Money Management

When an insurance company cuts you a check for property damages or injuries, do you have to pay taxes on it? Read to learn how the IRS views insurance settlements. 

Back in May, my 2013 Toyota Prius was rear-ended by an uninsured driver. It took a few months to get a settlement check from my pay-per-mile company (the slow service was the leading reason I’m switching car insurance companies), but now that the check is in my hand I’m faced with another question — do I have to report this to the IRS?

Turns out, the question isn’t that complicated for most people but could get thorny depending on what “damages” you’re seeking compensation for. So if you, like me, received a settlement from a car insurance company this year, let’s take a look at when you have to report it on your tax filing.

When your insurance settlement is not taxable income

I’ll go ahead and spoil the ending. Most insurance settlements are not considered taxable income, including mine. That includes compensation for damages to property, physical injury, and emotional distress arising from injuries.

To understand why, recall that an insurance settlement has one purpose: to make you whole again. Some event, whether it’s a car accident or a weather disaster, has taken something from you and left you in a different financial situation. The compensation from your insurance company exists to bring you back to your former state. You’re not any wealthier than before, at least not in the eyes of the IRS.

That’s an important point. The IRS taxes income, which is money that theoretically increases your wealth. If you sell a stock above what you paid for it, you’re wealthier and the IRS will levy a capital gains tax, unless you’re investing in an IRA or 401(k) account. But if you’re getting a $6,500 settlement to fix your Prius whose damages have been appraised as such, you’re just replacing what was lost.

When your insurance settlement is taxable

Again, most people won’t have to report their insurance compensation as income on their tax filing. That said, there are a few instances when you might have to pay taxes.

One is if your insurance company includes “back pay” in your settlement, which is a payment for lost wages. For instance, if you make $25 an hour and you miss 30 hours of work, your insurance company might pay you $750 for the hours you missed. This is money you would have earned and therefore would have paid taxes on. In this case, your insurance company might send you a 1099 form for the back pay and you would have to report it on your tax return as “other income.”

You might also pay taxes if your settlement included punitive damages. As the name suggests, punitive damages aren’t compensatory, meaning they don’t redress damages or injuries, but rather exist as a punishment in cases of extreme negligence. For example, a drunk driver who causes an accident may have to pay punitive damages to victims in addition to compensation for injuries or damaged property. In this case, you would include the punitive payment as income in your tax filing.

When in doubt talk to a tax advisor

All in all, if you’re compensated for an injury or accident, your insurance settlement is probably not taxable. When in doubt, however, don’t hesitate to reach out to a tax advisor, especially if your settlement isn’t straightforward or includes numerous parts to your payment. Many tax pros can field questions over email and help you estimate how much you need to set aside for taxes. You likely won’t need professional tax help for most insurance settlements, but it doesn’t hurt to ask if you already have a tax pro.

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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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An extra $100 in your monthly mortgage payment could cut years off your loan time. Here’s how big of an impact this extra money could make. 

If you buy a home, chances are good you’re going to get a mortgage to do it. Getting a mortgage loan means you’re committing to a monthly payment that could follow you around for decades. When faced with this big obligation, you may want to try to repay your debt sooner rather than later.

It can feel daunting to figure out how to pay off such a big sum of money ahead of schedule. But what if you just pay an extra $100 a month toward your loan? Would that make a difference? Here’s what you need to know.

How much of an impact can $100 extra make on your mortgage payment?

Making an extra $100 monthly payment on your mortgage loan can have a surprisingly big impact on the time that it takes you to become debt-free.

Let’s say you took out a 30-year mortgage at 6.5% for $300,000. If you made an extra $100 monthly mortgage payment from the start of the time that you borrowed, you would end up repaying your debt a whopping four years faster than if you did not make an extra payment. In the process, you would save yourself $60,995 in interest.

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An extra $100 per month can make a bigger impact than you might think with your loan because when you pay this additional sum every month, the entire amount goes toward bringing down your principal balance. Usually, a good portion of each regular monthly payment goes toward just reducing the interest that you owe. But any extra you send in can actually drop your balance. That lower balance in turn means you pay less interest the next month since you don’t owe the bank quite as much money.

Where can you find an extra $100 to pay extra to your mortgage?

If you want to take advantage of the opportunity to pay off your home loan years sooner, there are several potential ways you can find an extra $100 monthly.

One option would be to pick up a side gig, like driving for Uber, selling products online, or launching a blog or podcast. Side hustlers earn an average of $483 monthly, so you could work just a few hours in the month to earn an extra $100 to repay your mortgage.

Another option would be to cut spending elsewhere. If you dine out four times a month and pay $50 per meal out, give up two of those meals and redirect the extra $100 to your mortgage. Or if you’re paying for an expensive gym membership you don’t use much, see if you can switch to a cheaper one or give it up altogether.

The key is to go through your budget, find a sustainable cut you can make and stick to, and redirect that cash toward your mortgage. When you become debt-free years earlier, you’ll be glad you made the effort.

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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.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Uber Technologies. The Motley Fool has a disclosure policy.

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The cost of prescription medications can be substantial. Read on for ways to save. 

There are certain expenses in life that are unavoidable, like food, transportation, and shelter. And it’s fair to put medication into that category.

A lot of people rely on prescription drugs to address conditions that might otherwise compromise their health or make their days difficult. And so if you’re struggling to cover the cost of your medications, it’s important to take steps to address that issue before you reach the point of having to skip doses. Here are some things you can do to save money.

