Money Management

Buying into these could be bad news. 

The tax code is lengthy and complicated. And chances are, you’ve never actually sat down to read it through in its entirety (because maybe you’d rather do, well, just about anything else with your free time).

But because the tax code is so complex, there’s a lot of misinformation about taxes that tends to float around on the internet. And some of that bad information might make its way to you. With that in mind, here are a few tax myths you really don’t want to buy into.

1. You can claim a home office deduction if you work remotely

These days, a lot of people are still working from home in the wake of the COVID-19 pandemic — some on a full-time basis. If that’s the case, and you’ve carved out an area of your home for a dedicated office, you may be inclined to use that as a tax write-off. Don’t.

Self-employed workers and small business owners can claim a home office deduction if they qualify by having a dedicated space for work purposes that constitutes their primary business location. But that tax deduction is not available to anyone who’s a salaried employee.

2. Claiming a home office deduction will lead to an audit

The idea of getting audited can be scary. And you may have heard that if you claim a home office deduction, it could increase your chances of the IRS further examining your tax return. But Mark Steber, Chief Tax Information Officer at Jackson Hewitt, says that if you’re entitled to a home office deduction, you shouldn’t hesitate to claim it.

The same holds true for any other legitimate deduction you’re able to claim on your taxes. If you spent $3,000 on a laptop because you needed a business-grade model to do your job, claim your tax break. Even if the IRS does audit your return, if you can provide documentation in support of the deductions you took, nothing bad might come of it.

3. It’s good to get as large a tax refund as possible

Some people intentionally withhold extra money from their paychecks to snag as high a tax refund as possible. But that can be a costly mistake.

When you forgo money in your paychecks, you put yourself at risk of falling behind on bills and having to carry credit card balances to cover your expenses. But those credit card bills can cost you a lot of money in interest.

Rather than aim for the largest refund possible, aim to break even, or get as close as possible. Your goal should be to have enough tax withheld from your earnings so you’re not collecting a lot of money from the IRS during tax season, but you’re also not writing out a large check.

Getting to the bottom of tax myths isn’t always easy. If there are aspects of tax law you’re confused about, talk to an accountant. They’re the ones who know the tax code inside and out, and they’re in a great position to give you advice on how to manage your tax situation.

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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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It might happen, but even if it doesn’t, you might consider buying a home anyway. 

Although buying a home was not an easy prospect in 2021, those in the market had one thing going for them — low mortgage rates. But borrowing rates on mortgage loans rose sharply in 2022, and during the latter part of the year, the average 30-year mortgage rate climbed above 7%.

But thankfully, mortgage rates have been dropping in 2023. And as of this writing, the average 30-year mortgage rate is 6.09%, according to Freddie Mac.

If this trend continues, it’s possible that mortgage borrowers will be able to sign a 30-year loan for under 6% at some point this month. But even if that doesn’t happen, it could pay to buy a home nonetheless.

Rates could continue to drop

A decline in mortgage rates could boil down to supply and demand. It’s not shocking that demand for homes has dropped, given the tough housing market conditions buyers are looking at. Mortgage lenders may be getting desperate to ramp up business, and lowering borrowing rates is a good way to go about that.

Between that and the general trends we’ve seen over the past five weeks, it’s not unreasonable to think that buyers who sign a 30-year mortgage could end up locking in rates at under 6% before the end of the month. Granted, we’re probably not going to see rates hit the low 5% range all that soon. But a mortgage in the upper 5% range isn’t all that bad given the rates we’ve seen over the past six months.

Should you wait for mortgage rates to drop to buy a home?

Not necessarily. First of all, we can really only speculate about the direction mortgage rates will trend in.

There’s reason to think mortgage rates will continue to drop, but that may not happen. And so rather than try to time your home purchase to coincide with when rates look like a bargain, a better bet is to make an offer on a home and sign a mortgage when you find a property that checks off all the right boxes and fits comfortably into your budget.

As a general rule, you should not spend more than 30% of your take-home pay on housing. And that includes your mortgage payment, homeowners insurance, property taxes, and any other predictable monthly cost. But if you’re able to afford a home based on this guideline, then it could pay to move forward with a purchase even if you end up with a mortgage rate that’s higher than you would’ve liked.

In time, mortgage rates could drop to the point where you’ll be looking at a 30-year mortgage in the 3% or 4% range again. And once that happens, you can look to refinance your loan. So whether mortgage rates dip below 6% or not this month, the reality is that if you’re financially ready to buy a home and you come across a property you love, you shouldn’t force yourself to wait — and run the risk of losing out on a home you could otherwise see yourself living in happily.

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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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When you think about it, it doesn’t make a whole lot of sense. 

January’s highly anticipated jobs report was loaded with positive news. Not only did the U.S. economy pick up a whopping 517,000 jobs last month, but the national unemployment level fell to 3.4%. That’s the lowest record on level since 1969.

All of this should help the public ease up a bit on recession fears. After all, if companies have money to hire with and jobs are being added, it means we shouldn’t see a drastic near-term decline in consumer spending. And if consumer spending holds steady, we shouldn’t end up with a broad economic decline on our hands.

But despite the positive labor market news, stocks slumped on the heels of it. And if you’re thinking that doesn’t make any sense, well, you’d be right, to some degree.

Why stocks faltered after a positive jobs report

You’d think that any sort of positive economic news would send stock values soaring. But this isn’t the first time a favorable jobs report has caused stocks to slump, and it may not be the last.

The reason stocks fell following the January jobs report is that an uptick in jobs is reason to believe that inflation levels will remain high. The reason we’re in our current inflation-related mess is that consumers have money to spend, and there’s not enough supply to keep up with demand. For that gap to be bridged, consumer spending needs to decline.

In fact, the whole reason the Federal Reserve keeps raising interest rates is that it wants to make it more expensive for consumers to borrow money, whether in the form of a personal loan or credit card balance. If consumers don’t want to grapple with sky-high interest rates, they can opt to spend less, thereby bringing inflation down.

But when we have a situation where more than half a million jobs are added to the economy in a single month, it lends to the idea that we’re not about to encounter a notable drop in broad consumer spending. And that’s why stocks took a dive today.

Don’t panic over market movement

Whether you’ve had your brokerage account open for a few months or a few years, you’ve probably noticed that the stock market can be very fickle. And that’s why unexpected drops like this really shouldn’t rattle you.

Maybe you expected stock values to climb following a positive jobs report. But it’s okay that they didn’t, because if your plan is to hold onto your investments for many years, you have plenty of time to see their value rise eventually.

In fact, one of the best things you can do as an investor is exercise patience and commit to hanging onto your stocks over a long period of time. If you take a long-term approach to investing, you’ll be less likely to get rattled every time the market does something that surprises you.

All told, it can be frustrating when stocks react poorly to positive news. But a good rule of thumb to follow as an investor is to expect the unexpected. If you do that and pledge to hang onto your stocks for many years, you won’t be thrown for a loop the next time something similar happens.

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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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