How could you end up owing the IRS a penalty? There are more reasons than you might realize. fizkes / Shutterstock.com
It’s bad enough that you have to fork over a chunk of your income to the IRS each year. If you make a mistake while doing so, you could get hit by a penalty that might add hundreds, if not thousands, to your bill. Here’s a look at some of the many ways the IRS can fine you.
Folks who bought a home this month saved an “astonishing” amount compared to shoppers who bought last fall, according to a new analysis of mortgage rates. Krakenimages.com / Shutterstock.com
What a difference a few months makes for today’s home shoppers. Those looking for a home at the beginning of January 2022 were likely to have significantly lower monthly mortgage payments than someone who bought a home last fall, according to a new Realtor.com analysis. As recently as late October, mortgage rates were hovering around 7.8%, according to Freddie Mac data. That meant a buyer who…
Owning an EV may not be the best thing for your bank account. Here are the most significant costs electric vehicle owners face. [[{“value”:”
Image source: Getty Images
Shopping for any vehicle right now is far more expensive than just a few years ago. Labor and semiconductor shortages, supply chain problems, and inflation have caused new vehicle prices to increase by 18% over the past three years.
Electric vehicles haven’t escaped the pricing surge, and there are some significant costs that buyers should be aware of. Here are five of them and how to cope with each.
There’s no way around it: EVs are more expensive than many gas-powered vehicles. The average transaction cost of a new car is $48,759, according to Kelley Blue Book. Meanwhile, the average price of an EV is $50,798.
While EV prices are down 18% from last year, that high sticker price still puts them out of reach for many buyers. But you can help reduce the cost by shopping for a vehicle that qualifies for an EV tax credit. This year, the U.S. government is giving up to $7,500 in tax credits for new hybrid and electric vehicles and up to $4,000 for some pre-owned models.
To get the full credit, the vehicle has to have its final assembly in the U.S., have critical battery materials sourced here, and have a price tag of no more than $88,000 for vans, pickup trucks, and SUVs (or $55,000 for all other vehicles). You’ll also have to meet modified adjusted gross income requirements.
The easiest way to determine whether your EV qualifies for some or all of the credit is to view the list of qualifying EVs at fueleconomy.gov.
Using the charging cable that comes with most EVs and plugging it into a 120-volt wall outlet will cost you $0. But this level of charging — called Level 1 — will give you just five miles of range per hour.
As a result, many EV owners install a 240-volt Level 2 charger to speed up the process. But the average purchase and installation cost ranges between $1,150 to $2,750.
The charger and installation costs can be much higher if you have an older home requiring rewiring or an electrical panel upgrade to handle the 240 volts. About 20% to 30% of U.S. homes need some type of electrical upgrade, according to MotorTrend.
To help with the cost, you can claim 30% — up to $1,000 — of the price to purchase and install a charger through the government’s Alternative Fuel Vehicle Refueling Property Credit. You can claim the credit by filing a Form 8911 with the IRS.
While EVs may need less regular maintenance than vehicles with internal combustion engines, their repair costs are often higher. Electric vehicle repair costs are pricier than their gas-powered peers because their parts are often more complex and costly.
The latest data shows that EVs cost an average of $269 more per repair than gas-powered vehicles, and some electric vehicles cost far more. Teslas, for example, cost about $1,350 more to repair than the average gas-powered vehicle.
Making matters worse for EV owners is that there are far fewer repair shops with trained technicians to repair EVs than traditional vehicles, increasing repair times and costs.
The high repair costs for EVs translate to higher insurance premiums as well. If an EV battery is damaged and needs replacing, it can cost up to 40% of the vehicle’s original price. The high cost of replacing batteries after an accident has prompted some car insurance companies to write down EVs as a total loss rather than pay to fix them.
Car insurance companies have passed these expenses onto their customers. In some instances, the cost to insure an EV is 25% higher than its equivalent gas-powered model.
