Money Management

Don’t file your taxes without reading this first. 

If you are eager to file your taxes in order to obtain a tax refund, a Feb. 3 alert from the IRS may bring unwelcome news.

The agency warned that if you received state stimulus funds in 2022, you may want to delay submitting your tax forms until there’s more clarity regarding whether you will be taxed on the money or not.

Here’s what you need to know if you got a stimulus check in your bank account last year.

State stimulus checks in 2022 are creating tax complications

In 2022, the federal government did not send out stimulus checks. However, a number of states did. If you received a payment last year, chances are good that it came from your state.

When the federal government issued checks, the money was considered an advance on a tax credit so there was no question about whether you would owe taxes on it or not. Because the stimulus money was a tax credit, it was not income and thus was not taxable.

Things are murkier when it comes to the state stimulus checks, though. In fact, the IRS is not yet clear on how the funds will be treated for tax purposes — although the recent news release the agency sent out made clear that the agency is trying to resolve open questions now.

“The IRS is aware of questions involving special tax refunds or payments made by states in 2022; we are working with state tax officials as quickly as possible to provide additional information and clarity for taxpayers,” the news release said. “There are a variety of state programs that distributed these payments in 2022 and the rules surrounding them are complex.”

Unfortunately, because this issue has not been resolved, anyone who got a state stimulus check should seriously consider putting off submitting their tax returns, according to the IRS.

“For taxpayers uncertain about the taxability of their state payments, the IRS recommends they wait until additional guidance is available,” the IRS statement reads. ” For taxpayers and tax preparers with questions, the best course of action is to wait for additional clarification on state payments rather than calling the IRS.”

Should you wait to file a return?

If you are affected by this announcement, it is worth heeding the advice of the IRS.

If you submit your tax return and the IRS later makes a decision on the taxability of your state payment that affects your taxes, you could otherwise find yourself having to submit an amended return down the road (or having to wait for the IRS to make an automatic correction). You could potentially find yourself having to pay back some of your refund if you ended up underpaying your taxes because you didn’t realize the stimulus from your state counted as income.

If you already submitted your 2022 return, though, you don’t want to try to make any changes yet. “We also do not recommend amending a previously filed 2022 return,” the IRS said.

So, while it may be frustrating, the best thing to do is to sit tight and wait for more guidance — even if that does mean putting off getting your refund for a little longer.

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Life insurance is particularly important for those leaving behind debt. 

Approximately 1 in 4 Americans have no life insurance coverage. There’s certainly no judgment here. After all, for a household living paycheck to paycheck, life insurance may feel like a luxury they simply cannot afford. Some folks may also assume they don’t need life insurance because they don’t have anyone in particular to name as a beneficiary.

This begs a question, though: What happens when someone dies without life insurance?

Who covers burial costs?

Depending on the state in which a person is buried, the average 2023 funeral costs from $6,700 to $15,000. Cremation with a service and viewing averages just shy of $7,000. Unless that person leaves funds to cover burial or cremation expenses, their family or friends will have to come up with the money.

Let’s say those left behind refuse to pay for a funeral. Arrangements must still be made to deal with the body. It’s up to the executor of the decedent’s estate to determine what those arrangements will be. If there is no executor named and no one steps up to take on the role of executor, the probate court will appoint someone. Typically, the court will go with the least expensive option, cremation with no lasting headstone or marker.

What happens to unpaid debts?

What happens to unpaid debts depends on two factors: If anyone else signed loan papers and where the decedent lived. Here are circumstances under which someone else will be responsible for paying debts after the death of a loved one.

If there was a joint account owner. Let’s say someone buys a boat with a friend or purchases a home with a spouse or partner. Since there’s a joint account owner, that person is responsible for paying the debt on their own.If there’s a cosigner. Imagine that the decedent was working toward increasing their credit score and, in the process, asked a parent to cosign on a loan. That cosigner is on the hook for paying the loan.The decedent resided in a specific state. If the person who died was married and lived in a state in which spouses share responsibility for specific marital debts, the surviving spouse would be responsible for debt repayment. Other states hold parents and spouses responsible for certain necessary costs, such as healthcare.

