A House panel has passed a bill that would temporarily expand the standard tax deduction used by the majority of taxpayers by $2,000 per person for the next two years.
The Tax Cuts for Working Families Act (H.R.3936) recently approved by the tax-writing House Ways and Means Committee would temporarily boost the standard deduction by $2,000 for single filers and $4,000 for married filers for 2024 and 2025. The deduction would start to phase out for single taxpayers with $200,000 in income, or $400,000 for joint filers. A financial advisor can help you optimize your tax strategy and make sense of tax code changes.
“The vast, vast majority of my constituents use the standard deduction on their taxes every year,” said Rep. Carol Miller, R-West Virginia, adding that the measure will increase economic activity in local economies. “The bonus $4,000 deduction is a $100 billion tax cut for the working families and will go a long way to make sure that my constituents can make ends meet.”
Potential Impact of Standard Deduction Increase
Nearly two-thirds of households would get a tax cut in 2024 under the proposal, according to research from the nonpartisan Penn Wharton Budget Model. However, since the standard deduction lowers the amount of income subject to tax, the deduction isn’t refundable and wouldn’t provide cash to lower-income taxpayers. In fact, only a small percentage of the bottom 20% of households have enough income to get a tax cut under the proposal, the researchers from Penn concluded.
But those at the very top of the income ladder also wouldn’t see significant tax savings if the bill becomes law. Not only does the higher deduction phase out for incomes of $200,000 or more (or $400,000 for married couples), but a larger proportion of high-income households use itemized deductions.
“The poorest fifth of Americans would receive just 2% of the benefits of this provision, and on average, that means a tax break of just $30 next year,” said Rep. Richard Neal of Massachusetts, the committee’s ranking Democrat.
The change would also cost approximately $96 billion over 10 years, the Penn researchers found.
The standard deduction for 2023 will be $13,850 for singles and $27,700 for couples. The deduction nearly doubled as part of the 2017 Tax Cuts and Jobs Act, which expires in 2026. An increasing number of taxpayers have opted to claim the standard deduction, rather than itemize deductions for mortgage interest, charitable donations, medical costs and a host of other deductible expenses. According to the IRS, 90% of taxpayers opted for the standard deduction for their 2021 taxes.
Will it Help Ease Inflation or Make it Worse?
Sponsors of the temporary increase said the measure was intended to provide relief from inflation, which soared to 9.1% last June before dropping to 4% in May. The target inflation rate for the Federal Reserve is 2%, which mirrors the historical average.
That reasoning was criticized in an analysis by the conservative-leaning American Enterprise Institute, which pointed out that increasing the disposable income of so many Americans tends to make inflation worse, and would contradict efforts by the Federal Reserve to slow consumer spending by raising interest rates.
Bottom Line
An increase in the standard deduction on federal income tax would benefit most U.S. households but only a small amount of lower-income taxpayers would see any cut to their tax bills. Since the increase of the standard deduction in 2017, fewer taxpayers have been itemizing deductions on their returns.
Tax Optimization Tips
When it comes to saving and investing for retirement, taxes are a significant and complicated consideration. Saving in a traditional IRA or 401(k) gives you an immediate tax break since contributions are made on a pre-tax basis. A Roth account, on the other hand, is funded with after-tax dollars so your money grows tax-free. Here’s some additional guidance for late-career savers deciding whether to switch to Roth contributions.
A financial advisor with tax expertise can help you optimize your tax strategy. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Editor’s note: This is a recurring post, regularly updated with new information and offers.
If you’ve visited a Global Entry kiosk in the past two years, you may have gone through U.S. Customs and Border Protection’s new facial recognition process. It allows you to pass through Global Entry without scanning your passport or fingerprints.
CBP has been rolling out this technology since 2021 to facilitate an even quicker experience for Global Entry users when passing through U.S. customs. Unlike the original kiosks, these use a facial scan to confirm your identity when you arrive at a customs hall kiosk; they also eliminate paper receipts that travelers previously used to show agents.
A trusted traveler program run by the U.S. government, Global Entry allows preapproved, low-risk travelers expedited clearance upon arrival to the U.S. from abroad through automated kiosks at nearly 80 airports.
How do these new facial recognition machines work?
“The new paperless biometric kiosks use facial comparison and leverages mobile officer technology by confirming traveler identity and making an admissibility decision without producing a receipt,” a CBP spokesperson said. “This process will continue to enable increasingly contactless processing and a reduced environmental footprint through the elimination of paper receipts.”
