Markus Andrews

Smart Tax Planning

The deadline to file a federal tax return is Tuesday, April 18, for most Americans.
The IRS had issued about 54 million refunds worth roughly $158 billion as of March 17.
Here’s what late filers should know about common mistakes, tax extensions and penalties.

Songsak Rohprasit | Moment | Getty Images

This is an excerpt from the Personal Finance team’s weekly Twitter Space, “This week, your wallet.” Check out the latest episode here.
Tax Day is fast approaching. The deadline to file a federal tax return for most Americans is just over two weeks away, on Tuesday, April 18.

Here’s what late filers need to know, according to CNBC’s Kate Dore, a personal finance reporter and certified financial planner.

1. You may be able to get free help preparing your return

Certain taxpayers can leverage free resources when filing a return.
For example, the IRS Free File program offers free, guided tax preparation online. The program, delivered via a public-private partnership, is available to taxpayers with an annual adjusted gross income of $73,000 or less in 2022.
Free File is available to 70% of taxpayers, but few use it — and they may inadvertently pay to file a return.

2. Your tax refund may be smaller this year

The IRS had issued 54 million refunds as of March 17. About 75% of the processed tax returns have gotten a refund.

The average refund was $2,933, compared with $3,305 at the same point last year. The reduction is tied to expired pandemic-era aid such as boosted child tax credit and earned income tax credit payments, for example.

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3. Common mistakes may trip you up

Common mistakes on a tax return might delay processing of the return or a refund you’re owed.
Among the biggest: Missing tax forms.
That might occur, for example, if you’re a gig economy worker who received a 1099 form but didn’t report that income on your tax return. Or perhaps you didn’t report investment income because you didn’t get a copy of your form in the mail — though it’s likely available online.
However, the IRS receives copies of those tax forms and knows if that information is missing on your return.
Other common mistakes include incorrect spelling or digits for your name, birthdate, Social Security number, or bank account and routing number information.
Not filing electronically and not asking for direct deposit may also delay your tax refund.

4. You can get an extension to file — but not to pay

Taxpayers can request a six-month extension to file their federal return.
This might make sense if you’re missing a tax form, for example. Taxpayers can request an extension for free online via IRS Free File regardless of their income.
The kicker: You can’t get an extension to pay your federal tax bill. You must pay that bill by the April 18 deadline. You can estimate that bill by going through the process on tax software and using estimates for missing forms.
Another caveat: Taxpayers who ask for a federal extension must request one separately for their state tax return.

5. There are penalties for not filing and not paying

The IRS levies financial penalties for failing to file a return, and for failing to pay your taxes.
Not filing a return results in a penalty of 5% of your unpaid balance per month or part of a month, up to 25%, plus interest, which is currently 7%.
Failing to pay a tax bill results in a lesser 0.5% penalty of your unpaid balance per month or part of a month, up to 25%, plus interest.
If you can’t afford to cover your full balance, you may apply for an installment agreement, a long-term monthly payment plan. More

Ask an Advisor

We’re in a period of high uncertainty and many “people are pretty afraid right now,” said Brad Klontz, a psychologist and certified financial planner.
That fear can lead people to make money moves they’ll regret.

With high inflation, the threat of a recession and ongoing market volatility, we’re in a period of high financial uncertainty. Understandably, many investors “are pretty afraid right now,” said Brad Klontz, a psychologist and certified financial planner.
And when we’re stressed, our frame of reference tends to become short, said Klontz, who is also a member of CNBC’s Financial Advisor Council. In other words: The uncomfortable moment feels like the only thing that matters.

While that tendency is a survival mechanism that’s helped us act in stressful situations, Klontz said, it can make us do the “absolutely wrong thing when it comes to investing.”
Instead of acting impulsively with your money, take these two steps, Klontz said.

1. Remind yourself why you’re investing

Most of us are long-term investors, Klontz said. “Does looking at a really narrow frame of reference make sense for you?” he asked.
If you’re investing for retirement, you may not need that money for decades, and so the answer is no. What’s happening with the S&P 500 over a few months, or even a few years, shouldn’t matter too much.
Zooming out, the average annual return on stocks was around 8% between 1900 and 2017, after adjusting for inflation, according to Steve Hanke, a professor of applied economics at Johns Hopkins University in Baltimore.