Who may be contacted

If there are outstanding debts, the family can expect to receive calls from debt collectors. According to the Federal Trade Commission (FTC), the law protects people from debt collectors who are abusive, unfair, or use deceptive practices. Here’s who debt collectors are allowed to contact under the Fair Debt Collection Practices Act (FDCPA):

SpouseParent, if the deceased was a minor childGuardianExecutor (if there is one)Estate administratorAnyone with the power to pay debts using assets from the decedent’s estate

Stand firm

Unless a person is a joint account owner, cosigner, or lives in a state that requires them to cover specific debts, they should never agree to pay debt held by the decedent. They are not legally bound to bow to pressure from debt collectors. They’re not even required to speak with a collection agency.

The first time a debt collector calls, the call recipient should take down their name and contact information. If they don’t want to hear from them again, they need to mail a letter saying that they do not want to be contacted again. They should make a copy for their files and send the original by certified mail. If they pay for a “return receipt,” they will have proof the debt collector received the letter.

Debt breakdown

Here, we provide a rundown of what happens to specific types of debt.

Credit card debt

If there is money in the estate, the credit card company will attempt to recover outstanding debt from those funds. If there is no estate, no will, and no assets, the debt will die with the debtor unless there is a joint account owner. In that case, the joint account holder is responsible.

Let’s say the decedent allowed someone to be an authorized user. That person was not a joint account owner and is not responsible for paying the debt.

Car loan debt

If the decedent left a car behind with a loan remaining, the family has a few options:

Allow the lender to repossess it.Sell the car and pay off the outstanding loan.Keep the vehicle and continue to pay what is owed.

If they decide to keep the vehicle, they will probably need to qualify as a borrower or apply for a new loan.

Medical debt

Medical bills are not forgiven when a person dies. If the amount owed is small, the provider may declare it uncollectible and close the account. If the decedent left a large outstanding balance, the provider may work to collect what is owed from the estate.

If the person who died was a minor, the parent is responsible for the bill.

The bottom line on dying without life insurance

There are circumstances under which dying without life insurance could work out. Let’s say a person is unmarried, has no dependents, carries no joint debt, and has enough money stashed away to cover funeral costs. The people they leave behind may not need death benefits to get by.

For those concerned about leaving their loved ones with a financial mess to untangle, it pays to shop for the least expensive term life policy available.

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Are you itching for a weekend project? 

As far as I’m concerned, one of the best things about buying a house is getting to change things about it whenever you want (if you have the money to do so, that is). I’m the kind of person who puts her own spin on rental homes, but I can’t wait to buy a place of my own so I can really settle in and make it my own.

While there are plenty of home projects and repairs you should definitely leave to a professional, there are certainly some you can tackle yourself, often in just a weekend. They’re also fairly inexpensive, meaning that if your home is starting to feel a little stale but you don’t have the dough for, say, a whole new kitchen, you can freshen things up with one of these projects instead.

1. Brighten your walls

While it’s certainly possible to mess up with paint, it’s also one of the most inexpensive and accessible home projects. You can roll over to your local hardware store, choose the right paint for your walls, and have it tinted any color you want (!). From there, just pick up some brushes, rollers, rags, tape, and drop cloths, and go to town.

If you’re interested in bringing some patterns into your life, consider using peel-and-stick wallpaper in some choice areas of your home. Wirecutter notes that this product is very user-friendly (it’s like a giant sticker, and you don’t have to worry about liquid adhesive like you would with traditional wallpaper), but it’s not intended to be a long-term wall covering. So if you like to change up the scenery at home frequently, this could be a great way to do so.

2. Beautify your kitchen

If you need a few years to save for the kitchen remodel of your dreams, you can take on some small tasks in just a weekend. While you’re at the hardware store, consider picking up some paint for your tired kitchen cabinets to give them a fresh new face. You can also swap out the hardware on those cabinets and drawers while you’re at it. And if you’re looking for an intermediate-level project, consider installing your own tile backsplash. This DIY project is a great way to give your kitchen a completely unique look.

3. Change up your floor

Another challenging but doable project is laying a laminate floor. Laminate is durable and comes in different colors and designs, meaning you’re sure to find the right fit for your home’s look. This Old House notes that this is an accessible project for many homeowners, depending on their level of comfort with using power tools.

