Money Management

You need to give that task your full attention. 

There are certain tasks in life we tend to procrastinate on, like dealing with piled-up laundry. Filing taxes might fall into that category for you, and if so, you wouldn’t be alone.

If you’ve put off your tax filing so far, the good news is that the April 18 deadline to submit your return is still a few weeks away. So there’s time to complete your return without being late.

But one thing you don’t want to do, says Mark Steber, Chief Tax Information Officer at Jackson Hewitt, is rush through the process of getting your taxes done. Doing so could have several negative consequences.

It pays to take your time

When you’re nearing the tax-filing deadline, it’s easy to see why you may be inclined to try to get your return completed as quickly as you can. But that could cause you to make a mistake and land yourself on the IRS audit list.

If you rush through your tax filing, says Steber, you might forget to report income you earned in your brokerage account. Or, you might forget to report the $1,200 you earned via one of your side hustles. But any time the IRS receives word of income you collected that isn’t acknowledged on your taxes, it opens the door to a closer look at your return.

Another big problem with rushing through your taxes is that you might miss out on credits or deductions that result in savings, or a lower tax bill.

“People are often committed to getting their taxes done quickly, but it sometimes comes at the cost of accuracy,” says Steber. And this year, missing out on tax breaks is especially problematic because, as he puts it, “every refund dollar counts.”

Right now, many people are struggling to keep up with their living costs due to inflation. And so the last thing you’d want to do is deny yourself an extra $100 here or $200 there due to rushing through your taxes.

Also, Steber says that filers are already seeing smaller refunds this year than last year. That’s because there were many tax breaks put into place for 2021 that did not get extended into 2022. Since refunds are down as a whole, now’s not the time to be careless and risk shorting yourself money.

You can still get help

If you’ve put off your taxes to this point, do realize, says Steber, that it may still be possible to line up help if you need it. You may not get your first choice, since sought-after tax preparers may be booked solid at this point, but it’s worth asking around.

Another thing you should know is that if you can’t complete your tax return by the April 18 filing deadline without rushing through it, you can always request an automatic six-month extension from the IRS and buy yourself more time to get it done. That may be preferable to rushing the process and risking a big mistake.

But if you’re going to get an extension, be aware that all that does is give you more time to file your actual return. “It’s not an extension of time to pay,” says Steber, so if you owe the IRS money, failing to pay your tax bill in full by April 18 will result in penalties and interest.

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This key feature determines how much money you earn on your savings. 

When comparing savings accounts, one of the most important features to look at is the interest rate. This is expressed as a percentage, and savings accounts with higher rates pay you more money.

Interest rates can be a confusing concept. People often have questions about them, like where does this money come from? And why do some banks pay so much more than others? Since this is such an important financial concept, here’s an easy-to-understand breakdown of how interest rates work.

ELI5: How interest rates work

In the banking world, “interest” is the term for payments made from a bank to an account holder. The interest rate is how much interest the bank pays per year. Let’s say a savings account has a 3.5% interest rate. That means the bank will pay you 3.5% per year to deposit money into the savings account.

Bank accounts have variable interest rates; their interest rates can go up or down at any time.​​ This mainly depends on the economy. Depending on economic conditions, the Federal Reserve may raise or lower the federal funds rate. Banks use this rate to determine their own interest rates.

So, a bank account could offer a 1% interest rate at the start of the year, and 4% a year later. After another year, it could be down to 2%. It all depends on the economy and what the Federal Reserve does.

How banks are able to pay interest

A common question about interest rates is how banks can afford to pay them without losing money. They’re able to pay this with another type of interest — the interest they earn from money they lend to consumers.

In lending, interest is a payment made from a borrower to the lender. If you get a loan with a 10% interest rate, then you’re paying 10% per year for that loan.

Banks offer a wide range of these lending products and earn interest on them. These products can include:

Credit cardsPersonal loansAuto loansMortgages

But why would banks use their profits from credit cards and loans to pay other people interest? Because the amount they can lend partially depends on the money they have in their reserves. And their reserves are made up of people’s bank account deposits.

So, by offering accounts that earn interest, a bank attracts more customers. These customers open bank accounts and deposit money. That money helps the bank lend more and increase its earnings.

