Money Management

New tax rules could result in more taxpayers receiving tax forms when getting paid through apps like Venmo. Find out why some legislators want to repeal it. 

The American Rescue Plan of 2021 changed how payment card and third-party network transaction payments are reported. With this change, taxpayers who receive business income through online platforms, payment apps, or payment card processors will now receive a 1099-K tax form when they receive payments totaling more than $600 per year.

The IRS delayed the start of this policy in 2022, but the rule applies to income received during the 2023 tax year. However, some lawmakers hope to change this tax rule because they feel the threshold is confusing and could result in errors being made, making tax season unnecessarily complex for business owners. Find out what you need to know.

The American Rescue Plan of 2021 changed payment reporting thresholds

As part of the American Rescue Plan of 2021, the payment threshold for third-party payment settlement organizations was reduced. This change impacts taxpayers who receive business income through online payment platforms, payment apps, and payment card processors — whether through a side hustle, freelance work, or a small business.

Previously, taxpayers received a 1099-K form when they had more than 200 payment transactions per year, exceeding an aggregated amount of $20,000.

But due to law changes, taxpayers receiving business income through payment apps like Venmo or PayPal totaling more than $600 per year will receive a 1099-K tax form. This reporting change will impact the bank accounts of many Americans.

READ MORE: Beginner’s Guide to Banking

This applies to income earned during the 2023 tax year. These tax forms are sent by the payment processing companies to the IRS and taxpayers. It’s worth noting that this change doesn’t impact personal transactions made through payment apps, like splitting dinner with a friend or sending a family member money for their birthday.

But it affects the many Americans who bring in business income. This recent change could lead to double income reporting, which could cause errors and unnecessary stress during tax season. It could also result in non-business-owner taxpayers mistakenly receiving a tax form.

Lawmakers want to repeal the new reporting threshold

Some lawmakers hope to repeal these changes to minimize confusion and reduce reporting errors. There is bipartisan support for the reporting threshold to be adjusted.

One such legislation that was introduced into Congress is the Small Business Jobs Act, which aims to repeal the current law and restore the previous higher reporting threshold.

Only time will tell if this bill or similar legislation will pass. But if there are no such legislation changes soon, taxpayers should be aware of the latest reporting thresholds so they’re prepared come tax time.

It pays to keep careful records of business income

Any business income you receive is taxable. Just because you don’t receive a tax form stating that you received payment doesn’t mean you can avoid paying taxes on your business earnings. Don’t wait until April to review your earnings for the year.

If you’re a small business owner, freelancer, or gig worker, keeping accurate records of your income and expenses is a must. Keeping careful records can make tax season less stressful.

Being organized can also help if reporting errors occur in the future because you’ll have the information you need to prove your income to the IRS. Plus, you’ll have a better idea of where your personal finances stand, which is a win for your personal and professional life.

Tax time looks different for self-employed workers. If you’re confused about how your tax situation may change due to a side hustle or freelance work, it’s best to contact an accountant for help to avoid making costly errors. An expert can guide you through the changes.

You might also consider using tax software to prepare and file your tax returns. Check out our list of the top small business tax software to learn more about how software can help you.

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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.Natasha Gabrielle has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends PayPal. 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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Interest rate hikes have wreaked havoc on consumers. But read on to see how you can take advantage of them. 

The past few years have been challenging for many middle-income households. Not only has rampant inflation persisted, but the Federal Reserve’s numerous interest rate hikes have driven the cost of borrowing way up.

These days, consumers are paying more money to carry a credit card balance or sign a personal loan. And a lot of middle earners are now in a position where they need to spend carefully to account for their overall costs.

But a recent Santander US survey found that 68% of middle-income Americans may be missing out on a huge opportunity to better their finances at a time like this. And given that it’s a risk-free opportunity, it’s one worth jumping on.

You might as well earn more interest on your money

The downside of the Fed’s recent rate hikes is that borrowing has gotten more expensive. The upside is that it’s resulted in generous interest rates on savings accounts.

Since March 2023, 32% of middle-income Americans have moved money into a high-yield savings account to take advantage of higher interest rates, as per the aforementioned survey. But that means 68% of middle earners have not gone this route even though it’s easy and pretty much risk-free.