More from Ask an Advisor

Here are more FA Council perspectives on how to navigate this economy while building wealth.

Simply put, if you can’t withstand the bad days in the market, you’ll also lose out on the good ones, experts say.
Over the last roughly 20 years, the S&P 500 produced an average annual return of around 6%. If you missed the best 20 days in the market over that time span because you became convinced you should sell, and then reinvested later, your return would shrivel to just 0.1%, according to an analysis by Charles Schwab.

2. Ask yourself: What is the money for?

Of course, most people aren’t saving and investing only for long-term goals like retirement. If market volatility is causing you a lot of stress, you may need to make adjustments.
If you’re investing in the market for a shorter-term goal like buying a car or house, “there’s a good chance you’re going to get hurt,” Klontz said. “When you need that money, it might be down 10%, 20% or more.”

Ivan Pantic | E+ | Getty Images More

Nearly one quarter of all couples are primarily staying in their current relationships due to financial dependency, according to a new report.
There can be varying degrees of financial entanglements, but couples should be on the same page and on equal footing, experts say.

Marriage is a union of love, but it’s also an economic arrangement.

Stacy Francis
CEO of Francis Financial

“Marriage is a union of love, but it’s also an economic arrangement,” Francis said, “and we don’t think about the money part until there are issues and problems.”

Why a ‘yours, mine and ours’ account setup is smart

Experts say there’s generally not a right or wrong way for couples to manage their assets, as long as they are on the same page.
There can be varying degrees of financial entanglements. About 62% of couples who are married, in a civil partnership or living together share at least one account, LendingTree found. Fewer — roughly 41% — completely combine funds. 
Francis recommends “having yours, mine and ours,” so each person has their own money in additional to a joint account that they each contribute to — “typically as a percentage of your salary that goes to joint expenses.”
Co-mingling an account may lead to less frequent fights about money, LendingTree also found. Of those who share at least one account, only 12% said financial issues caused problems with their partner, compared to 15% of those who don’t have a shared account.
“By sharing an account, it gives each partner equal visibility into what’s going on in that account,” said Matt Schulz, LendingTree’s chief credit analyst. “That can help grow trust within the relationship.”
Further, 58% of those who share at least one bank account said they stayed together after a financial argument, compared to only 47% of those who don’t have a shared account.

Those who choose to pool their money together could still benefit from setting aside time to discuss where they are with their finances and where they would like to go.
“Openness, honesty and transparency are crucial for a relationship’s success, and that’s certainly true when it comes to money,” Schulz said.
Francis recommends “financial date nights,” a routine she still adheres to in her own home, to discuss savings goals, big expenses and future plans.
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Smart Tax Planning

If you’re a freelancer or gig economy worker, there’s still time to reduce your tax bill by opening a solo 401(k) plan and making a 2022 contribution.
Secure 2.0 improved these plans, allowing you to establish and fund one after the tax year ends.

Marko Geber | DigitalVision | Getty Images

If you’re a freelancer or contract worker, there are still ways to lower your 2022 tax bill — including contributions to a retirement plan improved by legislation passed in December.
One of the provisions from Secure 2.0 included a change to solo 401(k) plans, designed for self-employed workers (and possibly spouses) or business owners with no employees. 

Like standard 401(k) plans, there’s a deduction for pretax solo 401(k) contributions. But since solo 401(k) account owners can make deposits as both the employee and employer, there’s a chance to save more. 
Before 2022, you needed to open a solo 401(k) by Dec. 31 for current-year deposits. But Secure 2.0 extended the deadline, allowing you to establish a plan after the end of the taxable year and before your filing due date.
“It was a huge game changer for us when we saw that come through,” said Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.