4. Update your faucet

If you’ve got some plumbing chops and your old kitchen or bathroom faucet is driving you crazy, consider switching it out for a new one. Family Handyman states that this project isn’t hard, and it only requires hand tools like wrenches and pliers. Try to avoid going cheap on the purchase of your new faucet, however, especially if it will get a lot of heavy use.

You’ll have to save up or rely on a home equity line of credit or loan to pay for big projects, but don’t lose hope if your home is starting to feel a bit old and tired. These smaller jobs will give you that happy feeling of accomplishment without draining your bank account.

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Ignoring the problem is not going to make it go away. 

For some people, tax season is an exciting time. That’s because it often means getting a refund.

But what if that’s not the situation you’re in this year? Maybe you picked up a side hustle last year you did on a freelance basis. If you didn’t pay estimated taxes on that income, you might owe the IRS some money for 2022.

Similarly, maybe you made a boatload of money on interest in your savings account last year once rates started picking up. That, combined with a general uptick in income, could leave you owing money on your taxes this year rather than awaiting a refund.

Now it’s one thing to dip into your savings and pay off the IRS when you have a balance due. But if you don’t have the money to do that, you may be inclined to put off your tax return until you’ve accumulated the cash.

That, however, is pretty much the biggest mistake you can make in that situation, says Mark Steber, Chief Tax Information Officer at Jackson Hewitt. Here’s why.

Don’t make a bad situation even worse

Taxes are due this year on April 18. If you can’t pay your tax bill in full or at all, you may be inclined to just sit on your return until you have the money. But doing that could mean subjecting yourself to added penalties.

“The tax-filing obligation is separate from the tax-paying obligation,” explains Steber. And if you owe the IRS money and don’t file your return on time, you’ll be slapped with a specific failure to file penalty. Worse yet, that penalty is worth 5% per month or partial month you’re late with your return. So all told, it can add up quickly.

A much better bet, says Steber, is to file your tax return by the April 18 deadline and figure out a way to pay the IRS what you owe. If you can’t pay your tax bill in full by April 18, you will start to accumulate interest and penalties on your unpaid debt. But you’ll avoid the failure to file penalty.

Options for paying your tax bill

If you don’t have the cash to cover your tax bill, you may be able to put it on a credit card and get it over with. But in that case, the interest you pay on your credit card might well surpass the interest and penalties the IRS charges you for being late with your tax bill. So that may not be worth it. Plus, you’ll generally be charged a fee to use a credit card in the first place.

A better bet, therefore, may be to get on an installment payment plan. Steber explains that the IRS is actually pretty good about letting filers pay off their taxes over time. All you need to do is reach out and work out an arrangement.

But no matter what, make a point to file that tax return by April 18. And if you can’t, at least make sure to request a tax extension by April 18. That will give you an additional six months to complete your return without incurring a failure to file penalty.

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Why limit your money’s potential? 

It’s great to have choices, and that’s especially true when it comes to banking. There’s a great big world of banks to explore out there. You can keep your money with a traditional brick-and-mortar bank, where you might get to know all the tellers and visit regularly to access a safe deposit box. Or you could stick your cash into an online-only bank, where you’ll be dazzled by the 24/7 customer service chat and slick mobile app. You may even have a reason to dip your toes into offshore banking. Ultimately, it pays to take advantage of multiple banks. Here’s why.

1. It can be easier to save for big goals

If you have a lot of jobs for the money you’re bringing in, having multiple bank accounts with different institutions can be helpful. Let’s say you have a big savings goal, like a dream wedding or buying a house in the next few years. If you have a separate savings account at a different bank than you use for your bill-paying activities, you can funnel the money you’re saving over to the other bank and not have to worry that you’ll accidentally mix it up with the cash to cover your everyday expenses. If you automate savings transfers from one bank to another, it could make meeting your goals even easier.

2. You can keep separate finances if you’re married

If you’re married and intend to keep some of your finances separate from your spouse, you might each consider keeping the original checking account you entered the marriage with, and perhaps opening a joint account at a third bank that you can each add money to in order to pay joint bills like insurance or a mortgage. Having this separation in your finances is good, as you’ll each be free to spend your own money in the ways that make you happy while still coming together for shared financial goals.

