Money Management

You don’t want to make a mistake around such an important job. 

Now that the 2023 tax season is officially underway, you may be ready to start working on your tax return. The sooner you get your taxes done, the sooner you can expect your refund (if you’re due one) to hit your bank account.

Of course, today’s tax-filing software makes it possible for plenty of people to file their taxes themselves. But if your tax situation is at all complicated — say, you own a small business or are self-employed — then you may want to hire a professional to file your return for you.

A tax preparer might make the process of filing taxes less stressful. And also, they might know about certain tax laws that you don’t, resulting in a higher refund than you would’ve gotten on your own.

But if you’re going to hire a tax preparer, it’s important to find the right one. And sometimes, that means knowing who not to hire. Mark Steber, Chief Tax Information Officer at Jackson Hewitt, says if you meet with a new tax preparer and experience any of these situations, it’s a sign to run the other way.

1. Your tax preparer guarantees you a refund

Steber says to be on alert any time a tax preparer guarantees that you’ll get a refund. There’s no way, he explains, for a tax preparer to know if you’re due a refund until they actually look at your tax documents and assess your situation.

2. Your tax preparer doesn’t ask questions about your tax situation when giving you an estimate

It’s natural to want to know how much money you can expect to shell out for a tax preparer to file your return. But if you’re given an estimate without being asked about your personal tax situation, it’s a bad sign.

The cost of filing a tax return should hinge on factors like whether you run a business or are simply a salaried employee. If your tax preparer doesn’t ask those questions before giving you a number, the estimate you get may not be accurate.

3. Your tax preparer won’t give you an estimate of your costs at all

Steber says that any tax preparer who can’t give you an estimate of cost is someone to steer clear of. First of all, if you come in with your tax return from the previous year and your situation hasn’t changed, a tax preparer should be able to use that information as a basis for your estimate. And even if not, they should still be able to give you a range.

“Pricing should be an easy discussion,” Steber insists. If you don’t get a number, take your business elsewhere. And also, Steber warns, “Beware the person who waits for the refund amount before giving a price.”

4. Your tax preparer won’t sign your tax return

If your tax preparer won’t sign your tax return after completing it, that’s a really bad sign. Tax preparers actually have to sign a tax return if they’re getting paid to prepare it, says Steber. So ask upfront whether yours is willing to put their name on that document. And if not, run.

“We see a lot of these ghost preparers,” explains Steber. “They get aggressive and then they don’t want their name on your tax return.”

Remember, if a tax preparer claims deductions they shouldn’t, ultimately, you’re the only who will feel the backlash if your return gets audited. So don’t be willing to work with someone who will, as Steber puts it, leave you hanging with all the risk.

HIring a tax preparer could make tackling your return much easier. But steer clear of anyone who falls into the above categories.

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Few things are less fun than unexpected taxes. 

In unwelcome news, millions of Americans must suddenly wonder if they will have to pay taxes on stimulus money sent by their state. Whether payments were a tax refund, tax rebate, or inflation check, no one can agree on whether they will be taxed.

That’s where the Internal Revenue Service (IRS) comes in. Sometime this week, the IRS is expected to provide a clear answer as to whether a state-issued stimulus is considered taxable income for the 2022 tax year.

On Friday, the IRS released a statement saying that it’s working with state tax officials to provide clarity for taxpayers. What appears to be taking time is the number of checks that landed in bank accounts and how many states are involved. In total, 19 states introduced stimulus programs, each with its own set of rules.

IRS considerations

Millions of Americans have been issued a rebate, refund, or relief check by their state. These are the taxpayers potentially impacted by the IRS decision. If you’re one of those people, you likely have questions.

Unfortunately, it could be days before we have a definitive answer. Here are two of the most pressing questions the IRS must grapple with:

Will all state stimulus funds be treated the same, no matter how the checks were labeled? For example, is it possible that residents of one state will not be required to claim the payment because theirs was called a “tax rebate,” while recipients in another state have to claim the funds because theirs was called “inflation relief?”Does it matter how much money recipients earn per year? Some states sent checks to all residents, including those with plenty in their savings accounts and brokerage accounts. Will high-income individuals be required to pay taxes while others are not?

What to do now

If you’ve already filed your 2022 tax return, wait for the IRS decision before making your next move. As mentioned, the decision that comes down will depend upon several factors. Per the IRS: “We also do not recommend amending a previously filed 2022 return.”