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Previously, when single-employee businesses wanted to open a retirement plan after the calendar year, Lucas may have opted for simplified employee pension plans, also known as SEP individual retirement accounts, or SEP IRAs, another option for self-employed workers.
However, since the recent legislative change, his company “almost always” picks the solo 401(k) because clients may have the ability to contribute more.

Solo 401(k) contribution limits

For 2022, you can contribute the lesser of up to $20,500, or 100% of compensation into a solo 401(k) as an employee. (You can save $6,500 more if you’re 50 or older.) Plus, on the employer side, you can contribute up to 25% of compensation, for a plan maximum of $61,000.
By contrast, SEP IRA contributions can’t exceed 25% of the employee’s compensation or up to $61,000 for 2022.

Previously, you could make employer contributions after the tax year ended if the solo 401(k) was already open. Secure 2.0 approved retroactive solo 401(k) account openings in 2023 while still allowing employer contributions by the tax deadline.
By the 2024 tax season, you’ll also be able to make 2023 employee deferrals into your solo 401(k) after the tax year ends, according to John Loyd, a CFP and owner at The Wealth Planner in Fort Worth, Texas. He is also an enrolled agent. 
Of course, picking the right retirement plan may depend on other factors, such as future employees or plan rules. “But it’s mostly dependent on their net income,” he said. More

Recent banking woes have made a recession more likely, while lenders will make it more difficult to borrow money, personal finance expert Suze Orman told CNBC.com.
That means having cash set aside for an emergency is “absolutely vital,” she said.

Suze Orman
Nathan Congleton | NBC | Getty Images

The recent failures of Silicon Valley Bank and Signature Bank have made a recession more possible — and that means it’s more important than ever to have emergency savings set aside, according to personal finance expert Suze Orman.
“Because of what is happening with banks, it is obvious that a recession is more likely coming than not,” Orman told CNBC.com in an interview.

Moreover, creditors will most likely tighten their lending standards, which may make it harder for consumers to access new loans or lines of credit, she said.
“Everything is going to tighten up,” Orman said.
Evidence that a shift is underway can already be seen with companies such as Amazon announcing mass layoffs, she said.
To prepare for the new economic reality, there is one crucial step individuals should take, she said.

“There has never been a time that as much as right here and right now in the recent past that an emergency savings account is vital, absolutely vital,” Orman said.

Experts generally recommend setting aside at least three to six months’ expenses in case of an emergency.
Orman has made it her mission to get more people to save money in case of emergencies. In 2020, she co-founded SecureSave, a company working with employers to provide emergency savings accounts to employees.
The focus, she said, is not new.
“If you go back through my entire history of almost 40 years now, I’ve been [saying] emergency savings, emergency savings, emergency savings,” Orman said.
But now is the first time that goal is as urgent as it was in 2008, she said.

How your emergency fund deposits are insured

An important part of emergency savings is easy access, which means most people are looking at some kind of high-yield savings account. The recent bank failures have inspired a new focus on whether deposits — including your emergency fund — are insured.
Generally, the Federal Deposit Insurance Corporation guarantees up to $250,000 per depositor, per insured bank, per account ownership category.
For deposits at federally insured credit unions under the National Credit Union Administration, the terms are similar. The typical coverage amount is $250,000 per share owner, per insured credit union per account ownership category.
Consumers should be mindful there are eight categories of accounts to which the $250,000 coverage applies, according to Orman. That includes individual deposit accounts, such as checking, savings and certificates of deposit; some retirement accounts, such as individual retirement accounts; joint accounts; revocable trust accounts; irrevocable trust accounts; employee benefit plan accounts; corporation, partnership or unincorporated association accounts; and government accounts.
Of note, you do have to have your money in bank or credit union accounts to which the federal coverage applies, according to Orman. Investments such as stocks, bonds, mutual funds or annuities are generally not covered by federal insurance, even if you purchase them from a bank or credit union.
The $250,000 limit was established by post-financial crisis legislation in 2010.
However, uninsured deposits above that threshold were guaranteed for the recent bank failures. Both President Joe Biden and Treasury Secretary Janet Yellen have said that could be adjusted again, if the situation calls for it.
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In the meantime, you do not necessarily have to move your money to another financial institution to have deposits over $250,000 insured, Orman emphasized.
Because the coverage is per account category, you may also amplify the amount of insured balances by having different kinds of accounts, such as savings, IRA or trust accounts, she said. Generally, deposit accounts are eligible for $250,000 coverage for the sum of accounts at an institution in this category, which includes checking accounts, savings accounts, certificates of deposit or money market deposit accounts.
However, if you have a joint account where you are a 50% owner, you may get another $250,000 of protection. The same goes if you have a trust account or an IRA account that invests in savings vehicles such as CDs or money markets. IRAs invested in stocks, bonds or mutual funds do not qualify.
Additionally, by adding two or more beneficiaries, you can get an additional $250,000 in coverage per beneficiary, as long as the account’s deposits are eligible for protection, she said. The maximum per account is five beneficiaries, or $1.25 million. This applies to revocable or irrevocable trust or custodial accounts, she noted.
Online tools can help you assess your FDIC and NCUA coverage.