However, certain banks pay much higher interest rates than others. Many online banks offer high-yield savings accounts that currently pay 3.5% or more. On the other hand, many brick-and-mortar banks pay 0.5% or less. There are two reasons for this:

Online banks can pay higher interest rates because they don’t have physical locations. This saves them lots of money compared to brick-and-mortar banks.Big banks already have established customer bases. They don’t need to offer generous interest rates to convince people to use their services.

Interest rate vs. APY

There’s another common term used to describe the amount of interest a bank account pays: annual percentage yield (APY). It’s actually a more accurate measure of how much interest you’ll earn with a bank account.

That’s because banks offer what’s known as compound interest. You earn interest on your money, and that interest gets added to your balance. This can happen daily or monthly, depending on the bank account. Then, you earn more interest on that balance. Remember, that balance now includes your original deposit and the previous interest you earned. You’re effectively earning interest on top of interest.

APY tells you how much an account earns with that compounding. As such, an account’s APY tends to be a bit higher than the interest rate.

Let’s say you have a savings account with a 4.9% interest rate. It compounds monthly, meaning interest is calculated and added to your balance each month. With that compounding, the account’s APY will be around 5%.

There’s a lot that goes on behind the scenes with bank accounts and the interest they earn. The APY is the easiest way to see how much interest you’ll really earn with an account. In most cases, it’s good to pick an account with a high APY to earn more interest on your 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.The Motley Fool has a disclosure policy.

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Image source: Getty Images
What happenedAccording to The Economist, half a trillion dollars have left the U.S. banking system in the past year. It blames a combination of factors, including the way money market funds work and the Federal Reserve’s repurchase and reverse repurchase agreements (repos and reverse repos).So whatWithout getting too far into the details, the report suggests that changes to the reverse repo system have sucked hundreds of billions of dollars out of the banks. What this means for us as consumers is that it increases the pressure on small and mid-sized banks who are struggling for deposits in the wake of the Silicon Valley Bank failure.
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Repos and reverse repos are a type of collateralized short-term loan in which one party sells securities to the other, with an agreement to buy them back at a higher rate by a set date. In 2013, the Fed introduced its own reverse-repo facility. Essentially, money market funds are currently using the Fed’s reverse repo facilities rather than banks.”The scheme was a seemingly innocuous change to the financial system’s plumbing that may, just under a decade later, be having a profoundly destabilising impact on banks,” said the leading business publication.Now whatThe past few weeks have been a rollercoaster ride for almost anyone with money deposited in a bank account. More so for businesses and other organizations with large sums of money that might fall outside the FDIC’s thresholds.The collapse of Silicon Valley Bank sparked fears of contagion. Signature Bank also failed, and a group of big institutions deposited $30 billion with First Republic in an attempt to shore up its reserves. Shortly after SVB’s failure, a technical glitch at Wells Fargo caused paychecks to go missing, adding to the market jitters.Wells Fargo fixed its issues, but wider questions about the banking system remain. What’s worrying about the Economist report is that it points to a systemic problem that has not been solved and could still pull banks under.That said, if you’re worried your bank might fail, know that are a lot of consumer protections in place. Importantly, customers have not yet lost any deposits. Even with SVB, where a large proportion of its deposits exceeded the FDIC insurance limits, authorities stepped in to make people whole.All the same, if you have sizable amounts in a single bank, take these steps to make sure you’d be protected against failure:Understand FDIC insurance limits: FDIC insurance covers $250,000 per depositor, per insured bank, per account ownership category. A single account and joint account are separate ownership categories. This means if you have $250,000 in a personal savings account, and $200,000 in a joint account, all your money would be covered.Consider opening a new account: If you have sizable deposits with a small bank, check out our list of the safest banks in the U.S. Also, most accounts are FDIC insured, but if yours is not, it might be time to switch to another bank.These savings accounts are FDIC insured and could earn you 13x your bankMany people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you 13x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2023.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.Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Emma Newbery has no position in any of the stocks mentioned. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy. 

What happened

According to The Economist, half a trillion dollars have left the U.S. banking system in the past year. It blames a combination of factors, including the way money market funds work and the Federal Reserve’s repurchase and reverse repurchase agreements (repos and reverse repos).

So what

Without getting too far into the details, the report suggests that changes to the reverse repo system have sucked hundreds of billions of dollars out of the banks. What this means for us as consumers is that it increases the pressure on small and mid-sized banks who are struggling for deposits in the wake of the Silicon Valley Bank failure.

