Money Management

It could make your life easier during tax season and save you money. 

At this point, many Americans are focused on filing their taxes. After all, ’tis the season for finishing up tax returns and, ideally, waiting for refunds to arrive via direct deposit or mail.

But thinking about taxes is something you should actually do all year long, and not just during the filing season, says Mark Steber, Chief Tax Information Officer at Jackson Hewitt. Doing so could not only make it easier for you to file your return in the winter or spring, but it could also result in a lot of savings for you on a whole.

It’s not just a seasonal thing

It’s a good idea to think about taxes all year round, says Steber. And for many people, that simply boils down to keeping good records.

This is an especially important thing to do when you’re self-employed, Steber explains. That’s because people who are self-employed and own small businesses might have numerous expenses they can deduct. You might, for example, spend money every month on internet service, office supplies, and travel to client sites to do your job as a freelance marketing consultant. Those are all deductible expenses. And so it’s important to keep solid, organized records of those receipts.

But that’s not the only reason why taxes should not just be a seasonal thing. The right tax planning, says Steber, could lead to more overall savings.

Let’s say you meet with your accountant in June and they point out that your income has increased due to not higher wages, but factors like added interest income in your savings account or capital gains in your brokerage account. At that point, your accountant might be able to advise you on ways to offset that higher income to limit your tax liability. That could include pumping more money into a tax-advantaged savings plan, like a 401(k) or IRA account.

Find an accountant who’s available year-round

Many people seek out tax help during the filing season and only need help during that time. But Steber says it’s a good idea to find an accountant who can be available to help you at any point during the year. That way, if questions or concerns arise, you can simply set up an appointment to sit down and talk.

That said, finding the right accountant can be tricky. So it’s important to ask the right questions and to not be afraid to interview multiple professionals before landing on one to trust.

As Steber says, “You need to find the person who fits your needs, and that doesn’t just mean tax knowledge…they need to match your personality and be convenient.”

It’s also a good idea to find an accountant who doesn’t just talk, but listens. You might have several financial goals that a lower tax burden could help you achieve. Working with the right accountant could get you closer to them, especially if you’re willing to make the effort and think about taxes throughout the year — and not just in the months leading up to mid-April.

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Following it could save you a huge hassle. 

Real estate inventory has been extremely tight on a national level for the past several years. And as of the end of January, there was only a 2.9-month supply of inventory, according to the National Association of Realtors. It can commonly take a 6-month supply of housing inventory to meet buyer demand and equalize the real estate market.

If you’re looking to sell your home, low inventory might give you certain advantages. Limited real estate inventory means you won’t face as much competition from other sellers. And that could lead to a higher offer. You may even end up with buyers who enter a bidding war, which can only benefit you financially.

Granted, buyer demand has waned this year due to exorbitant mortgage rates. But even so, the less competition you have as a seller, the more you stand to benefit.

That said, limited housing inventory can present a challenge to sellers, too. And that’s why it’s important to heed this advice from financial guru Dave Ramsey.

Have a solid plan

In a market with robust housing inventory, you can sometimes get away with selling your home and taking your time to find another one. But that’s not the market we’re in.

That’s why Ramsey says, “Make sure you know where you’ll be living next before you sell. If you’re buying a new home after your current home is sold, there’s no guarantee that the new owner will allow you to stay there until you decide (although you could make that part of the buying agreement).”

Let’s say you list your home on April 1 and get a qualified buyer within 30 days (which is still feasible, even with the cost of getting a mortgage loan being higher). You might then be looking at another 60 to 90 days by the time you close on that sale. But that doesn’t give you a whole lot of time to first embark on a home search, make an offer, get it accepted, get financing for your new home, and make a plan to move.

That’s why in today’s market, you should do your share of house hunting before putting your home up for sale. And you should also decide what area you want to move to and research home prices there to make sure you can afford them. It wouldn’t even hurt to get pre-approved for a mortgage so you get a sense of what sort of loan you’ll be able to take on, and what price range to stick to as you search.

Prepare for a quick sale

At a time when housing inventory is limited, homes tend to sell quickly. That’s generally a good thing — unless it leaves you in a situation where you have to scramble to figure out your next move.

Rather than take that risk, do plenty of legwork and research before putting your home on the market. Given the low inventory, you can’t discount the possibility of your home selling within days, and you don’t want to get stuck in a jam.

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Here are some great ways to cope with retirement worries. 

In a recent video, financial expert Suze Orman answered a question from a listener who was stressed about their lack of retirement savings. Orman offered three pieces of advice that can have a meaningful impact on anyone’s financial security in retirement, regardless of their income level. Here’s what they were.

1. Live below your means

Orman says that the first step in getting your retirement savings on track is to figure out how to live below your means. In other words, if you’re spending every penny you earn, there won’t be anything left to save in retirement accounts.