Who needs to worry now

The bigger concern people should worry about is what financially may happen as time goes on, Orman said.
“For those people who don’t have any savings at all, they now really, really need to be worried,” Orman said.
We are now living in a “very, very, very precarious time — almost more precarious than the pandemic,” she said.
As expenses have gone up, people’s savings have diminished. Meanwhile, people have taken on more debt, and there are signs that some lenders are starting to tighten standards.
But today’s banking woes are “very, very different than 2008,” Orman said.
“In 2008, you had all those loans that nobody knew how to value,” she said.
Today, most people have their money insured.
“So individuals with money in a bank or credit union, I would not be afraid,” Orman said.
But you do need to remember the only person who can save you is you, she said.
That goes for making sure your money is safe and sound, that you are saving for emergencies, that you are investing for retirement, that you are getting out of debt, that you are living below your means and that you are getting more pleasure from saving than spending.
“Who is going to do that for you? Nobody but you,” Orman said. More

This year, “Ivy Day” — when many Ivy League schools release admissions decisions — falls on March 30.
Although acceptance into the Ivy League is considered highly desirable, this year’s ultimate “dream” college is Massachusetts Institute of Technology, according to The Princeton Review.
Now, students have just a few weeks to figure out where they will go and how they will pay for it.

March 30 is “Ivy Day,” when many Ivy League schools release those long-awaited admissions decisions.
More than ever, acceptance into the Ivy League is considered highly desirable; however, when it comes to this year’s ultimate dream school, Massachusetts Institute of Technology comes out on top, according to a recent survey of college-bound students and their families by The Princeton Review.

The colleges that ranked the highest on students’ wish lists are “perennial favorites,” according to Robert Franek, The Princeton Review’s editor-in-chief. They are also among the most competitive: MIT’s acceptance rate is just under 4%; at Harvard, it’s about 3%.

Coming out of the pandemic, a small group of universities, including many in the Ivy League, have experienced a record-breaking increase in applications this season, according to a report by the Common Application.
The report found application volume jumped 30% since the 2019-20 school year, even as enrollment has slumped nationwide.
“There’s a subconscious consensus that it’s only worth going to college if you can go to a life-changing college,” said Hafeez Lakhani, founder and president of Lakhani Coaching in New York. 
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For students who don’t get in to their top choice, use this opportunity to revisit other schools or consider transferring down the road, advised Eric Greenberg, president of Greenberg Educational Group, a New York-based consulting firm. “Realize that you are really making a one-year commitment.”
This can also serve as an important lesson for future applicants, according to Christopher Rim, president and CEO of Command Education. “It’s not just about having top grades and test scores,” he said.
“Decision letters from top schools are a reminder of the importance of crafting a balanced college list, honing their interests to convey a singularity of focus, and starting early in the process.”