Steps to take if you’re hit with taxes

If word comes down that state-issued stimulus checks are considered taxable income, don’t worry. No one wants to pay more in taxes than expected. Here are three often-overlooked tips for reducing your tax obligation:

Revisit your filing status. If you’re unmarried but have a qualifying dependent, investigate whether filing as head of household may reduce your tax obligation. Children are not your only potential dependent. You may also be able to file as head of household if you paid more than half the cost of keeping a home for an elderly parent and that was the main home for you and your parent for more than 50% of the tax year.Remember charitable contributions. It’s not just significant contributions that count. Scan your 2022 bank statements to identify all contributions. Did you donate cupcakes to a fundraiser at your child’s school? You can deduct the expense of making those cupcakes. Whether you’re donating $200 a month to a food bank or $12 a month to an animal rescue organization, donations quickly add up.Make year-end contributions. 2022 may have ended on Dec. 31, but you have until April 18, 2023, to make final contributions to your traditional or Roth individual retirement account (IRA). You can plump up your Solo 401(k) if you’re self-employed. Those funds are “pre-tax,” meaning contributions will not be taxed until you withdraw from your retirement account.

The good news is that once the IRS has made its final decision, you’ll still have plenty of time to get your 2022 tax return filed, amended, or adjusted.

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It’s good to leave yourself with a small cushion to access cash on the spot. 

Your checking account and your savings account should serve two different purposes. Your checking account should contain money for the purpose of paying ongoing bills, whether it’s your mortgage, your cable bill, or your tab at the supermarket.

Your savings account, meanwhile, is where you should be keeping money for unplanned expenses as well as near-term goals. If you’re trying to sock away a down payment to buy a home, for example, your savings account is the best place for that cash.

Perhaps you’re thinking of taking all of your money out of your checking account and putting it into your savings account. That way, you may be less tempted to touch it. But just as importantly, you’re apt to earn a much higher interest rate on money in a savings account than in a checking account.

These days, in fact, a number of high-yield savings accounts are paying interest upward of 4%. Compare that to the 0% interest rate you might be getting in your checking account, and it’s easy to see why you wouldn’t want to keep a whole lot of cash there. But while moving all of your money from a checking account to a savings account might seem like a good bet, it’s a move that could actually backfire on you.

You need that cushion

Let’s say you typically earn enough money each month to cover your bills in full. You might assume it’s safe to empty out your checking account, since your incoming paychecks should be enough to satisfy your various obligations.

But remember, you never know when an unplanned expense might arise. And so it’s a good idea to have a little extra cash in your checking account for those unanticipated expenses.

Now, you may be thinking, “Oh, well in that case, I’ll just transfer money from my savings account to my checking account, and it won’t be a problem.” And in some situations, that logic works.

Let’s say you have a checking account and a savings account at the same institution. You may have the option to transfer money back and forth between the two accounts instantly. So in that case, leaving your checking account empty isn’t necessarily the worst move.

But if you don’t have both accounts at the same bank, it could take several days to transfer money from one account to the other. And in an emergency situation, you may not have several days. And so a better bet is to leave yourself a cushion in your checking account, whether it’s an extra $500, $1,000, or $2,000.

Also, you never know when you might write a check, forget about it, and have its recipient sit on it for weeks before cashing it. If you move all of your money out of your checking account, and then someone cashes a $300 check you wrote, you could run into a serious problem.

A $0 balance isn’t ideal

You definitely don’t have to keep thousands of dollars in a checking account. But it pays to keep a little extra beyond what you need to pay your bills. This especially holds true if you can’t move money from your savings account into your checking account in an instant.

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It is possible to save money, despite rising insurance rates. 

Auto insurance rates have continued to rise, with a nearly 14% increase (13.72%) from 2022 to 2023. According to a recent report, the true cost of auto insurance this year is higher than ever before. With high inflation and the cost of living skyrocketing, it’s no wonder so many drivers are looking for ways to lower their car insurance premiums. Here is what’s causing the increases in auto insurance rates and how you can save on your car insurance.

What’s driving the increases?

One of the causes for the rise in auto insurance rates is the increasing cost of parts and labor to make repairs. The cost of auto parts have gone up due to supply chain disruptions and the demand for auto technicians is five times higher than the supply. Additionally, more people have been getting into accidents, resulting in increased claims activity. Medical costs resulting from car accidents are also higher. This has caused insurers to raise their premiums in order to offset these increased costs.

Where are the biggest changes?