With this new screening capability, you approach the Global Entry kiosks as normal and pose for a photo that verifies your identity. In theory, this whole process should take less than 30 seconds.
Like other technology implemented recently — including the Transportation Security Administration’s new computed tomography X-ray systems — facial recognition kiosks are designed to be more efficient. They also remove physical contact points between agents and travelers while minimizing environmental impact.
The updated Global Entry technology is part of a broader CBP and TSA effort to implement more facial recognition software. The hope is that it will expedite the identity verification process, including upon arrival in the U.S. and when passing through TSA security.
These efforts align TSA with Clear, the private sector’s equivalent of TSA PreCheck.
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In addition to time saved, this is also good news for parents of children who have Global Entry, as fingerprints on kids — especially babies — aren’t necessarily fully developed. Prior to this new process, families with children who weren’t fingerprinted had to see an officer before entry, significantly slowing down the process.
This technology potentially eliminates these issues and allows those globe-trotting children (and their parents) to enter the U.S. without a fuss, as TPG’s director of content, Summer Hull, recently experienced in coming home from Canada with her kids. She said:
“When we went through preclearance in Vancouver, we encountered the new Global Entry facial recognition machines. Typically, with younger kids, it’s been next to impossible to actually get their photo and fingerprints to register correctly and therefore, you usually have to see the agent. Though the new machines were confusing at first, it quickly became a fantastic upgrade as all you need to do is tilt the camera down a bit to see the kids, and there’s no additional scanning. It was fantastically simple and made having Global Entry for the whole family feel more valuable than ever since we actually all got to really use it.”
Where they are now?
As of June 2023, 15 U.S. airports have facial recognition Global Entry kiosks, including Dallas-Fort Worth International Airport (DFW), Miami International Airport (MIA), John F. Kennedy International Airport (JFK) and Seattle-Tacoma International Airport (SEA).
Global Entry is available at a total of 77 airports in the U.S. and abroad, including all major airports and all Preclearance airports.
Ways to save money on Global Entry
For $100, travelers can reap the benefits of both a Global Entry and TSA PreCheck membership for five years.
Fortunately, many cobranded airline and hotel credit cards offer up to $100 in statement credit reimbursement for the application fees associated with Global Entry or TSA PreCheck. This credit is typically available every four to five years.
Some of the credit cards offering this benefit are:
See here for a complete list of credit cards that offer a discount for TSA PreCheck.
Bottom line
With summer travel in full swing, expedited entry following an international trip is welcome news for travelers. Global Entry kiosks speed up the process by using facial scanners to verify identities.
Pretax money is invested before any taxes have been deducted, while after-tax money is invested after taxes have been deducted. Investments in tax-deferred retirement accounts such as IRAs and 401(k)s are made pretax, which means there is a larger sum of money to invest. While applying taxes reduces the amount of money available to invest, sometimes after-tax investment vehicles such as Roth IRAs can produce better overall returns because, unlike pretax accounts, withdrawals from these after-tax accounts can be made without owing taxes. A financial advisor can help you evaluate after-tax and pretax investment options.
Pretax vs. After-Tax Basics
The terms “pretax” and “after-tax” when applied to income, expenses or contributions tell you whether taxes have been applied to the amount. Wages, for example, are normally after-tax, because the employer withholds taxes before handing out paychecks. Contributions to Roth-type retirement accounts and regular brokerage and bank accounts are also made after tax.
Many people save for retirement pretax by contributing money to IRAs and similar tax-advantaged accounts. These funds can be placed in a retirement account before any income taxes are levied. When you are preparing your tax return, any money you put into an IRA, for instance, is deducted from your total taxable earnings, which generally reduces your total tax liability.
Comparing Pretax and After-Tax
Investing money before taxes have been levied means you’ll be investing more than you would if you did it after paying taxes. And, all else equal, investing a larger sum means earning more from your investment. This simple rule of thumb underlies much of the popularity of saving for retirement pretax using IRAs and similar tax-advantaged accounts. If people could only save after-tax dollars in ordinary bank or brokerage accounts, there would be less incentive to sock away money in these accounts.
However, pretax is not always the best. Sums invested pretax in IRAs and similar retirement don’t completely evade taxation. Taxes on contributions as well as any earnings from investments in the account are only deferred. Savers will owe taxes later, at their then-current rate of taxation, when they withdraw funds from the account.