The best way to tackle high insurance costs is to shop around for rate quotes from the best auto insurance companies. Car insurance rates are up 19% over the past year, so getting a few auto insurance quotes is a good idea no matter what car you drive. Also, consider increasing your deductible to keep your monthly premiums lower, or try raising your credit score to get a better rate.
Electricity prices rose last year at the same time that the price of gasoline and diesel fell. The result was surprising: In the first half of 2023, recharging an EV cost more on average than refueling many vehicles.
Research from the Anderson Economic Group found that entry-level, mid-priced, and diesel-powered trucks all cost less to fuel per 100 miles than their EV counterparts. For example, entry-priced EVs cost an average of $2.77 less per 100 miles to refuel than gas-powered vehicles, and diesel-powered trucks cost $9 less than their EV peers.
Of course, energy prices fluctuate, so some vehicles that are cheaper to power now will ultimately be more expensive in the long run.
Most people don’t buy an EV to improve their personal finances, so the above expenses may not matter to some buyers. But if you’re considering an EV because you think you’ll save money, you may want to reconsider.
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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.Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
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These money errors could have a long-term impact on your finances for years to come. Here’s why you should avoid them at all costs. [[{“value”:”
Image source: Getty Images
No one is ever going to be perfect when it comes to managing their money. And that’s OK. You don’t need to make absolutely every financial decision correctly in order to end up rich. But you should try to avoid some major errors that could end up making your life a whole lot more difficult for years to come.
In particular, here are three financial mistakes that could really come back to haunt your personal finances if you make them.
Committing to a mortgage payment that is too large is one of the errors you are most likely to regret. There are a few reasons why that’s the case.
For one thing, you don’t want to constantly be stressed about how you’re going to make payments to your mortgage lender — and you might have to deal with this reality for three decades if you get a 30-year mortgage that’s not really affordable. The consequences of losing your home are also dire, as foreclosure could mean damaging your credit and losing most or all the money you put in.
Even if you do manage to make your payments, you may not be able to accomplish other important things with your money if you’ve committed too much of it to buying a house.
To avoid this error, keep your housing costs below 30% of your income. That’s total costs, including your mortgage, property taxes, and insurance. If you’ve already made this mistake, selling your house is one possible option, but may not always be the right one if you have a low-interest mortgage loan, since rates have gone up significantly in recent years. Instead, you may want to look into getting a roommate to help share the financial burden.
Going into credit card debt is another huge error that you could end up paying for for years to come. The average credit card interest rate is 21.47%, so if you get stuck carrying a balance, you’re going to pay a fortune in interest.
Say, for example, you’re stuck with a $5,000 credit card balance and have a card with a 2% minimum payment. If you pay only the minimums, you’ll be making payments for more than 30 years and will make a total of $27,667.16 in payments. That’s a lot of money you’d have wasted — and that’s decades of your life that you’d be stuck sending a payment to a card company instead of using the money for better things.
To avoid this mistake, don’t charge more on your cards than you can afford to pay off when the statement comes. If you’ve already made this mistake and are carrying a balance, try to pay as much extra toward your debt as you possibly can to become debt free sooner. Or consider refinancing your credit card debt using a personal loan, which may have a lower interest rate and which will have a fixed payoff timeline. To do it, just apply for a personal loan, use it to pay off the card balance, and begin making payments on your new (ideally more affordable) loan.
Finally, waiting to save for retirement can come back to haunt you when you have a lot less money as a retiree — or have to save a lot more later to catch up. That’s because you miss out on a ton of compound growth if you delay the time you start investing.
The table below shows how much you’d have to invest to retire with $1 million at age 67 depending when you started saving, assuming a 10% average return on investment (in line with the stock market’s average over the last 50 years). As you can see, you may really regret not starting earlier when you look at the difference in required monthly contributions for those who started early versus late.
To avoid this mistake, start saving as much as you can today to get compound growth working for you. If you’ve already made this mistake, use the calculators at Investor.gov to determine what you’ll need to set aside each month. Take advantage of tax breaks on an IRA, try to claim your full employer 401(k) match if available, and work to cut your spending and increase your income so you can hit your savings targets.