The biggest changes were seen primarily in states including Florida, Michigan, Nevada, Alaska, and Illinois. These states saw the greatest premium increase with double-digit increases from 2022 to 2023. Two states saw average premiums go down, New Jersey and Massachusetts. The average American spends about 3% of their income on car insurance.

New York, Florida, Louisiania, Kentucky, and Alaska have the highest percentage of average income spent on a full coverage car insurance policy. These states have either a high number of cars, or are in states with a higher chance of natural disasters. Maine, Vermont, New Hampshire, Idaho, and Connecticut have the lowest.

How can drivers save on auto insurance?

Although it may seem like you’re stuck paying high rates for your car insurance, there are still ways drivers can save money on premium costs. One of the best ways is to shop around and compare quotes from different insurers to get a better rate for coverage. Additionally, it’s worth it for drivers to look into any discounts offered by insurers, such as safe driver discounts or student discounts. Qualifying for these could help drivers further reduce their costs.

Other discounts such as low mileage or work from home discounts are also available depending on your circumstances, so be sure to ask about those as well. For those who don’t drive much at all, getting a pay-per-mile auto insurance policy may save more than $1,000 per year.

The cost of auto insurance continues to rise each year, making it increasingly difficult for many drivers to afford their coverage. Fortunately, there are still ways to save money on car insurance, such as shopping around and looking into any discounts (such as those for safe drivers or current students) offered by insurers. By following these steps, you can ensure that you’re getting the best rate possible despite rising costs.

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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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The term “data breach” can be scary, but it’s important to know exactly what you’re dealing with. 

Credit card data breaches are in the headlines far too often these days. In 2020 alone, there were 1,108 data breaches in the United States, and this was fewer than in previous years. Perhaps the most notorious incident was the breach on credit bureau Equifax in 2017, which exposed personal data of 143 million people, including information on hundreds of thousands of credit cards.

More recently, late 2021 cyberattacks on several popular sporting goods sites saw 1.8 million customers’ payment information compromised. And just this past October, U.S. Bank revealed that about 11,000 customers had their identifying information accidentally shared by a third party vendor.

The point is that data breaches are very common, and come in various forms and sizes. But when a credit card number or other sensitive information is affected by a data breach, it’s important to do some damage control, but it’s also important not to panic.

Steps you can take after a data breach

To be perfectly clear, data breaches should be taken seriously. If you find out that your Social Security number and/or credit card account numbers were stolen or exposed, it does open you up to identity theft. However, closing your credit card account usually isn’t necessary, nor is it the most effective remedy. After all, if a thief has your Social Security number, the bigger worry is new accounts being opened in your name, not that they’ll use your existing credit cards for fraudulent purchases.

With that in mind, here are some things you can do to protect yourself after a data breach. Keep in mind that not all of these will apply in every situation, but these are some of the tools at your disposal.

Request a new credit card

Most credit card companies will do this automatically if they are breached. But if a third party (like a retailer) suffers a data breach where your credit card information is stolen, you might want to report the card stolen and request a new one, with a new credit card number. To be clear, there’s no need to cancel your account. Getting a card with a new number makes the old one useless to a thief.

Utilize credit monitoring

In most cases, when a company is responsible for a data breach, it offers free access to an online credit monitoring service for a certain length of time. (Note: It’s not a bad idea to enroll in a reputable credit monitoring service even if you haven’t been affected by a data breach.)

Place a fraud alert on your credit

If information beyond your credit card number has been exposed, such as your Social Security number or date of birth, a fraud alert could be a smart proactive step. Setting up a fraud alert is free and you can place it directly with one of the three credit bureaus (they’ll alert the other two). In a nutshell, a fraud alert lets lenders know to take extra steps to verify your identity when credit is applied for in your name, making it tougher for thieves to open fraudulent accounts.

Freeze your credit

This is a more dramatic step, and could be a good idea if someone has already tried to open a credit account in your name. A credit freeze essentially denies access to your credit report entirely, making it impossible to open accounts in your name. These can be set up for free with the credit bureaus, and you’ll need to do it individually with all three of them.

The bottom line on credit cards and data breaches

There are two important takeaways here. First, every data breach is a unique situation, so there isn’t a one-size-fits-all solution if one happens to you. Second, while data breaches are certainly an inconvenience, there are relatively easy steps you can take to protect yourself if one happens. By acting quickly and appropriately, there is usually no need to cancel your credit card after a data breach, but there are some other smart ways to make sure the data breach doesn’t become anything more than a mild inconvenience.

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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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