Creating a budget could be a smart step to make this happen. Figure out how much you earn and where that money should be allocated each month. There are some excellent budgeting templates online, and there are also some excellent budgeting apps that can help you do this. Aim to build retirement savings right into your budget, and treat it like a necessary expense. Better yet, make it automatic. Set up an automatic transfer every payday that contributes your budgeted amount to a retirement account like an IRA.

2. Buy needs, not wants

This goes along with the first piece of advice, but can be an essential component of living within your means. As Orman explains it, “A need is food from a grocery store. A want is food from a restaurant.”

One exercise I often suggest is to print out the past couple months of your bank and credit card statements. Go through them line by line with a highlighter, and highlight any expenses that could be considered “wants.” You might be surprised by how much money is flowing out of your checking account that doesn’t need to be.

3. Get pleasure from saving

I get it. Spending money on things you want can be fun. But Orman suggests that in order to be a successful retirement saver, it’s important to learn how to get pleasure from saving and investing, just as you do from spending.

This can take many forms. For example, one of the reasons I’ve saved so much for retirement is that I truly enjoy following the stock market and investing in businesses I believe in. It can also be enjoyable to set short-term savings goals (such as setting aside $1,000 in an IRA within the next few months) and achieving them. Maybe you can take pleasure from finding ways to trim “wants” from your expenses and redirecting that money into your retirement savings instead.

Is it good advice?

This is definitely great advice for the millions of Americans who are behind on their retirement savings and might be stressed about it. And while these three tasks are more effective the earlier you implement them in your financial life, it’s never too late to have a meaningful impact by making some changes.

Of course, every situation is different. For example, you might not need to cut out all of your spending on “wants” to be able to save enough for retirement if you can find enough room in your budget. But the point is to start thinking about retirement saving not only as a “need,” but as something that can end up being just as enjoyable as spending money.

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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.Matthew Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Don’t overlook it, even if the rules make your head spin. 

For many parents, childcare is a major expense. It’s also a necessary one. Without it, a lot of people would not be able to hold down a job.

The good news is that the IRS allows parents who pay for childcare so they can work recoup some of those costs in the form of the Child and Dependent Care Credit. And while the credit is a bit complex to claim, it’s worth looking into if you currently spend a lot of money on childcare.

Get the tax break you deserve

If you’re tired of seeing those weekly daycare center payments debited from your checking account, the good news is that a portion of your costs might serve as a tax break. As a refresher, a tax credit is a dollar for dollar reduction of your tax liability. If you owe the IRS $2,000 but claim a $2,000 credit, your tax liability becomes $0.

Filers are often advised to seek out different credits when filing their taxes. And so if you pay for childcare, it makes sense to look at the Child and Dependent Care Credit.

Here’s how it works. The Child and Dependent Care Credit lets you deduct a portion of your childcare costs, and it only applies to costs up to a certain amount.

For 2022 (which is the tax return you’re filing this year), the Child and Dependent Care Credit applies to up to $3,000 in childcare expenses for one qualifying child, or up to $6,000 in childcare expenses for two or more qualifying children. But this doesn’t mean the credit itself will be worth $3,000 or $6,000.

Rather, you can only claim a portion of up to $3,000 or $6,000, depending on your income. The more you earn, the lower the percentage you can claim.

If your income is $15,000 or less, you can claim 35% of your childcare costs of up to $3,000 or $6,000. From there, this percentage drops to 20% at an income above $43,000. So whether you make $43,000 or $88,000, you’re limited to claiming 20% of your costs of up to $3,000 or $6,000. If you earn more than $15,000 but less than $43,000, you can consult this page on the IRS website to see what percentage applies to you.

Confused yet? That’s understandable. But here’s an example to explain how the credit might work in practice.

Let’s say you earn $45,000 a year, have two children, and spend $8,000 on childcare costs. The maximum baseline cost you can claim against in this situation is $6,000. And from there, you can only claim 20% of $6,000, or $1,200. So all told, that’s what your Child and Dependent Care Credit will look like.

But remember, that’s $1,200 that will directly reduce your tax liability. So if you owe the IRS $2,000 and get this $1,200 credit, you’ll only owe $800.

Another thing you should know about the Child and Dependent Care Credit is that it’s not refundable. That means the most it can do is knock your tax liability down to $0.

A head-spinner for sure

Clearly, calculating the Child and Dependent Care Credit isn’t easy. But it’s worth going after that tax break if you’re entitled to it — especially if you spend a large portion of your income on childcare costs.

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Sometimes airport lounges aren’t worth the hype. 

You may have heard about how amazing airport lounges are. While airport lounges may provide a more comfortable space to relax before your flight departs, lounge access isn’t always worth it for every traveler. Before investing in airport lounge access, ensure your expectations are realistic. There are several reasons why airport lounge access is overrated.

1. Many lounges are overcrowded

Airport lounges used to be a hidden oasis for frequent travelers. Now that they’ve become more popular and people are aware of the many perks that travel rewards credit cards offer, more travelers are visiting airport lounges. You may be shocked if you’re expecting a quiet, relaxing lounge experience. During busy times, it’s common to find that airport lounges are loud and packed with people — similarly to the public areas of the airport.