The reality is that despite a minor meltdown in the banking industry earlier this year, putting money in the bank is still a very safe option, provided your bank is FDIC-insured. If so, it means you’re protected for up to $250,000 in deposits, per depositor, per bank. If your bank fails and you have $50,000 in savings, you’re guaranteed not to lose a dime if that institution is FDIC-insured.

Meanwhile, a higher interest rate on your savings could do a lot of good for your finances. Let’s say you have $20,000 in savings and are earning a 2% APY on your money right now. That’s $400 a year.

If you find a high-yield savings account paying 4.5% interest instead, which is very doable these days, you’re looking at scoring $900 a year on your money instead. That extra $500 could go a long way toward paying bills or just padding your cash reserves so you have extra funds on hand for a rainy day.

It pays to consider switching to a high-yield savings account

When you’re used to banking at the same institution, it can be difficult to make a change. But if you’re earning a minimal amount of interest on your money, then it pays to find a bank that’s going to pay far more generously.

Remember, too, that you don’t necessarily have to cut ties with your current bank. Rather, you can simply move most of your money out of savings for now if the rate you’re getting isn’t up to par.

But if you’re going to chase a higher interest rate on your savings, move quickly. Today’s higher savings account rates aren’t guaranteed to last. If the Fed starts to cut rates in the coming year as inflation cools, banks are likely to start paying less. So the time to act to score a higher interest rate is now.

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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.JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.

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If you want to have $100,000 in retirement income, you need to have around $2.5 million saved. Find out how the math works out. 

When it comes time to retire, you’ll want to make sure you have plenty of money in a 401(k) or a brokerage account. Social Security replaces about 40% of pre-retirement income, which just isn’t enough in the majority of situations.

The exact amount you’ll need will depend on your spending desires and your existing lifestyle. Many experts recommend you have around 10 times your final salary saved, but you may want more or less than this depending on whether you plan to be frugal or travel the world.

If you want your retirement accounts to produce $100,000 in income — which is a pretty generous amount for most people — this is the amount you would need to have invested in order to make that happen.

Seek to invest this much

To figure out how much you must have invested in order to produce a certain income, you must consider your withdrawal rate. That’s the rate at which you take money out of your account.

Remember, if you have money invested for your future, you don’t want to take all of it out at once — or even most of it. You need to leave a good amount invested to continue to earn returns so you don’t just drain your account dry.

To make sure you don’t run out of money, some experts recommend following the 4% rule. If you choose to listen to them, you’d withdraw 4% of your IRA or other retirement account balance the first year you leave work. Then, each year, you’d simply adjust your withdrawals to account for inflation.

The 4% rule isn’t always perfect since it doesn’t respond well to market fluctuations. But it’s a good starting point to figure out how much you must have invested to produce $100,000 in retirement income (or any set amount of retirement income).

Basically, if you decide to follow this rule, you just multiply the amount of income you hope your retirement accounts produce for you each year by 25 — and that’s how big your account balance needs to be.

If you want $100,000, therefore, you’d multiply that amount by 25 to find out you need $2.5 million saved. That’s a lot of money, but it’s not necessarily out of reach if you start saving young and you’re earning a good income throughout your career.

How to save enough for a secure future

If you want to save $2.5 million by the time you reach the age of 67, you have a lot of work to do.

The specific amount you must save will depend on your age and expected returns. The table below shows the monthly contributions to make to your retirement account to hit this target, assuming 10% average annual returns.

This is undoubtedly a lot of money. But the good news is most people don’t really need their investment accounts to produce $100,000 in income. You’ll typically want to aim to replace about 70% to 80% of your salary in total upon retirement and, as mentioned above, Social Security replaces about 40% of it. So you need your investments to produce the other 40%.

Essentially, this means that the only way you’d really need $100,000 to come from your investment accounts is if you were making about $250,000 per year. At that income level, it wouldn’t be beyond reach for you to invest around $4,100 per month — especially if you took advantage of tax breaks for 401(k) contributions or received an employer match.

If you’re not making near that much, consider how much income you will need to save for your own future by assuming you’ll need to replace 40% of your earnings with your investment accounts and multiplying that amount by 25. If you discover you need $40,000 from investments, for example, your target goal should be around $1 million.

