Money Management

Whenever I book a vacation, I put it on a credit card. Here are three reasons why I do this, with the most important factor being travel insurance. 

Whenever I go on a vacation, I use my credit card to pay for the cost of the trip. There are three important reasons why I insist on charging every aspect of the vacation, from hotels to flights, rather than paying for it from my checking account. Here’s what they are.

1. My credit card offers various kinds of insurance for travel

Like many travel credit cards, one of mine offers many different kinds of protections in case things go wrong on vacation. Specifically, the card offers:

Auto rental collision damage waiver: This provides reimbursement if a rental car is stolen or damaged in a crash.Trip cancellation or interruption insurance: This allows me to get reimbursed if my trip is canceled or cut short for a covered reason such as bad weather or unexpected illness.Trip delay reimbursement: If there’s a delay of 12 or more hours or a delay that requires an overnight stay, my card will reimburse me for unexpected expenses like meals and a hotel.Travel accident insurance: If the worst happens, my card would provide accidental death or dismemberment insurance.Reimbursement for lost luggage: The card would pay for checked or carry-on luggage, and its contents, if it gets lost due to a carrier’s mistake.Baggage delay coverage: When a suitcase is delayed for six or more hours, this covers up to $100 per day in incidental costs for a period of up to five days.

These insurances could come at a big cost if I didn’t have them through my card. The rental car insurance alone could be around $10 to $30 daily. And, if I didn’t buy these protections independently, I could be left facing even bigger out-of-pocket losses if something went wrong.

If you travel regularly, you should have a card that offers these kinds of benefits. You can save money on insurance premiums while making certain you still have the right protections in place. Chase travel cards tend to offer a great suite of benefits, but there are also other great travel cards that provide insurance coverage to cardholders that are worth looking into.

Just be sure to read your card’s fine print, as you usually must pay for the entire car rental or trip on the card to get these coverages.

2. I can earn rewards for my vacation spending

Paying for a vacation with a credit card also makes sense if you can get extra rewards for your travel spending. This is one of the main reasons why I use my travel card for all vacations. Travel purchased through the card issuer directly allows me to earn 5 points per $1 spent and when points are redeemed for travel, I get a better value for my redemptions.

If I can earn points that end up giving me as much as $0.026 of value by booking my trip on a credit card, that’s a lot better than paying out of my bank account and getting nothing back. If you book trips regularly, you should also look for a card that will reward you for it.

Think about whether a general purpose travel card that gives you bonus points for all vacation-related purchases is a good choice for you, or whether you might be better off with an airline card that gives you extra points for miles or a hotel card that gives you extra points for lodging. The right card will depend on what your biggest travel expenses are, so review your recent trips to see where most of your money is going.

3. I can better track what I’m spending on trips

Finally, when using a credit card, I get a record of all my purchases in the form of my card statement. I can import this into a money management program like Mint and see how much I’m spending on travel in total. Since I like to keep track of where my money goes, but don’t necessarily want to write down every purchase I make on vacation, this is a big benefit. If you also want to get an idea of where your money is going, using a travel card to pay for vacations can be helpful.

Just remember, you’ll want to pick the right card, take full advantage of the insurance it offers, and pay off your balance in full so you don’t get stuck paying interest that makes every vacation you take costlier.

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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. Christy Bieber 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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The rich use some unique tax strategies, but you might be able to benefit too. Read on to learn how. 

Have you ever heard that multi-billionaire Warren Buffett pays a lower federal income tax rate than his secretary? It’s true. And he isn’t alone. Many ultra-wealthy American households pay surprisingly low effective federal income tax rates, and in some cases, no taxes at all. They accomplish this (legally) by using some of the most effective tax breaks available in the U.S. tax code.

The best part is that you can learn from many of these and apply them to your own life. No tax breaks are designed to only benefit billionaires.

Eight ways the rich avoid taxes

I won’t keep you in suspense. Here are eight ways the wealthiest Americans reduce their tax liability — or even avoid paying taxes altogether.

But here’s a key concept to keep in mind. These strategies and tax breaks aren’t exclusively available to the ultra-wealthy. Everyday Americans can (and do) benefit from these as well.

1. No taxes on unrealized capital gains

The No. 1 reason most billionaires pay a surprisingly low amount of taxes is because many don’t have much income at all. Instead, their wealth is tied up in stock and other assets. Under U.S. tax law, you don’t pay any tax on investment gains until you sell, no matter how much they’ve gone up. This is known as unrealized capital gains and can be a great tool to defer taxes on winning investments in your brokerage account.

2. Charitable deductions

How does Buffett pay a lower tax rate than his secretary? The answer is he donates billions of dollars’ worth of Berkshire Hathaway stock to charity every year, and as he’s entitled to do, claims some of these donations on his taxes. This effectively cuts his taxable income in half. While you and I are unlikely to have a charitable deduction equal to half of our income in any given year, taxpayers who itemize can certainly get a nice break for their generosity.

3. Long-term capital gains rates

Billionaires generate a disproportionate amount of their income from investment income — both in the form of capital gains from investments they sell and dividend income they receive from their stocks. Profits from investments held for more than a year, as well as most dividend income, gets taxed at significantly lower rates than ordinary income.

4. IRAs

There’s one particularly notable story of billionaire Peter Thiel who opened a Roth IRA and put shares of the company that would eventually become PayPal in the account. The account ended up being worth $5 billion and because of the tax-free nature of Roth IRA withdrawals, Thiel won’t have to pay a dime in taxes on anything he withdraws from that account.

5. Pass-through income

As part of the Tax Cuts and Jobs Act, which went into effect in 2018, pass-through income (such as from an LLC or partnership) gets a 20% tax deduction. Many wealthy individuals are business owners, so they benefit from this, but it also applies to pass-through income from small businesses and self-employment income as well.

6. Tax breaks for homeownership

Homeowners get some extra tax breaks, specifically the ability to deduct mortgage interest and property taxes if they itemize. Now, there are certain instances of wealthy people stretching this a bit, such as deducting the interest on a yacht loan because it technically meets the definition of a second home. But the mortgage interest tax break saves millions of everyday Americans money every year.

7. Medical expense deductions

Taxpayers who itemize can deduct medical expenses that exceed 7.5% of their adjusted gross income (AGI). There are confirmed reports of people successfully using this to deduct expensive swimming pools as a “therapeutic” device, but the deduction can be used by anyone who has high medical costs.

8. Real estate investing tax breaks

Real estate investments benefit from a ton of tax breaks, including a big one called depreciation. In a nutshell, if you buy a rental property, you can deduct a portion of the price you paid for the property every year on your taxes. In many cases, this makes profitable rental properties show a loss for tax purposes.

When in doubt, ask for help

As a final thought, it’s very important to mention that there’s quite a bit of gray area in these (and many other) tax strategies. So, if you aren’t sure whether a certain deduction or credit applies to you, it’s a smart idea to seek help from an experienced tax professional who can evaluate your unique situation.

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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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