National College Decision Day is only weeks away

Now, students have just a few weeks to figure out which college they will attend ahead of National College Decision Day on May 1, as well as how they will pay for it. 
Most college-bound students and their parents say affordability and dealing with the debt burden that often goes hand in hand with a college diploma is their top concern, even over getting into their first-choice school, according to The Princeton Review’s 2023 College Hopes & Worries survey.
A whopping 98% of families said financial aid would be necessary to pay for college and 82% said it was “extremely” or “very” necessary, The Princeton Review found.
“Financial aid is more a necessity now than ever,” Franek said.  

Arrows pointing outwards

Don’t just look at the sticker price

“Never cross an expensive school off of your list of consideration based on sticker price alone,” Franek said. Consider the amount of aid available, since private schools typically have more money to spend.
“Many of those schools are giving out substantial scholarships — this is free money.”
For example, even though MIT is among the nation’s priciest institutions — tuition and fees, room and board and other student expenses came to more than $79,000 this year — it also offers generous aid packages for those who qualify.
Last year, the average annual price paid by a student who received financial aid was less than $20,000, according to the school. 
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Smart Tax Planning

While the chances of an IRS audit have been slim, the agency may scrutinize your return for several reasons.
Some red flags for an audit are round numbers, missing income, excessive deductions or credits, unreported income and refundable tax credits.
The best defense is proper documentation and receipts, tax experts say.

Jeffrey Coolidge | Photodisc | Getty Images

This tax season, there have been heightened concerns about IRS audits as the agency begins to deploy its nearly $80 billion in funding.
While the IRS plans to hire more workers, including enforcement agents, experts say there’s no need to worry — as long as you keep proper documentation.

Still, certain red flags are more likely to trigger an IRS audit, experts say. “Round numbers are a dead giveaway,” said Preeti Shah, a certified financial planner at Enlight Financial in Hamilton, New Jersey. She is also a certified public accountant.
Here’s why round numbers catch the agency’s attention, and three more closely watched factors.

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1. Round numbers

When claiming tax breaks, it’s important to use accurate numbers rather than estimates on your return, experts say. Round numbers indicate you’re estimating.
For example, if you’re a sole proprietor with $5,000 for advertising, $3,000 for legal expenses and $2,000 for support, “the IRS knows you’re just winging it,” Shah said.

2. Missing income 

A key issue that may trigger an IRS audit is missing income, according to John Apisa, a CPA and partner at PKF O’Connor Davies LLP.

Your tax return must match the income reported by companies and financial institutions or you may get an automated notice from the IRS. For example, it may be easy to skip Form 1099-NEC for contract work or Form 1099-B for investment earnings, he said. 
You should wait to file until you have all your documentation in hand and check to make sure what you entered matches what’s on the forms. “You have to be careful, even with the simpler stuff,” Apisa said. 

3. Excessive tax breaks compared to income

Another possible tipoff is attempting to claim credits or deductions that seem too high when compared to your income, Apisa said. 
When your tax breaks don’t align with what’s expected for your income level, “there’s usually a flag there,” he said. For example, if you have $90,000 of earnings with $60,000 in charitable deductions, that may set off an alarm in the IRS system, he said.

4. Earned income tax credit

The IRS has also examined refundable credits, which can provide a refund even when the credit value exceeds taxes owed.
While audits have declined overall, the drop has been lower for filers claiming the earned income tax credit, or EITC, targeted at low- to middle-income workers. “That’s usually one of the ones that gets scrutinized more,” Apisa said.
Between fiscal years 2015 and 2019, audits dropped by 75% for taxpayers making $1 million or more, and 33% for filers claiming the EITC, according to a 2021 report from the Treasury Inspector General for Tax Administration. 
More focus on the EITC has also contributed to higher audit rates among Black Americans, a recent study found.

How to protect yourself from a future IRS audit

Ilkercelik | E+ | Getty Images

“People are scared to death of the IRS,” said Karla Dennis, an enrolled agent and founder of Karla Dennis and Associates. “They don’t understand how the system works, and so they’re extremely fearful of audits.”
But the best way to protect yourself is by staying organized, with receipts and records to show proof of income, credits and deductions, she said.
Depending on your situation, it may be necessary to keep tax records for up to seven years, according to the IRS.
But if you’re missing a receipt, copious records may provide the narrative needed to back up your position in an audit, Dennis said.
“Document, document, document,” she added.  More

Many mutual funds in 401(k) plans charge a revenue-sharing fee.
Employers sometimes opt to allocate those fees to plan expenses like administration and record keeping.
Revenue-sharing fees differ according to the fund an investor selects. That means some workers pay more for services than others.