A calculator on Investor.gov can tell you the amount to invest each month to hit your personalized target based on years you have left to invest and expected returns. Once you’ve got the amount, set up automatic contributions to a 401(k) or IRA with your brokerage firm so you can ensure you stay on track and end up with an account balance that produces the retirement income you need.

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Hitting the road and seeing the world? Take a look at some ways the world can hit back, and learn how you can prepare for surprise costs ahead of time. 

Traveling can be one of the most rewarding experiences, but it’s not always the easiest. Flight delays, highway traffic, and crowded destinations are just a few of the issues you could run into when you leave home on an adventure. And unfortunately, if you’re not careful, you can create problems of your own — no outside help required.

I love being able to explore new places, and I feel a huge swell of gratitude when I think back over the trips I’ve taken. I know I’m not the only one — recent data shows that travel spending is up 4.1% through July this year compared to last year.

I’m no pro, but I consider myself a fairly seasoned traveler. However, that hasn’t stopped me from making mistakes over the years that have cost me money and time. Here are three that were particularly painful.

1. I booked the wrong pickup date for a rental car

This year, I was finally able to take a long-delayed trip to Iceland. My husband and I initially booked the trip in February 2020, just a few short weeks before the pandemic lockdowns began. That meant we had three years to research and dream about the trip we’d someday take. But no matter how prepared you think you are for something, life has a way of reminding you that nobody’s perfect.

We took a redeye flight that departed on a Thursday and landed on a Friday. And unfortunately, we booked our car rental to begin on the first day of our trip…Thursday. Oof. We realized our mistake as we boarded our flight and immediately contacted the car rental company. Luckily, the representative told us it wouldn’t be a problem that we missed our pick-up window, and they would hold the car until the next day.

While we didn’t have to scramble for a new car rental at the last minute, we did lose out on the money it cost us to rent a car for a whole day we weren’t even in the country for.

2. I agreed to a timeshare presentation that would not end

This one didn’t feel like a mistake at first, but looking back, it definitely was. On a tropical vacation, we thought it would be worthwhile to sit in on a timeshare tour. The arrangement provided a free breakfast at the resort’s gorgeous ocean-view restaurant, we got to walk the lush grounds, and we’d receive a voucher for a boat tour later in the week.

We confidently entered the presentation, expecting a quick spiel and rapid exit. Hours later, we were still being shown room after room after room in the hotel. My previous confidence in our ability to say “No thank you” and move along was dashed against the brick wall of the guide’s stubborn salesmanship. It was frustrating, and frankly uncomfortable, to face such pushy tactics, and it really soured our day, even after we finally escaped back to the beach.

While I thought I was making a good bet to get a free meal and boat tour, what really happened was we wasted half a day of our short vacation. Here was this lovely trip that we’d planned and saved up for, and while we didn’t lose money in the process, we definitely lost time that could have been much better spent.

3. I didn’t schedule an extra vacation day after a big trip

I feel like this was a mistake I repeated a lot in my 20s and have since grown out of, but the time it came back to bite me the most was after a two-week solo trip through Ireland and Scotland. I knew I’d have an amazing experience and would want to squeeze as much time as I could out of my PTO, so I booked my return flight to land on a Sunday, expecting to walk back into work Monday sleepy but satisfied. Cue the flight issues.

My plane out of London was delayed and eventually canceled, leaving me teary-eyed and scrambling to find accommodations for the night. All of a sudden, I was out the price of a very expensive last-minute hotel room in London, and I was going to have to borrow an extra day of PTO to make up for the day I’d be missing.

While travel delays are often out of our hands, I’ve now learned to buffer in some extra time as a cushion, just in case. Best-case scenario, I get an extra day or two at home to unwind before I have to get back to work.

Don’t make your trips more expensive than they need to be

None of these mistakes were truly damaging to my personal finances, but I certainly would have preferred to avoid them. There are certain things I do ahead of time to make my trips as affordable as possible. That way, I feel more comfortable absorbing some of these pricey surprises that can pop up as I travel.