If the individual’s tax rate is lower in retirement, pretax investing can be advantageous. However, if you earn a lot of income over your career and have a large retirement nest egg, your required minimum distributions and other sources of income could mean your income and tax bracket are higher after you’ve retired than when you put money away pretax.
If an individual’s tax rate will be higher in retirement than it is at the time the investment was made, it can be better to invest after-tax in a Roth-type retirement account. This can work well for younger people just starting their careers before their earnings increase enough to put them in higher income-tax brackets. After paying taxes a relatively low rate when contributing, funds in these accounts grow tax-free and can be withdrawn later without owing any taxes.
Choosing Pretax or After-Tax
Deciding whether to invest pretax or after-tax requires considering your individual situation. Examine the following factors:
Account for investment returns: Start by looking at the expected rate of return on your investments.
Understand how taxes are applied: Capital gains on stocks held more than a year generally are taxed at a lower rate than ordinary income such as interest on bonds. Considering tax treatment of different types of income can help you decide on an after-tax or pretax investment.
Calculate returns after all taxes are applied: Roth IRA or Roth 401(k) withdrawals won’t incur taxes as long as the investor is age 59.5 or older and has had the account for at least five years. For pretax investments, it’s necessary to apply taxes to any sums withdrawn from the accounts before you can estimate the actual return. For instance, if you withdraw $10,000 from a pretax investment and are in a 25% tax rate in retirement, the amount left after taxes would be 75% of $10,000 or $7,500. Money invested in a regular brokerage account with no tax advantages has to pay any taxes due on the money before it’s invested as well as on earnings but as they are earned. However, withdrawing money from a regular account doesn’t usually trigger any additional taxes.
Compare post-tax and after-tax: For example, if you want to invest $10,000 in an after-tax account and you are in a 25% tax bracket, you’ll have to earn approximately $13,333 and pay $3,333 in taxes in order to have $10,000 available to invest. If that $10,000 earns 5% annually for 10 years, it will be worth $16,289. You can withdraw all of it without owing taxes after age 59.5 if the account is at least five years old.
Say instead you invest $13,333 in a pretax account, also 5%. After 10 years, you’ll have $21,718. If you withdraw the full amount and your rate is still 25%, you’ll owe $5,429 in taxes and be left with the same $16,289 as you got with the after-tax investment.
If, however, during the interim you have retired and your tax rate has dropped to 15%, you’ll only owe about $3,258 on emptying the pretax account. This will leave about $18,641. In this case, the pretax investment produces a larger return net of taxes.
If you are in the 15% bracket when you fund an after-tax investment and are in the 25% percent bracket when you retire, the situation is reversed. In that case, you’d need about $11,765 to have $10,000 to invest after tax. Again, you’d wind up with $16,289, which you can withdraw tax-free.
Investing $11,765 pretax at 5% gives you $19,164 after 10 years. a sizable increase. If you withdraw that amount when you are in the 25% bracket, however, your nominal tax liability will be $4,791, leaving you just $14,373. In this case, the after-tax investment generates a better overall result by about $1,916, which is the difference between $14,373 from the pretax method and $16,289 using an after-tax approach.
The Bottom Line
You can invest pretax before taxes are levied or after-tax after taxes have been applied. Pretax investing and after-tax investing both have advantages and drawbacks. Whether it is advisable to invest pretax or after-tax depends on individual circumstances, including whether you expect to be in a higher or lower tax bracket when you withdraw funds.
Investment Tips
Deciding whether to invest pretax or after-tax requires you to understand your tax situation and financial goals. A financial advisor is well-equipped to help you do just that. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
SmartAsset’s Investment & Return Calculator can make it much simpler to compare the relative advantages of after-tax and pretax investing.
Mark Henricks
Mark Henricks has reported on personal finance, investing, retirement, entrepreneurship and other topics for more than 30 years. His freelance byline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.
Most income taxes in the United States are paid by the people with the most income. That is in keeping with the generally progressive nature of the individual federal income tax, the primary source of government revenues, which applies higher tax rates to higher incomes. However, some taxes fall more heavily on people with less income, while the most affluent of all can sometimes pay little or no income tax. A financial advisor can help you plan to manage your taxes.
The Biggest Taxpayers
The biggest source of tax revenue in the United States is the federal individual income tax and the biggest source of individual income tax revenues consists of the nation’s highest earners. In 2023, according to an estimate of the Tax Policy Center, 67% of all federal income tax collected will come from the top 20% of earnings, who were bringing home more than $189,200 annually. The situation where a small minority of high earners pay most of the individual income taxes has remained steady for many years.