1. See if a generic version is available and suitable for you

Generic drugs can cost significantly less than name-brand counterparts. If you take a pill that comes in a generic version, it pays to ask your doctor if it’s okay to make a switch. Generic drugs can cost anywhere from 20% to 70% less than name brands, according to the FDA.

2. Get your prescriptions at Costco

A study conducted a few years ago by Consumer Reports found that for five commonly prescribed drugs, the non-insurance cost at Costco was $105 versus $900 at major pharmacies like Rite Aid and CVS. As such, it could pay to see if filling your prescriptions at Costco results in a lower credit card tab. You should also know that you don’t have to be a Costco member to purchase drugs there — though joining might help you save money on groceries and other essentials.

3. Look into Amazon Pharmacy

If you’re an Amazon Prime member, then it could pay to look into Amazon Pharmacy, a program that allows you to order medication online and get automatic refills delivered to your door. Prime members can get as many eligible medications as the program offers for just $5 a month. And you might save up to 80% on certain pills.

However, you’ll want to consult this list of medications offered by Amazon Pharmacy to determine whether the program is right for you. Also, keep in mind that Amazon Prime costs $139 a year, so if you’re not paying for the service already, you’ll need to factor that fee in to see if you’re really saving on your medications.

4. Buy your pills in bulk

Some pharmacies — including mail-order pharmacies and physical stores — give you a discount for ordering medications in bulk. If there’s a pill you take on a daily, ongoing basis, ask your provider to prescribe 90-day supplies rather than 30-day supplies. That might not only save you money, but also, extra trips to the pharmacy.

5. Ask for free samples

It’s pretty common for doctors to get free samples of different medications from pharmaceutical reps promoting their products. If you’re prescribed a medication that’s costly even once you run it through your insurance, or if you don’t have insurance, then always ask if there are free samples you can have when you go to the doctor. You might save a bundle by not having to pay for a limited supply of pills.

6. Look into drug assistance programs

Different states have programs in place that offer assistance to people who are struggling to afford their medication. And if you’re a Medicare enrollee, it pays to talk to your providers about getting help as well.

There are also several pharmaceutical companies that offer help to consumers directly. It pays to search this database to see if the medication you take or the drug company that makes it has such a program in place.

There’s no question about it — the cost of filling a prescription can be astronomical. And even if your individual prescriptions aren’t all that expensive, if you’re on a number of medications, the cost can add up. So it pays to do what you can to lower your costs and ensure that you’re able to keep up with the medications your doctor thinks you need to be on.

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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.John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Maurie Backman has positions in Amazon.com. The Motley Fool has positions in and recommends Amazon.com and Costco Wholesale. The Motley Fool has a disclosure policy.

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You can make the most of fall even if money is pretty tight. Take a look at some activities to enjoy during the season that aren’t expensive at all. 

Now that fall is officially here, you may be eager to enjoy the season to the fullest. But if you’re short on funds, you may be wondering how to pull that off.

If you’re in that boat, you’re not alone. Many people have had to dip into their savings accounts over the past couple of years as inflation has persisted. And recent research from The Ascent found that parents were planning to spend an average of $895 on back-to-school shopping this year. So if you recently racked up a credit card tab in that vicinity to buy the clothing, sports equipment, and supplies your kids needed to start the school year on the right foot, you may now be limited in what you can spend.

But that doesn’t mean you can’t have a blast this fall. Here are some lost-cost activities you and your family can enjoy.

1. Go apple picking

Some apple orchards charge a modest (or not so modest) entry fee. But if you can find one that only charges for what you pick, then apple picking can be a pretty affordable experience. Just tell yourself you’ll only get a couple of apples from each available variety, and you might spend a fun afternoon romping around an orchard for under $20.

Plus, you get to eat your haul — so that could mean spending a little less on fruit at the supermarket.

2. Take a hike

It’s common for state parks to charge an entrance fee between Memorial Day and Labor Day in some parts of the country. Since we’re past that point, chances are, entrance to a state park in your neck of the woods will be free.

That means you can spend a day on the trails without forking over a dime (other than perhaps the cost of gas, but if you choose a park that’s close by, that cost should be minimal).

3. Host a potluck football party

Love watching football? If you have like-minded friends, you may be eager to host gatherings. But supplying pizza or another meal for a crowd can get expensive.

The solution? Make it a potluck event. Have everyone bring a beverage, appetizer, or main dish and enjoy cheering on your favorite team (or rooting against your least favorite) together.

4. Have a chili cook-off

Fall — especially the second half — is unquestionably chili weather in much of the country. Another fun event you can look to host is a chili cook-off. Have a bunch of friends whip up pots of their signature recipes and spend an evening tasting each other’s creations.

And if you need a cheap side dish to serve with all of that chili, you can get a mega-sized chile cornbread from Costco for just $6.99.

5. Have a s’mores night around the fire pit

Who says s’mores are only a summertime thing? You might enjoy those gooey concoctions even more when you’re sitting around a fire snuggled up in a fleece. It’s a fun way to enjoy some outdoor time with your kids — and get them away from their various electronic devices for a bit. Invite the neighbors if you want to make it feel like even more of a party.

If you’re on a budget this fall, you may not be able to swing a day at the pumpkin patch (since some of these places charge $25 or more for admission per person) or a regular stop at Starbucks for a morning Pumpkin Spice Latte (at roughly $6 a pop, those drinks can really add up). But you can still make the most of the season by sticking to the activities above.

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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 positions in Apple. The Motley Fool has positions in and recommends Apple, Costco Wholesale, and Starbucks. The Motley Fool has a disclosure policy.

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