Hinterhaus Productions | Getty Images

Workers who participate in a company 401(k) plan pay fees for a host of associated services. Among them is the cost of administering the plan — for example, tracking daily fluctuations in account value, facilitating trades and issuing regular notices to investors.
But based on how your employer structures its retirement plan, you may unknowingly be subsidizing colleagues’ 401(k) fees.

The dynamic is a function of the investments you choose and how the 401(k) plan pays costs for administrative expenses.
Retirement savers (like players in the broader investment world) may be unaware of the fees they pay. Many financial firms inside and outside the 401(k) ecosystem often levy an annual fee directly from client accounts instead of asking them to write a check.
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Mutual funds in 401(k) plans are no different.
The overall cost of those funds may include a “revenue-sharing” fee (also known as a 12b-1 fee, a distribution fee or shareholder services fee, for example). The fund manager collects this fee and then passes it along to the 401(k) plan’s administrator.

This behind-the-scenes infrastructure is how many plans pay for record-keeping and other services delivered by firms such as Fidelity Investments, Empower Retirement and TIAA-CREF, which are among the largest 401(k) administrators.

Small plans more likely to use revenue sharing

Just 8% of workplace retirement plans such as 401(k) plans use revenue sharing to pay for plan administration, according to a recent annual survey published by Callan, a consulting firm. That’s down from 16% last year and about 40% a decade earlier.
However, its prevalence may be more widespread than the Callan survey suggests. The bulk of respondents have workplace retirement plans with more than $1 billion in worker savings — among the largest in the country.

But small 401(k) plans use revenue sharing more often to pay for services. A separate poll by the Plan Sponsor Council of America, an employer trade group, across a broader swath of plan sizes indicates almost 40% use funds with revenue sharing, and about three-quarters of those employers use the fees to pay for plan expenses.

‘There can be some inequalities’ for workers

This fee sharing is a somewhat opaque practice since it occurs behind the scenes. The practice also sometimes leads some workers to pay more for 401(k) administration than their peers — effectively subsidizing the service for colleagues.
That’s because not all investment funds carry a revenue-sharing fee. For example, actively managed funds levy such a fee more often than index funds. (Of course, there are exceptions.)
“There can be some inequalities in terms of who’s paying for what,” said Greg Ungerman, a senior vice president at Callan who leads a team working with workplace retirement plans.
The dynamic means a saver invested solely in index funds may not pay any revenue-sharing fees for 401(k) plan expenses, whereas another worker in the same 401(k) plan invested solely in actively managed funds may pay the fees.

There can be some inequalities in terms of who’s paying for what.

Greg Ungerman
senior vice president at Callan

Hence, the latter subsidizes costs for the former, even though they get the same services.
Employers have begun moving away from the practice, amid a flurry of lawsuits around excessive 401(k) fees and federal fee-disclosure rules to boost transparency, which were adopted about a decade ago.
Furthermore, money managers have increasingly offered versions of their investment funds that strip out a revenue-sharing fee. In this case, a 401(k) administrator would deduct a fee for their services from workers’ accounts separately, instead of getting paid by the fund manager directly.
Many employers have indeed shifted toward this type of fee model, Ungerman said. Often, that takes the form of a flat fee expressed in dollars, charged per plan participant.

Sometimes, employers may not have much of a choice — they are somewhat at the mercy of the investment firms. A particular mutual fund family may always include revenue sharing, for example.
But technology has evolved such that many plan administrators are able to capture the revenue-sharing fee and funnel the money back to the investor who paid it — a workaround to make the 401(k) plan more equitable. However, this function isn’t always available, and the employer has to choose the option.
“It’s up to the plan sponsor to make that determination,” Ungerman said. More