2. The quality of each lounge varies

Unfortunately, you can’t expect the same lounge quality everywhere you go. I’ve found many international airport lounges to be more enjoyable and value-packed, especially when comparing food and drink offerings. The thing is, you never know what quality level you’ll get.

While sometimes you may luck out and walk into a fantastic lounge, there will be times when you’re less than impressed. A few years ago, I visited an airport lounge that was nearing capacity, and the only free snack they had available was individual mini bags of chips.

That was disappointing when compared to the many international airport lounges I’ve visited with impressive food buffets. As you might imagine, I decided to hang out by my gate because I didn’t feel the need to fill up on Lay’s potato chips before a long-haul flight to Greece.

3. It’s getting more expensive to visit airport lounges

Many lounge membership programs have increased in price over the last few years. Additionally, some credit card issuers with lounge access as a perk have raised their annual fees. That means you’re likely paying more for lounge access. For many people working on important personal finance goals, the increased fees aren’t worth the extra cost.

4. You may be denied entry

Since more people are discovering the exciting world of airport lounges, many lounges quickly reach capacity. You may hope to enter a lounge before your flight or during a long layover, only to be denied entry because of capacity limits. It’s also common for lounges to restrict access during busy times of the day to better control the crowds. You may be unable to enter if you try to visit during restricted hours. When this happens, your lounge perks go unused.

5. You may have to pay guest fees

Until recently, many premium travel credit cards allowed cardholders to bring one or more guests into lounges with them at no extra cost. This benefit added more value and made for an excellent way to share the airport lounge experience with a friend or partner when traveling together. However, many card issuers have reduced their lounge benefits in recent years.

Currently, only some of the best credit cards allow guests to access airport lounges at no extra cost. Some allow guests, but require the cardholder to pay an additional fee for each guest. If you frequently travel as a couple or family, the extra guest fees may not be worth it, and you may not get much use out of your airport lounge benefits.

When visiting an airport lounge, have realistic expectations

For some frequent fliers, airport lounge access may be well worth the cost. But not every traveler will find these spaces to be valuable. Before entering an airport lounge for the first time, ensure you have realistic expectations. Otherwise, you may be disappointed.

If you want to get a feel for the experience before investing in a lounge membership, you may want to visit a lounge that sells day passes. You can pay a fee for one-time access to decide if it’s a worthwhile investment. If you find the experience valuable, you may want to apply for one of the many travel credit cards with complimentary airport lounge perks.

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There is one key step you should definitely take. 

A recession is a period of prolonged economic downturn, and many experts are predicting one will soon hit the United States for a number of reasons, including efforts by the Federal Reserve (the U.S. central bank) to cool inflation by tightening the supply of money.

If a recession happens, that means the economy as a whole is struggling. But, what does that actually mean for you? According to finance expert Suze Orman, the biggest risk that individuals face in a recession has to do with the potential loss of their income.

Orman says this is the biggest threat to your finances in a recession

Orman recently warned on her blog that a recession was “indeed a possibility in 2023,” and she went on to explain that these unfavorable economic conditions present one huge risk for individuals.

“The biggest risk in a recession is a job layoff,” Orman explained. Layoffs are common during downturns because demand for goods and services is reduced during a recession. The easiest and fastest way for companies to respond to this reduced demand is to let go of some employees who may not be needed to serve their smaller customer base.

Unfortunately, if you lose your job during a recession, it’s a bad time to be looking for new work since a whole bunch of other people will be in the same boat — and since few companies will be hiring during the downturn. So, you may have an extended period of time where you have to try to rely on unemployment benefits (if you have access to them based on your job history).

How can you prepare for a layoff?

Since Orman believes a layoff is a huge risk of a recession. She suggests preparing for a potential interruption in your income that could come this year during a downturn. And, she highlights one key step you should take in order to be ready.

“There is no better stress reducer than to have an emergency savings fund,” Orman said. “I want you to push yourself to save as much as you can, but I also want to be clear that consistently saving something each week, or each month, is a big win.”

Beyond putting plenty of money into savings, Orman also suggested taking steps “to boost your job security” so if employees at your company are on the chopping block, you won’t end up being one of them. “My challenge to you is to make yourself the last person your manager would want to let go,” she said.

You can do this by looking for opportunities to add value to the company’s bottom line and to make your manager’s job easier. Orman also pointed out that going the extra mile at work can be helpful even if you do lose your job because you’re more likely to get a good recommendation if you’ve gone above-and-beyond at your current workplace.

Starting to network in case of a job loss is also a good idea. You don’t need to actually look for new opportunities, but be sure to make professional connections as much as possible and try to get to know people in your field before you need to call on them for help finding new work.

Even if a recession doesn’t come this year, taking these steps won’t hurt you and can only help you advance in your career and make your income more secure regardless of what economic conditions come your way.

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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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