Plus, women in abusive relationships are particularly subject to financial abuse (data from the Center for Financial Security at the University of Wisconsin-Madison found that 99% of domestic violence survivors had experienced financial abuse). Having your own bank account at a completely separate bank can offer additional protection.

3. Small business owners have different banking needs

If you own a small business, you’re already well aware of how important money management is to your success. Some banks offer better accounts and services for small businesses than others, so if you’re currently keeping both your personal and business checking accounts at the same institution, diversify! Chances are, your business banking activities are more involved than your personal ones, so find a bank that offers account management tools that can help your business grow and succeed, such as limits on spending for employee debit cards, if you have such a need.

4. You can take advantage of different banks’ benefits

The last great reason to use multiple banks is that you’ll get to reap different perks from different banks. For example, I currently have accounts with both a big national bank as well as a newer online-only bank. The national bank offers a huge variety of services, including auto and mortgage loans and excellent credit cards. It’s very convenient for me to keep bank accounts with this bank, as it’s easy for me to keep track of my credit card accounts with them at the same time.

But my online-only bank offers a high APY on savings accounts, so every time I get paid, I transfer the money I’m saving for quarterly freelance taxes and an eventual home purchase to that account, where I get to watch it grow even faster. If you’re considering opening a new account with a new bank, have a look at the best bank bonuses out there to see if you can make a little extra money in the process.

You work hard for your money, so give it the chance to grow and work hard for you. A great way to do that is by taking advantage of different banks and their account offerings.

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It really was for the best. 

All in all, I would characterize my first and only (so far) experience of homeownership as a disaster. I wasn’t emotionally or financially prepared to own a home at that time, as I was very young and had neither enough income/savings nor a settled enough career for it to be a good idea.

That said, I learned a lot through the process, and got some good experience of the various pitfalls an aspiring homeowner can encounter — such as canceling a contract on a home you intend to buy. Here’s how it went down and why I’m glad it happened.

In search of: one acceptable house to buy

If you’ve ever been house hunting before, you know what an arduous process it can be. I was fortunate enough to have a great real estate agent and at the time I was looking for homes (more than a decade ago), the city where I lived was smack in the middle of a buyer’s market. There were tons of houses for sale, but up until the point when I made my first accepted offer, nothing was quite right. In some cases, the MLS pages for certain homes made them look larger, nicer, or in better shape than they actually were, and when I actually went to view them in person, they weren’t right for me.

After a few weeks of checking out houses (and after getting a pre-approval for a mortgage from my bank), I thought I had found a winner. The house was about the right size, and in a neighborhood convenient to work and other vital aspects of my life. I was also getting tired of running around and looking at homes by then, to be honest (note: it’s never a good idea to settle on a big purchase like a house just because you’re tired of the process).

The home inspection revealed a big problem

After the offer was accepted, I scheduled a home inspection. My contract had an inspection contingency (meaning I was free to terminate or renegotiate it if the inspection turned up bad news with the house), and I learned the value of it. The inspector discovered that the back deck, which was attached to the second floor of the house, was structurally unsound and would need to be rebuilt if it was to be safe. Estimated cost? $15,000.

The home sellers were unwilling to offer any more than $1,500 toward the deck, and since I didn’t have cash savings to address it myself if I had truly wanted to, I elected to cancel the contract on the house instead. While I was a little depressed at the time, I soon realized this was for the best.

This wasn’t a tragedy

When I thought I was going to be buying that house, I was already trying to calculate how much it was going to cost me (remember, I had no money to actually make changes to the home) to have the textured walls (yuck) scraped, or replace the carpet in the bathroom (!) with tile. If you haven’t even closed on a home and you’re thinking about all the things wrong with it that you can’t imagine yourself living with for any length of time, it’s not the right house. Keep looking.

As it turned out, just a few days after ending the contract on the house, a new one hit the market that I actually did like. It was still a mistake for me to have bought it, and it didn’t end well, but I ended up living in that house for a little over two years. Best of all, I didn’t feel the need to change anything about it (a very good thing indeed — since I had no money to do so).

Since I’m hoping to buy again in the next few years, it’s been helpful to reflect on my last experience with mortgage loans, house hunting, and home inspections. When I’m ready to do it all again, I’ll go into it feeling much better prepared — and with a firmer grasp of what homeownership requires.

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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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