Money Management

It’s advice worth following if you haven’t filed your taxes yet. 

Taxes are usually due on April 15, but this year, filers get a few extra days, since the deadline to submit 2022 returns is April 18. But even so, you may end up in a situation where you’re nowhere close to having finished your tax return and the deadline is right around the corner.

In that scenario, Mark Steber, Chief Tax Information Officer at Jackson Hewitt, says not to panic. But also, he says, you don’t want to rush the process of filing a tax return. Doing so could mean making a huge mistake and missing out on a world of tax savings.

It’s important to give yourself the time you need

Even when you’re running into the tax-filing deadline, it may not be too late to hire someone to help with your taxes, says Steber. And a professional may be able to turn your return around faster than you can.

That said, if you don’t think you’ll be able to finish your taxes by April 18, you may want to think about requesting an extension. The IRS will give you one automatically if you file for an extension by April 18, and that will give you six extra months to get your taxes done.

However, getting a tax extension may not be ideal because, as Steber cautions, “It’s not an extension of time to pay, it’s only an extension to send in your paperwork.” And if you don’t complete your taxes on time, you may not know what you owe the IRS. But even so, rushing through your taxes could be disastrous — namely because you might make a mistake that gets your return audited, or that results in a smaller tax refund or higher tax bill.

As Steber explains, the U.S. tax code is loaded with benefits. But if you rush the process of doing your taxes, you might overlook some that you’re eligible for.

Imagine that you’re in a hurry to do your taxes and forget to claim a mortgage loan interest deduction. That could mean denying yourself a lot of savings. And if you think the IRS will attempt to reconcile that missing deduction for you if you’ve claimed it in previous years, think again.

“The IRS is not in the business of making sure that you got all of your benefits,” says Steber. Rather, that’s on you. Furthermore, Steber says, “You can leave off a lot of things that are not in and of themselves enormous, but they can add up.” The result? A higher tax bill or lower refund.

Don’t speed your way through your taxes

You might have experience cramming for exams or throwing together a last-minute gathering to celebrate an important milestone. But rushing through the process of filing a tax return can be a very different experience, and it’s one Steber strongly cautions against. So if you need to file an extension to buy yourself a little extra time, that may be a better idea than filing a tax return that’s loaded with mistakes and missing credits or deductions.

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It’s a lucrative tax break you shouldn’t pass up. 

At this point, many people are in the process of finalizing their 2022 tax returns. But some people may not be filing a tax return at all.

Workers with low-enough incomes don’t have to file a tax return, but doing so could work to their benefit. That’s because they may be eligible for money back from the IRS thanks to the Earned Income Tax Credit, or EITC.

The problem with the EITC, though, is that many people don’t know about it. And as a result, they lose out on money that might otherwise get to land in their bank accounts.

Don’t miss out on money that’s yours

In a recent interview, Mark Steber, Chief Tax Information Officer at Jackson Hewitt, encouraged tax-filers to review the tax credits they’re eligible to receive before finalizing their returns. And he made a point to mention that the EITC is, sadly, a credit that’s often overlooked.

Now one thing you should know about the IRS, said Steber, is that it’s “not in the business of making sure that you got all of your benefits.” So if you’re eligible for the EITC but don’t claim it, that’s your financial loss.

What makes the EITC so valuable is that it’s fully refundable. Many tax credits will only reduce your tax liability down to $0. When a credit is fully refundable, you get paid its full value even if you owe the IRS no money at all.

In fact, in 2021, the Child Tax Credit not only saw its maximum value increase, but became fully refundable. That allowed a lot of households to benefit tremendously.

What’s the EITC worth, and who’s eligible?

Since many people are still tackling their 2022 tax returns, we’ll review the income limits for that year. To qualify for the EITC, your 2022 income cannot have exceeded:

$53,057 for single filers or $59,187 for joint filers with three or more qualifying children$49,399 for single filers or $55,529 for joint filers with two qualifying children$43,492 for single filers or $49,622 for joint filers with one qualifying child$16,480 for single filers or $22,610 for joint filers with no qualifying children

Your investment income for 2022 must also be $10,300 or less to qualify for the EITC.

Meanwhile, the maximum value of the EITC for 2022 is:

$560 for no qualifying children$3,733 for one qualifying child$6,164 for two qualifying children$6,935 for three or more qualifying children

What could extra money do for you?

