in the bank for a period of time. If you cash out a CD before it comes due, you could face a costly penalty.

That penalty can differ from one bank to the next. At Capital One, the penalty for cashing out a CD early with a term of one year or less is three months of interest. But either way, penalties can eat into your interest income (or even wipe it out, in some cases), which isn’t what you want. So before you open a CD, make sure you can afford to part with the money you’re putting in for the full length of the CD term.

For example, it’s important to leave yourself with a fully loaded emergency fund — enough money to cover at least three months’ worth of bills. So make sure you’re able to leave yourself with that much cash after opening a CD.

Furthermore, it’s a good idea to look into the future as best as you can and anticipate upcoming expenses before committing to a CD — especially one with a longer term. For example, is your significant other on the verge of proposing? If so, you don’t want to tie up funds you might need to throw a wedding.

2. Have I researched CD rates?

CD rates can vary from one bank to the next. They can also vary based on the CD term you’re looking at. It’s important to research rates so you end up with the maximum amount of interest earnings.

That said, you’ll also need to keep your personal financial timeline in mind when opening a CD. Your bank may be offering a better rate for a 12-month CD term than for a 6-month CD term. But if your apartment lease is up in 10 months and you’re expecting to move, you may want access to your money then. So in that case, accepting a lower rate on a 6-month CD makes sense.

3. Am I better off investing in stocks instead?

You might earn more interest with a CD than with a savings account. But if your goal is to earn the highest return possible on your money, you may want to avoid putting more cash into the bank and instead turn to a brokerage account.

Right now, some CDs are paying 5% or more. But the stock market’s average annual return over the past 50 years has been 10%. So let’s say you have $5,000 to put away and you open a five-year CD at 4% (keep in mind that longer-term CDs aren’t paying as much right now as shorter-term ones due to the potential for near-term interest rate cuts.) In five years, you’ll have almost $6,100. But if you were to invest that money at 10% over five years, you’d have a little over $8,000 instead.

If you’re saving for a shorter-term goal — say, to buy a home in five years — then a CD may be a better bet. But if you’re working toward a far-off goal, like retirement, then you may want to invest your money in stocks and other assets that have the potential to offer higher returns.

Opening a CD is something you may be excited about. Just address these points thoroughly first so you don’t wind up regretting your decision.

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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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Airport lounges are a more comfortable place to wait for a flight. Check out some handy tips to make the most of your time in an airport lounge. [[{“value”:”

Airport lounges aren’t open to everyone, but it’s now easy enough to get in. There are plenty of credit cards with airport lounge access, and this perk is also normally included if you’re flying in business class or first class.

If it’s your first time visiting an airport lounge, you’re probably excited, and maybe wondering how to get the most out of it. I travel often, and I’ve been to dozens of airport lounges. Here are my top five tips for enjoying your time at the lounge.

1. Check the location online so you know where to go

Some airports are huge, and it’s tiring to wander around looking for a lounge. Before you go to the airport, check the location for any lounges you can access.

This information will be available on your lounge program’s website. Let’s say your travel card includes a Priority Pass membership. First, visit the Priority Pass website. Search for the airport, and you’ll see all the lounges available there. Don’t forget to activate the Priority Pass membership, too, so you can use it.

It’s the same process as other lounge programs. For example, if you have access to Delta Sky Clubs, visit the airline’s website and search for Delta Sky Club locations.

2. Review the entry rules

When you look up lounge info before your flight, make sure to also check the entry requirements. Specifically, you’ll want to check:

Hours of operation: To confirm it will be open before your flight.Entry restrictions: Some lounges won’t let you in more than three hours before your flight.Guest policies: If you plan to bring any friends or family with you, you’ll want to know if your lounge program has rules on if you can bring guests or if there’s an extra fee for doing so).

It’s especially important to review this if you have a late-night or early-evening flight, when lounges may be closed. Or, if you’ll be arriving at the airport several hours ahead of your flight, see if the lounge you’re planning to visit has entry restrictions.

3. Do a lap first

You’ve found the lounge and checked in. What now? Personally, I like to do a quick lap around the lounge before I get comfortable. This is to get an idea of the amenities the lounge offers and to see all the seating options.

There have been times when I just grabbed one of the first seats I saw. Then, while getting a drink, I noticed much more comfortable chairs elsewhere. By walking around first, you can find the best spot and get settled in sooner.

The exception to the rule is when a lounge is packed. In that case, you might want to grab any decent seat that’s available.

4. Make the most of the amenities

Amenities at airport lounges vary. Smaller lounges may offer snacks, drinks, and magazines/newspapers. Larger lounges may have:

BarsMeal serviceRelaxation roomsPlay areas for childrenShowersSpas

You can find a lounge’s amenities online when you check the location and hours. There’s also often info about amenities when you log into the lounge’s wifi.