For one thing, I always use my travel rewards credit card to pay for my trips. Not only does this earn me points that can offset the cost of my vacations, but many of these cards also offer travel insurance to protect cardholders when things go off the rails.

I also choose to budget for travel ahead of time so I don’t have to borrow money to pay for a trip. This helps me avoid expensive credit card debt that would make a trip cost more than paying for it all upfront.

Traveling the world isn’t the simplest of things, but to me, it’s always worth it. Just make sure you do what you can to avoid any expensive mistakes that can take away some of your enjoyment.

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IRAs come with annual contribution limits. Read on to learn about your options once you’ve exceeded them. 

Some people opt to save for retirement in an individual retirement account (IRA) despite having access to a 401(k) plan through an employer. But in many cases, people open IRAs because there’s no 401(k) they can participate in.

Traditional IRAs and 401(k)s work similarly in that contributions go in tax-free. So if you put $3,000 into one of these accounts, the IRS won’t tax you on $3,000 of income that year. Both accounts also offer tax-deferred investment gains. This means you don’t pay taxes on profits in your account until you take withdrawals.

IRAs, like 401(k)s, come with a maximum contribution limit that can change from one year to the next. In 2023, IRAs max out at $6,500 for savers under age 50 and $7,500 for those 50 and over.

For many people, hitting these limits is a big challenge. But if you happen to be in a fortunate enough position to be able to invest beyond $6,500 or $7,500 for retirement, then you may be eager to find a good home for that extra money.

For the sake of this discussion, let’s assume you don’t have access to a 401(k) plan, because if you did, that would be a pretty obvious choice. Here are a couple of other options you can consider for investing money for retirement once you’ve maxed out your IRA contributions for the year.

1. A taxable brokerage account

The downside of putting money into a regular brokerage account is that you don’t get a tax break on your contributions. What you do get, however, is an account you can invest in with no restrictions. You can withdraw money at any time, and you don’t have to stick to a specific annual contribution limit.

If you happen to have an extra $5,000 a year beyond what your IRA will allow you to put in, you can dump that money into a brokerage account. The same holds true if you have an extra $25,000 a year.

Now, you may be thinking, “Won’t I get slammed with taxes if I put money into a regular brokerage account?” And the answer is that yes, you do need to be mindful of taxes. But one thing you can do to minimize any tax hit you might face is to make sure to hold investments for at least a year and a day before selling them. If you do so, you’ll put yourself in the long-term capital gains category when you sell investments at a profit.

With long-term capital gains, your tax rate on your profit is either 20%, 15%, or 0%, depending on your income. With short-term gains, which apply to investments held for a year or less, it can be anywhere from 10% to 37%.

2. An HSA

One reason so many people like funding IRAs is that they get a tax break in the process. A health savings account, or HSA, will give you similar benefits.

An HSA is a savings plan that lets you invest your money for near-term and future medical expenses. HSA contributions go in tax-free like those made to a traditional IRA. Investment gains in an HSA are also tax-free, as are withdrawals, as long as that money is used to cover qualified medical expenses.

If you take an HSA withdrawal for non-medical purposes, you’ll be penalized. But those penalties go away at age 65.

At that point, you can withdraw from an HSA for any reason without penalty — though non-medical withdrawals will be subject to taxes like traditional IRA withdrawals are. For this reason, an HSA can easily serve as a backup retirement account.

The only catch, however, is that your health plan needs to conform to certain rules for you to be eligible for an HSA. This year, you can only contribute to an HSA if your health insurance plan has an individual deductible of $1,500 or more, or a family deductible of $3,000 or more. Your plan must also have an out-of-pocket maximum of $7,500 (or less) for individuals or $15,000 (or less) for families.

Like IRAs, HSAs have annual contribution limits. This year, the maximum is $3,850 for self-only coverage or $7,750 for family coverage. But that still gives you another place to put your money where there are tax benefits to reap.

If you’ve maxed out your IRA and still have money to invest for retirement, you’re in a great spot. Consider a taxable brokerage account or HSA to boost your long-term savings beyond what your IRA allows for.

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If you’re behind on retirement savings, it’s time to figure out how much you need to get caught up and prioritize investing for your future. Find out how. 