In 2022, 31 million eligible workers and families received about $64 billion from the EITC, reports the IRS. If you’re struggling to cover your bills in the face of inflation, and many people are these days, then you really don’t want to pass up the chance to get money back from the IRS.

An estimated one out of every five filers who’s eligible for the EITC does not claim the credit, and that’s really a shame. So if you’re a lower or even a moderate earner, it pays to look into the EITC and see if you qualify for it.

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FHA loans have their advantages, but if you’ve got the credit, consider a conventional loan, too. 

For many people, one of the biggest hurdles to first-time home ownership is saving a down payment. This is understandable, especially given the current state of the housing market. Mortgage interest rates and prices are up, and according to the Federal Reserve Bank of St. Louis, the median sales price of American homes sold in Q4 2022 was $467,700. Ouch.

It’s often recommended that buyers make a down payment of 20% on a house purchase. This is the requirement for conventional loan buyers to avoid paying for mortgage insurance. For a home sold at the Q4 2022 median price, that’s $93,540 on a down payment alone. Plus, there are a lot of other costs that go into home ownership. It’s no wonder that some first-time buyers use FHA loans instead.

Home loans guaranteed by the FHA (Federal Housing Administration) are only for first-time buyers, or those who haven’t owned a home in the last three years. If you have a credit score of at least 580, you only need to make a 3.5% down payment. On the example above, that’s just $16,369.50, which is far more affordable. If you have a credit score between 500 and 579, you’ll need to make a 10% down payment ($46,770). Despite these undeniable benefits, here’s why you might want to consider a conventional mortgage loan, too.

Mortgage insurance premiums (MIP)

Remember that mortgage insurance I mentioned above? Well, FHA loans come with their own version, called mortgage insurance premiums, or MIP. And while you may not need a 20% down payment for an FHA loan, you’ll be paying MIP for 11 years with a 10% down payment, and for the life of the loan if you put down less (say, the standard 3.5%). There’s also an upfront MIP payment.

If you’re in the latter category, you might be able to refinance your FHA loan to a conventional one after you reach a loan-to-value (LTV) ratio of 80% or less in your home, thereby sparing you from paying MIP for the duration.

More stringent inspection and appraisal requirements

Two potentially stressful parts of the home-buying process are the appraisal and the home inspection. A home appraisal is when the house you’re hoping to buy is assessed by a professional to determine its value. This will impact whether your mortgage is approved. Appraisals aren’t always required for a home purchase with a mortgage, but are usually required for FHA loans.

And while a home inspection is optional for some mortgage loans (note: Do not skip the home inspection), it is required for an FHA loan. An FHA inspection is mainly concerned with the home’s condition and whether it is a safe place to live. These stringent requirements may make it more difficult to buy with an FHA loan.

Sellers may be reluctant to accept your offers

Another reason you might want to consider conventional loans as you compare mortgage types is the perspective of home sellers. Data collected in 2021 by the National Association of Realtors found that only 30% of sellers surveyed would likely accept offers from buyers using FHA and VA loans. The stricter requirements were likely making sellers think twice, especially in the heady days of 2021’s booming seller’s market, when sellers could be choosers. This may be less of a problem in today’s softer housing market, but it’s still worth thinking about.

FHA mortgage loans can be an excellent way to finance a first-time home purchase. But they do have a few drawbacks to keep in mind as you navigate the exciting world of mortgage loans and shop around for different mortgage types and lenders.

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Dave Ramsey believes $500,000 worth of liability auto insurance is the bare minimum you need. 

Buying car insurance is required by law for drivers in most states. But motorists often shouldn’t just stick with the legally mandated coverage; they should generally purchase additional auto insurance as well. Of course, paying for added insurance means more money coming out of a bank account, so drivers don’t want too much coverage either.

To figure out how much is enough, it can be helpful to look at a suggestion from finance expert Dave Ramsey about the amount of coverage most people need. Here’s what Ramsey had to say.

Dave Ramsey suggests buying this much auto insurance coverage

Ramsey has a “quick-and-dirty answer” to the amount of liability insurance drivers should buy.

“You need $500,000 worth of liability insurance,” Ramsey said on his blog. “That’s the type of auto coverage you’re legally required to have to drive anywhere. And that’s the bare minimum amount of coverage we recommend for all drivers.”

Ramsey believes buying $500,000 of liability insurance is crucial because “state minimums aren’t nearly enough to protect you.” Many states only require you to buy around $10,000 or $25,000 in coverage per person and around $50,000 or $100,000 per accident. But since car accidents can easily have multiple victims and the cost of injuries can add up quickly, Ramsey doesn’t think the state minimums will provide enough coverage in case something goes wrong.

