Money Management

It can be tempting to move somewhere with no state income tax. But learn why you’ll need to proceed with caution. 

There are different types of taxes you might have to pay on your income. No matter where you live, you’ll be liable for federal taxes. And you’ll also need to pay into Social Security and Medicare.

But you may be able to avoid one type of tax — state income taxes. Nine states do not impose a state income tax. The list consists of:

AlaskaFloridaNevadaSouth DakotaTexasWashingtonWyomingNew HampshireTennessee

However, you should be aware that New Hampshire and Tennessee impose taxes on interest income from savings or dividend income from investments. Your paycheck from work, however, won’t be taxed at the state level.

You may be tempted to move to a state with no income taxes so you can pay the IRS less on your earnings. But before you start planning a move, ask yourself these important questions.

1. Will I be able to find work in a new state?

There are certain jobs that might make it possible to work from just about anywhere. But if your industry is concentrated in your current state, then moving to a different one could mean struggling to find a job. So before you move, talk to local recruiters and see what the job market looks like not in general, but based on your specific line of work.

2. Will my income decline if I move to a new state?

Maybe you’ll have no problem finding a job in a new state based on what you do. Or maybe you’re allowed to work remotely, so you can do your job from any corner of the country. Before you plan your move, make sure you’re not looking at a major decrease in earnings, because that could negate the tax savings you’re hoping to reap.

Some companies, for example, allow workers to do their jobs remotely but adjust salaries based on local living costs. So if you’re a remote worker living in New York earning $100,000 a year, you may not end up getting paid that same $100,000 if you relocate to Wyoming.

3. Will higher housing costs wipe out my tax-related savings?

Housing is a lot of people’s largest monthly expense. Before you plan to move for tax savings, research housing prices and property taxes to estimate your costs.

Also, keep in mind that right now, mortgages are expensive to sign. So even if you’re able to swap your home for a new less-expensive one in another state, your monthly payments might be higher due to today’s mortgage rates.

4. How do I feel about the climate?

Some of the states on this list are known for being notably hot or cold. Florida and Texas certainly fall into the former category, while Alaska, South Dakota, Wyoming, and New Hampshire clearly fall into the latter. If you’re used to living in a place with a moderate climate, going to either extreme could be a shock you’re not prepared for. So make sure that change is one you’re willing to deal with.

You may find that moving to a state with no income tax results in a lot of savings for you. But before you start officially planning that move, tackle these essential points thoroughly.

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Higher home prices continue to cause issues for buyers. Read on to see if the market is likely to improve in 2024. 

It’s been a major struggle to navigate the housing market this year. Buyers are dealing with the double whammy of expensive mortgages and stubbornly high home prices.

In October, single-family home prices rose 4.7% on an annual basis, according to new data from CoreLogic. The largest price increases came in the Northeast, with growth ranging from 10.3% in Connecticut to 9.3% in New Hampshire and Maine.

If you’re having a hard time buying a home because you can’t afford to spend more on your purchase price and pay a higher rate of interest to your mortgage lender, you’re not alone. Unfortunately, it may be a while until we see home prices come down.

Why home prices may not decrease in 2024

You’d think that with mortgage rates being so high, home buyers would be exiting the real estate market in short order, thereby driving home prices downward. But the reason that hasn’t happened is that there’s a glaring lack of real estate inventory on a national level. And because of that low supply, there’s still enough buyer demand to allow for home price growth.

The National Association of Realtors reports that as of the end of October, there was only a 3.6-month supply of available homes on the market. It can easily take a six-month supply to meet buyer demand in full. So as long as supply remains short, today’s higher prices are likely to hold steady.

Of course, that raises the question — why is supply so low? And that ties into mortgage rates.

Many existing homeowners are sitting on much lower interest rates on their mortgages than the rates being offered today. As such, a lot of people pretty much refuse to sell until mortgage rates start to drop.

If inflation continues to cool in 2024 and the Federal Reserve starts to cut rates, then we could see mortgage rates start to come down. From there, more people might be motivated to sell, and inventory numbers could start to rise, leading to a gradual drop in home prices. But all of this hinges on a very big “if.”

Will you be able to afford a home purchase in 2024?

Perhaps a home purchase just wasn’t in the cards for you this year. But will things change in 2024? It depends on what your income looks like and how much money you have saved.

As a general rule, you should aim to keep your housing costs to 30% of your take-home pay or less. Those costs should include any recurring expense that comes along with your mortgage, like property taxes and homeowners insurance.

If you’re unable to afford a home right now based on that formula, then chances are, you’ll continue to struggle in early 2024, assuming your income isn’t really changing. But let’s say you manage to get a much better-paying job in mid-2024. Between that and spending the next several months saving more for a down payment, you may find that becoming a homeowner is doable.

All told, it’s hard to say when homes will stop gaining value and prices will start dropping instead. There’s a fair chance that will happen at some point in 2024, but we unfortunately can’t bank on that happening, either.