Don’t be shy about taking advantage of the lounge’s perks. No one’s going to bat an eye if you grab two desserts or have a few drinks (travel drinking doesn’t count). If you’re tired and just want to take it easy, look for a relaxation room or a quiet area.

5. Keep an eye on your flight status

Many lounges don’t announce flight statuses. You might not hear your boarding announcement unless the lounge is right by the gate.

When it’s getting close to your flight’s boarding time, keep an eye on the flight info display. This will let you know when the plane is at the gate and when boarding has started. If you’re in an early boarding group and want to make sure you get on the plane with that group, you may want to head over once the plane is at the gate.

Also, make sure you know where your boarding gate is and how long it will take to get there. Some lounges have a handy sign that says how many minutes it is from nearby gates. If not, you can also ask a lounge employee at the front desk.

Kicking back in a lounge can make your time at the airport much more fun. If you’d like to be able to get into airport lounges, look for credit cards with this feature. While quality varies from lounge to lounge, it’s always better than the boarding area.

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Deciding whether to buy your leased car? Read our guide for insights on buyout prices, car condition, and financial considerations. [[{“value”:”

When you reach the end of your car lease, a big question pops up: should you buy the car you’ve grown to love or let it go? It’s a dilemma many face, and I recently went through it myself. After some thought, I chose to buy my leased car. Why? Well, the deal was sweet — the monthly payments were just $90 more, and we didn’t need to put money down. It beat the cost of leasing a new car, and we had grown quite fond of our current ride. Plus, there was the practical side: we had already installed a hitch for a bike rack, an expense we’d have to bear again with a new car.

But is this the best choice for everyone? Let’s take a look at a few factors to find out how best to decide.

Evaluating the buyout price

So, let’s talk about the buyout price. It’s the big number that can make or break your decision. This price is set when you sign your lease based on the car’s predicted value at the lease’s end. But here’s the twist: the actual market value at the end of your lease might be different.

If the buyout price is in the same ballpark or lower than what similar models are selling for, it’s like hitting a mini jackpot. On the other hand, if it’s way more, you’re potentially overpaying. You don’t want to be the person who pays more for an old friend, do you?

Assess the car’s condition and mileage

Next, take a good, hard look at your car’s condition and how much you’ve driven it. Leased vehicles have a mileage limit; if you’ve gone overboard, brace yourself for some fees. However, if you’ve stayed within limits and your car still shines like a new penny, buying it could save you from extra charges and the hassle of hunting for another reliable car. And let’s not forget the emotional angle. If you and your car have become inseparable buddies, that’s a pretty strong argument for keeping it around.

Financial considerations

Money talks, right? When mulling over buying your leased car, it’s not just about the buyout price. You should also think about the loan payments (if you’re getting an auto loan) versus what you were shelling out for the lease. Plus, owning means you’re on the hook for maintenance once the warranty bids goodbye. Another point to ponder is depreciation. Some cars hold their value like a treasure chest, which can make buying a smart move financially.

Determine future plans and needs

Life’s always throwing curveballs, and your needs might be changing. If you’re planning major life changes — like expanding your family or moving to a bustling city where you barely need a car — your beloved vehicle might not fit into the picture anymore. Buying gives you the freedom to decide the car’s fate down the road, whereas leasing keeps you flexible, letting you switch rides as your life evolves.

Negotiating the buyout

Here’s a little secret: the buyout price can sometimes be negotiable. Not always, but it’s worth a shot, especially if your car’s market value isn’t quite in line with the buyout price. Do your homework, learn what the car is worth, and walk into that negotiation with your facts lined up. A well-reasoned offer can lead to a pleasant surprise. Some helpful negotiating tips include:

Know your numbers: Do the research mentioned above to know the value of your car to ensure you get the best financing options. Resources like Kelley Blue Book are excellent for helping you accurately price your car.Highlight the condition: Assess the condition of your car. If there are any issues or wear and tear beyond normal use, use this as leverage in your negotiation. It’s important to be realistic, though — normal wear is expected.Quote the best offer: If you’ve found similar models being sold for less, mention these offers as a benchmark. This shows the dealer you have options and may encourage the salesperson to offer a more competitive price.

You can also ask what the dealer will offer if you lease a new car or finance another used car. See what the best options are that make sense for your personal finances.

Deciding whether to buy out your leased car is like putting together a puzzle with pieces like the buyout price, car condition, finances, and plans. My decision hinged on favorable financial terms and an attachment to the car, not to mention the convenience of the hitch we’d installed. When it’s your turn to decide, weigh all these factors against your personal financial situation. The best choice is the one that fits your life’s jigsaw puzzle the best.

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