Ramsey is absolutely right about this. If a driver causes an accident and a few people suffer serious injuries, the cost of hospital bills and lost wages could easily exceed the minimum coverage limits. Those accident victims could pursue a claim against the at-fault driver personally to cover other costs. But if a driver has purchased $500,000 in coverage, it’s far less likely this will happen.

In fact, people with a very substantial amount of assets who face a high risk of personal losses if they cause a crash may want to think about getting even more coverage or investing in an umbrella policy that pays excess losses once their auto insurance has hit policy limits.

Ramsey also suggests buying these kinds of car insurance

In addition to making sure drivers have a sufficient amount of liability coverage, Ramsey also suggests getting other kinds of insurance in certain circumstances. This includes comprehensive coverage that would pay for losses not resulting from a collision, and collision coverage, which pays for a policyholder’s own crash-related losses no matter who was to blame.

“If you can’t replace your car with cash, you should get collision coverage,” Ramsey explained. “Without it, you’ll be on the hook to replace your car if it’s totaled.” He also said comprehensive coverage is important for the same reason — “to protect your finances from life’s flukes.”

Ultimately, drivers need to remember the point of insurance is to transfer risk. It is usually worth paying premiums for coverage for any losses that a motorist could not easily afford to pay out of their own pocket. And it’s typically better to have too much coverage rather than too little in case disaster strikes.

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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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So many perks, so little time to investigate.  

I’ve been an Amazon Prime member for years and have never paid much attention to membership perks beyond free shipping and access to TV shows and movies. It turns out there are other, lesser-known perks associated with an Amazon Prime membership that I’ve never taken advantage of. If you’re busy like me and don’t take time to keep up with membership perks, you may be as surprised as I was by these easy ways to save money.

1. Unlimited photo storage

Every month, $1.99 is debited from my bank account to pay for extra photo storage. It may only be a couple of dollars, but I now know I can cut that expense from my budget. Unlimited cloud-based photo storage is available for free to Prime members. If you’re paying another service like Apple, Dropbox, or iCloud to back up your photos, it’s one small bill you can do away with.

2. Super-fast shipping

If you’ve been a Prime member, you’re probably familiar with Amazon’s famous two-day shipping. But were you aware that millions of Amazon items are eligible for free one-day shipping? What’s more, in select areas of the country, Prime members can get free same-day delivery on orders of $35 or more.

3. Amazon Key

Let’s say you work away from home but regularly order from Amazon. Amazon Key allows Prime members to set up a secure method for packages to be delivered inside their garages. This can save you the hassle of stolen packages.

4. Music

This is one of the few perks I found early on and have integrated into my life. Prime Music allows you to ditch your Spotify, Apple Music, or Pandora subscription by offering members a free streaming music service. This is another monthly subscription cost you can save on.

5. Gaming

I am not a gamer, but I know many people who are. If someone in your household enjoys gaming, it may interest you to know that Prime members can get free games each month. There are also free in-game upgrades that allow the player to customize their characters.

6. Reading

Through Prime Reading, members can access more than 1,000 audiobooks, ebooks, magazines, and comics. Members can also pick a free Amazon First Reads book each month and access the Kindle Owners’ Lending Library. If you don’t have a Kindle, that’s okay. Simply install the Kindle app on one of your existing devices.

7. Try Before You Buy

Previously called Prime Wardrobe, Try Before You Buy allows members to order clothes, shoes, and jewelry. Once they’ve tried them on at home, the member returns anything they don’t want and is only charged for the items they kept. It’s an easy way to keep charges off your credit card until you’re ready to commit.

Membership cost

Prime membership is not for everyone, but if you believe the perks outweigh the membership cost, it’s worth consideration. Here’s a quick breakdown of 2023 Prime membership costs:

$14.99 per month or $139 per year if you pay annually.Prime Access for $6.99 monthly for qualifying government assistance recipients. Government assistance includes SNAP, EBT, and Medicaid.Prime Student for $7.49 per month or $69 per year for students enrolled in two or four-year colleges.

If you haven’t yet, you can take a membership for a free 30-day test run to see if it works for you. It’s a risk-free way to decide if Prime is worth the cost of admission.

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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. Dana George has positions in Amazon.com and Apple. The Motley Fool has positions in and recommends Amazon.com and Apple. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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