Ideally, you will begin investing at a young age. But in reality, that often doesn’t happen because life gets in the way. That’s why the median account 401(k) balance of Americans between ages 40 and 48 is just $34,100, according to data by Fidelity, which is only a fraction of what most people should have by this age.

If you are behind on investing, you shouldn’t be discouraged. The fact is, you aren’t alone. Many people simply haven’t been able to keep up with the ideal investing schedule.

You should take action, though, because you need money for retirement in a 401(k) or brokerage account. After all, Social Security will replace only about 40% of pre-retirement income, and most people must replace 70% at a bare minimum to avoid a huge decline in living standards.

The good news is, there are several different ways to get caught up on your investment goals. Here’s what you should do.

1. Figure out how much money you need to invest

Determining how much money you should have invested by retirement is a good first step if you feel like you’re behind. You can’t really know how much catching up you have to do until you know where you stand relative to where you should be.

A good rule of thumb is that you’ll want to have about 10 times your final salary saved by the time you retire. Figure out what that will be by estimating years to retirement and assuming a 2% raise annually. So, if you make $40,000 this year, assume you’ll make $40,800 next year, and $41,616 the year after that, and so on until retirement.

Once you have an idea of how much you’ll need to invest for your future, you can use the retirement calculator at Investor.gov to tell you how much you need to put aside each month to get caught up by retirement age. This will depend on your timeline and projected rate of return.

Say, for example, you are 40, have $34,100 saved, and want to retire in 25 years with $600,000. If you assume you’ll earn a 10% average annual rate of return, the calculator would reveal you must invest $195.34 per month for the next 25 years to be on target to retire with your desired amount.

2. Build your budget around your desired savings rate

Once you’ve figured out how much you need to invest to catch up, you’ll need to budget to ensure you’re hitting your monthly target. This can be easier said than done, especially if you end up discovering you need to save $1,000 a month or some other high number.

Look carefully at what you can cut and how you can increase your income to make sure you’re investing enough to get caught up. Some steps you can take include:

Taking on a side hustle: The average side hustle produces $483 monthly, which is a pretty good amount of money if you need to get caught up on savings. Even if you have $0 invested and you’re 40, investing $483 monthly would give you $570,019.56 by age 65.Cutting fixed expenses. If you can reduce a big cost consistently, you can redirect that money to investing. Say, for example, you opt to drive a used car instead of a new car. The average monthly payments on a new car were $703 in 2022, while the average payments on a used car were $565. If you can invest that $138 per month you’d save by opting for used instead of new, this could help you hit your savings target.Refinance debt. If you can reduce the cost of your credit card bills or other debts, you can save extra money for retirement. A debt consolidation loan will allow you to pay off multiple debts and leave you with only one monthly payment to look after. You can also often lower your interest rate by going this route, as the interest rates offered by debt consolidation loans tend to be lower than what you’ll find on credit cards.Track spending and budget carefully. You may find you can reduce spending on things like dining out and streaming services and find enough money to hit your target.

If you find that you are not able to cut spending or increase your income enough to save the amount you need to get back on track for retirement savings, you may need to make plans to delay your retirement so you have more time to save.

3. Take advantage of tax breaks

Tax breaks can help you get back on track with investing as well, since contributions won’t cost as much if you are getting a tax break for them.

Say, for example, you need to save $483 per month but you put the money into an IRA at your brokerage firm and can deduct the contribution. If you are in the 22% tax bracket, this could save you as much as $106.26 on your taxes so your taxable income would only be reduced by $376.74.

The good news is, tax-advantaged retirement plans like IRAs and 401(k)s allow older investors (those over 50) to make extra deductible contributions called “catch-up contributions.” So, while a younger person can contribute only $22,500 to a 401(k) and $6,500 to an IRA for 2023, anyone over 50 could put an extra $7,500 in their 401(k) and an extra $1,000 into an IRA.

If you have access to a 401(k) at work and you get an employer match, you should make sure to contribute enough to get the maximum. This employer match is free money, and since your company is putting money into your account too, you won’t have to contribute as much to hit your goal.

By taking these three steps, hopefully you can get caught up even if you are behind on investing. It will require some sacrifice, but better to make those spending cuts now by choice rather than later when you’re retired and have no options.

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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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