Repos and reverse repos are a type of collateralized short-term loan in which one party sells securities to the other, with an agreement to buy them back at a higher rate by a set date. In 2013, the Fed introduced its own reverse-repo facility. Essentially, money market funds are currently using the Fed’s reverse repo facilities rather than banks.

“The scheme was a seemingly innocuous change to the financial system’s plumbing that may, just under a decade later, be having a profoundly destabilising impact on banks,” said the leading business publication.

Now what

The past few weeks have been a rollercoaster ride for almost anyone with money deposited in a bank account. More so for businesses and other organizations with large sums of money that might fall outside the FDIC’s thresholds.

The collapse of Silicon Valley Bank sparked fears of contagion. Signature Bank also failed, and a group of big institutions deposited $30 billion with First Republic in an attempt to shore up its reserves. Shortly after SVB’s failure, a technical glitch at Wells Fargo caused paychecks to go missing, adding to the market jitters.

Wells Fargo fixed its issues, but wider questions about the banking system remain. What’s worrying about the Economist report is that it points to a systemic problem that has not been solved and could still pull banks under.

That said, if you’re worried your bank might fail, know that are a lot of consumer protections in place. Importantly, customers have not yet lost any deposits. Even with SVB, where a large proportion of its deposits exceeded the FDIC insurance limits, authorities stepped in to make people whole.

All the same, if you have sizable amounts in a single bank, take these steps to make sure you’d be protected against failure:

Understand FDIC insurance limits: FDIC insurance covers $250,000 per depositor, per insured bank, per account ownership category. A single account and joint account are separate ownership categories. This means if you have $250,000 in a personal savings account, and $200,000 in a joint account, all your money would be covered.Consider opening a new account: If you have sizable deposits with a small bank, check out our list of the safest banks in the U.S. Also, most accounts are FDIC insured, but if yours is not, it might be time to switch to another bank.

These savings accounts are FDIC insured and could earn you 13x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you 13x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2023.

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.Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Emma Newbery has no position in any of the stocks mentioned. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.

 Read More 

It’s important tax information to have. 

Sometimes, companies are forced to reduce their headcount when they run into financial issues or need to restructure. When you lose a job through no fault of your own, you’re generally entitled to collect unemployment benefits through your state. Those benefits won’t replace your missing paycheck in full, but they can sometimes replace a nice portion of it. And that could help you avoid completely depleting your savings account or racking up costly debt while you look for work.

If you collected unemployment benefits in 2022, you may be wondering if you need to report that income on your tax return. The answer is absolutely — even though there was a brief point in time when unemployment income wasn’t subject to taxes.

An exception during the pandemic

In 2020, the national unemployment rate reached a record high as widespread COVID-19 shutdowns forced millions of Americans out of their jobs. Back then, lawmakers were quick to not only send much-needed stimulus checks into Americans’ bank accounts, but also, boost unemployment benefits to help jobless workers stay afloat at a time when finding a job was extremely difficult.

To further ease the burden on those without jobs, in 2021, the American Rescue Plan was signed into law, and it included a provision that made up to $10,200 of unemployment benefits collected in 2020 tax-free. As such, there may be confusion as to whether unemployment benefits are considered taxable. But you should know that tax-free treatment of unemployment benefits was limited to 2020 alone. And so if you received jobless benefits from your state in 2022, that’s taxable income you need to report.

If you don’t report your unemployment income, there’s a good chance the IRS will flag your return for further scrutiny, as that data gets reported to the agency. So you might as well be honest about the benefits you received last year.

Now, you may have had some taxes taken out of your unemployment benefits as you collected them. Typically, recipients of unemployment benefits can elect to have taxes withheld upfront, but that’s not required.

If you already paid taxes on your unemployment benefits, you may not owe the IRS more money as a result of having received those payments. But either way, you do need to report that income on your 2022 tax return.

How to know how much unemployment income to report

Ideally, you kept good records of the unemployment benefits you received last year so you can report on that income accurately when you file your 2022 tax return. But if not, don’t worry. You should receive Form 1099-G showing how much unemployment income you received in 2022 and how much tax, if any, was withheld from those payments.

Some states send this form out in the mail, while others make it available on their websites. If you collected unemployment benefits last year but are missing this form, make sure to go to your state’s website and aim to access it there so you can complete your tax return accurately.

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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.

 Read More