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Credit card borrowers may be in line for relief in 2024. But you should still whittle down your balance ASAP. Read on to see why. 

If you’re carrying a balance on your credit cards, you’re in good company. U.S. credit card balances reached a whopping $995 billion during the third quarter of 2023, according to data from TransUnion. That’s a 15% year-over-year increase.

Carrying a credit card balance is an unfavorable thing to do at any time. When you have a balance you don’t pay in full, you accrue interest on it — the one exception being a 0% introductory APR card, but even then, your interest-free window is limited. However, right now is an exceptionally bad time to owe money on credit cards.

The reason? The Federal Reserve has raised interest rates 11 times since March 2022 to cool inflation. As a result, credit card borrowers are looking at higher interest rates on their debt, since, unlike fixed-rate loans, credit card interest is generally variable.

That said, the Fed is expected to cut rates in 2024 if inflation continues to cool. That could result in a world of financial relief for credit card borrowers by virtue of lower interest rates. But even with that in mind, it still pays to knock out your credit card balance ASAP rather than wait.

You’re still accruing high interest on credit card balances

You may end up with a lower interest rate on your credit card debt if rates drop in 2024. But remember, no matter what interest rate you’re looking at on your debt, you’re paying interest nonetheless.

And that interest is costing you money — money you could otherwise use for other things, like paying rent or putting food on the table. So even if the interest rate on your credit cards falls significantly at some point in the new year, you’re still better off having a lower balance at that time than a higher one.

Your credit score may be suffering

Even if you’re able to make your minimum payments on your credit cards on time every month, the mere fact of carrying a large balance relative to your total credit limit could be causing serious damage to your credit score. A lower credit score might seriously impede some of your plans for the new year.

Let’s say you’re hoping to move to a new apartment — perhaps to ditch your roommates and finally live on your own. If your credit score isn’t great, you may be denied a lease once a landlord runs a credit check on you.

Also, if you’re hoping to do something like buy a home in 2024, a lower credit score could make it difficult for you to get a mortgage. And even if you do qualify, you might get stuck with a higher interest rate on it.

Don’t wait to shed that credit card debt

Credit card borrowers and consumers on a whole may benefit from lower interest rates in 2024. But that’s no reason to hang onto your credit card balance if you have the option to start chipping away at it. The less credit card debt you have, the better off you’ll be.

You can take steps to rid yourself of credit card debt. One possibility is to join the gig economy and use the money you earn from your side job to attack your balances. Another, if possible, is to cut your spending.

You can also look at doing a balance transfer to lower the interest rate on your credit card debt for a period if you qualify for one of these offers. The point, either way, is to do what you can to lower your debt load as soon as possible.

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While the majority of Americans are in debt, many owe money on home loans. Here’s how that can help your finances over the long run. 

The vast majority of Americans are in debt. In 2022, 77.4% of consumers had some kind of outstanding loan, according to the Federal Reserve. This may sound like bad news, but it really isn’t. Here’s why.

Being in debt isn’t necessarily a bad thing — it depends on the kind of debt

To understand why it’s not necessarily a problem that so many Americans are in debt, it’s helpful to look at exactly what we collectively owe.

In 2022, 42.2% of Americans had debt secured by their primary residence and another 4.4% had debt secured by some other kind of residential property. In other words, a good amount of this debt is mortgage debt.

By contrast, around 36.9% had vehicle loans, 45.5% had credit cards, and 10.5% had other installment loans. So, other than credit cards, mortgage debt is the most common type of household debt — and mortgages account for the largest amount of outstanding debt by far.

The fact that so many people happen to have a loan on their home is not necessarily a bad thing, because mortgage debt is usually considered as good debt.

Here’s why mortgage debt isn’t typically a problem

Owing money on a mortgage is a bit different from having other loan balances.

First, mortgage debt tends to generally come with pretty affordable interest rates. While rates are higher now than they have been in years, many people have outstanding mortgages with rates in the 3%-4% range. That’s a very affordable interest rate — especially when you consider that mortgage interest is deductible on your taxes on loans up to $750,000 if you itemize.

So, those with mortgages may be paying a low rate and may even have that interest subsidized by the government. Because of that, it often makes sense to borrow to buy a home rather than paying cash for one — even if you could afford to. You can get a better rate of return with other investments with your extra cash instead of using it to buy a house.

The other big reason why mortgage debt isn’t like other debt is because it’s secured by a house. If you have a mortgage, that means you own your own home. And owning your own house can be a good way to build wealth. Your net worth will go up in value as your property value increases — and sometimes, if you live in the right place and bought at the right time, you can make a significant amount of money as property values rise.

Even if your home doesn’t end up with a skyrocketing price tag, owning your own home can still help you build wealth because each mortgage payment helps you acquire a valuable asset. That’s not true for most other kinds of debt payments.