Ideally, you can avoid these three financial mistakes. But as you can see, even if you’ve made them, there are solutions — and the sooner you start implementing them, the faster you can move past the financial mistakes of your past and go on to a brighter future.
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When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has nearly tripled the market.*
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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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Here’s what you must know about your estate plan, what to include in it, and more. PeopleImages.com – Yuri A / Shutterstock.com
Editor’s Note: This story originally appeared on NewRetirement. Although it’s not the most exciting thing on the financial to-do list, it’s always a good idea to revisit your estate plan from time to time. If you have experienced a major life transition recently, such as moving to a different state, or if it has been over five years since you last updated anything, you will want to ensure…
CDs are safe and relatively risk free — that is, if you don’t make these three common errors. Find out what they are and how to avoid them. [[{“value”:”
Image source: Getty Images
With guaranteed rates of return (and generous APYs), certificates of deposit (CD) are a nifty tool that can grow your money at a fixed rate. But they’re not totally risk free. While your money is protected under FDIC insurance (as long as the issuing bank has it), you can make some mistakes that can limit your earnings or damage your deposit. If you’re looking to buy one of today’s best CDs, here are some mistakes to avoid.
Often banks will give you the option of withdrawing interest as it accrues within your CD. You’ll more commonly see this on long-term CDs (those with terms longer than 12 months) but some short-term CDs will let you cash out some interest, too.
If you need cash fast, there’s nothing wrong with withdrawing some interest before your CD matures. But keep in mind that withdrawing interest can reduce a CD’s stated APY. As long as your CD has compound interest (and most CDs do), any interest withdrawal will leave less money in the pot to grow. Your principal will still sprout interest, but you might have less overall earnings at the end of your CD’s term.
Again, if you need this money for an emergency, it would be better to tap into your interest than break your CD contract. Otherwise, let your savings grow undisturbed to capture the highest return.
These days, the most competitive short-term CDs are paying out at rates near about 5%, while long-term CDs (terms higher than 12 months) have rates above 4.50%. If you come across a CD with a rate lower than that, it’s likely not a good deal.
This is important to keep in mind because many banks are advertising their rates as competitive. But much like a coffee shop that claims to serve the world’s “best cup of coffee,” “competitive” can mean anything, which is another way of saying it can mean nothing at all. Only by shopping around and comparing rates can you verify whose offers are truly competitive — and whose rates are ridiculously low.
I saved the best (or worst) for last: the early withdrawal penalty (cue the spooky piano music and haunted house screams).
An early withdrawal penalty is the price you pay to liquidate your CD before maturity. It’s equal to a fixed period of interest, like six months’ worth. For instance, for a penalty worth six months’ of interest, you would pay that much even if you liquidated your CD after three months. Translation: You can lose money in a CD.
Early withdrawal penalties can be really harsh. Most short-term CDs have penalties worth three to six months of interest, while long-term CDs can have penalties worth 18 months or more. Not only do you pay the penalty outright, but you also have to factor in your opportunity cost, that is, what you could have earned if you had deposited the money in a more flexible account like a high-yield savings account.
While you can’t get around the early withdrawal penalty when you already have a CD, you can proactively prevent putting yourself in that situation with a no-penalty CD. No-penalty CDs are pretty much how they sound: A CD that doesn’t impose a penalty. You can find some great high-yield no-penalty CDs on the Raisin platform, but don’t expect long terms (for the most lucrative APYs, this means 12 months or fewer).
If you can avoid these three mistakes, CDs can be a virtually risk-free investment that locks you into a guaranteed rate of return. As long as you play by the rules, they’ll help you outpace inflation without the risks of other investments. Take a look at some of the best CD rates and see how much they could earn for your savings.
Where to invest $1,000 right now
When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has nearly tripled the market.*
They just revealed what they believe are the 10 best stocks for investors to buy right now…
*Stock Advisor returns as of February 12, 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.
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