So, while it’s true a lot of Americans owe money, this isn’t necessarily something to worry about because so much of it is mortgage debt. For those with outstanding balances on credit cards, though, that debt can be very expensive and often does nothing to help increase your net worth. If you owe money on your cards, make a plan to pay it off ASAP either by making extra payments or by reducing your interest rate with a balance transfer, or both.

Will your mortgage help you or hurt you?

While mortgage debt isn’t a bad thing in most cases, you need to make sure buying a house is the right choice for you before jumping into borrowing for one. To do this:

Don’t spend too much: Aim to ensure your housing costs, including your mortgage and other expenses, are less than 25% of your household income.Make sure you’re committed to staying in your home for a while: You typically don’t want to buy a home if you plan to move in the first five years or so as you likely won’t see your property go up in value enough to cover the transaction costs.Make sure you can qualify for a mortgage at a good rate: You’ll typically want a credit score above 700 to get the best loan rates and ensure you aren’t overpaying for a loan.Save a down payment: If you can save up a 20% down payment, you can avoid added costs of mortgage insurance that is needed to protect the lender. If you can’t save that much, try to have at least 10% down.

If you are in a good financial position to buy and can qualify for a mortgage at a reasonable rate for a home you can afford, then a mortgage could very well be a good thing for your financial life and not a debt you have to worry about.

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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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The Small Business Jobs Act could save millions of contractors from a tax headache next year. Read on to learn about how it could affect you or your business. 

The 2023 tax season is already off to a confusing start, with the IRS backtracking on guidance for many Venmo and PayPal users. This is just the latest controversy around an income reporting rule change from 2021. The Small Business Jobs Act could repeal that rule, and save millions of Americans from a headache in future tax years. Here’s what you need to know.

The new rule

Although income reporting requirements might be new for some Venmo users, they have been around for years. However, pandemic-era legislation drastically reduced the IRS reporting threshold for income received from companies like PayPal and Venmo. The law subsequently handed down new tax requirements for millions of Americans and the payment processors they use often.

In past years, income earned through so-called third party settlement organizations, such as Venmo, PayPal, CashApp, and Zelle, was only reported to the IRS if a user received over $20,000 or made 200 transactions in a given year. The American Rescue Plan Act of 2021 altered reporting requirements to include anyone receiving over $600 from such payment processors. Such transactions must now be reported to the IRS, and recipients must receive tax form 1099-K for tax purposes.

However, the implementation of the new rule has been slow and confusing for taxpayers, payment processors, and the small businesses that use them. Since its passage in 2021, the rule has yet to be enforced, with the IRS currently planning a temporary reporting threshold of $5,000 for such transactions in 2024. The IRS announced only two weeks ago that the $600 reporting requirement would be delayed again in 2023 — but not before some of an estimated 44 million 1099-Ks were distributed to taxpayers.

What to do now

The IRS may have decided against enforcement of the new rule in 2023, but that move may cause an even bigger headache for some taxpayers figuring their liability this coming April. The agency issued a press release in late November announcing its decision to delay enforcement with some additional guidance. If you or one of your workers receives a 1099-K for 2023 income, there are a few steps that should be taken.

While your 1099-K will show a single gross payment amount, that amount could include various types of income that are taxed in different ways. Some payments, like a birthday gift of cash or reimbursement from a split Uber ride, are personal payments that are not taxed. But if you sold personal property such as a used car, part or all of the income may be taxable as a gain.

Income associated with providing a service, selling goods, or renting a property will likely be entirely taxable. Taxpayers should be aware that they are responsible for reporting income correctly and must also calculate applicable deductions such as fees and shipping costs. As a reminder, income earned through the sale of services and the sale or rent of property must always be reported, whether you receive a 1099-K or not.

The Small Business Jobs Act

House Republicans have recently rallied behind the Small Business Jobs Act, which includes a provision that would repeal the 2021 rule. The bill would restore the reporting threshold of single-year transactions to those totaling over $20,000. The proposal would further override the IRS transition period in 2024, and could eliminate 1099-K reporting for tens of millions of Americans.

The bill will likely find a broad base of support in the Republican majority of the House of Representatives. However, the bill would also require the support of a handful of Democrats in the Senate to ultimately land on President Joe Biden’s desk. A rollback of the unpopular new reporting requirements could be appetizing for some moderate Democrats, and the proposal could find even more support if separated from other provisions of the bill.

The IRS recently announced that a new reporting requirement for online payments would not take full effect until 2025. For those who receive a 1099-K this tax season, however, there will likely be confusion around what should be counted as taxable income and what should be left out. The Small Business Jobs Act would eliminate the reporting requirement for some tens of millions of Americans, and could gain enough bipartisan support to become law. Until then, however, small business owners and the contractors they count on should discuss with a tax expert before filing a business tax return this April.

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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 positions in and recommends PayPal and Uber Technologies. The Motley Fool recommends the following options: short December 2023 $67.50 puts on PayPal. The Motley Fool has a disclosure policy.

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