Beyond that, figuring out who pays the most total taxes in the United States is complicated by the fact that there are many types of taxes. Federal individual income taxes levied on earnings from working and investing is just one variety, albeit the most important.
Payroll taxes supporting Social Security, Medicare and unemployment benefits are the second-largest source of federal tax revenues. Employers deduct these Federal Insurance Contributions Act (FICA) taxes from workers’ paychecks.
Other taxes include corporate income taxes, estate taxes, gift taxes and customs duties. Excise taxes are assessed on gasoline, alcohol, gambling and some other products and services. These taxes land more or less heavily on different taxpayers. For example, lower-income workers pay a larger percentage of their incomes in payroll taxes than higher-income workers thanks to the cap on income subject to Social Security taxes.
The capital gains tax is a special tax imposed on certain types of investment income that is in lieu of and generally lower than the individual income tax rates. Capital gains taxes are mostly paid by people who have more assets, while people with few assets may pay little or no capital gains tax. Similarly, property taxes, which are the major source of revenue for state and local governments, are only levied on the owners of property such as real estate.
Factors Influencing Who Pays the Most Taxes
A number of factors determine how much someone pays in federal income tax. The interplay between these factors and taxpayers’ efforts to save on taxes while conforming to the tax law, is largely responsible for the complexity of tax planning and preparing tax returns. Here are some of the major considerations.
Taxable income: As your income rises, you move into a higher tax bracket, which means more of your income goes to taxes.
Filing status: Tax rates vary depending on whether you are filing as a single individual, a married couple filing jointly, a married couple filings separately or as a head of household.
Adjustments to income. Retirement plan contributions, student loan interest payments and some other outlays can reduce your taxable income and your taxes.
Exemptions: Taxpayers can further reduce income by claiming exemptions, including dependency exemptions for their children.
Deductions: Yet another way to reduce taxable income is by claiming deductions. In addition to the standard deduction, you may be able to claim deductions for medical expenses, charitable contributions, home mortgage interest and other costs.
Tax credits: Credits for education and energy conservation, among other categories, can not only reduce your taxes but result in the government sending you a check.
Managing your tax liability consists largely of working with these factors. For example, if you have an unusual amount of income in one year, you may be able to use averaging to spread the income among different taxable years, keeping you from moving into a higher tax bracket.
Using the capital gains tax to reduce income taxes is also important. If you have assets that have appreciated in value, you could be subject to a large capital gains tax bill when you sell them. On the other hand, if you never sell them, you may be able to pass them on to your heirs without ever paying any income tax on your increased wealth. Very affluent taxpayers can pay their bills while avoiding income and other taxes by a number of other means, including pledging their assets as collateral for loans, the proceeds of which are not taxable.
The Bottom Line
The people with the highest incomes generally pay the highest taxes in the United States, thanks to the generally progressive individual income tax system used by the federal government. There are some exceptions to this type of policy, as very wealthy individuals can find ways to reduce their taxes – sometimes paying none at all – by making the most of so-called loopholes in the tax code. However, as a rule, the top 20% of earners pay more income taxes than the rest of the tax-paying population put together.
Tax Tips
Managing and reducing the amount of taxes you pay can benefit from the assistance of a financial advisor. Finding a financial advisor doesn’t need to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
SmartAsset’s Federal Income Tax Calculator can help you break down your tax obligations including the total tax as well as the type of tax and your marginal and effective tax rates.
Mark Henricks
Mark Henricks has reported on personal finance, investing, retirement, entrepreneurship and other topics for more than 30 years. His freelance byline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.
California would like to crack down on a type of trust that lets the very wealthy avoid state income and federal gift taxes. And the Golden State is not alone: A number of state officials have taken aim at the loophole, known as an incomplete non-grantor trust (ING). In its 2023 budget proposal, the administration of Gov. Gavin Newsom proposed banning the trust.
New York state passed a similar law in 2014, and the idea has begun picking up steam in states that have seen many of their wealthiest citizens use INGs to avoid taxes. Below we dive deeper into the controversy – and explain how an ING trust works.
You can work with a financial advisor to lower your tax bill.
California Wants to Ban ING Trusts
Naturally, high-income, high-tax states have a lot to lose from tax loopholes on the wealthy. These trusts have also come under fire from some tax policy analysts, who cite it – alongside the carried interest loophole – as a substantial tax-avoidance practice employed by the very wealthy. This criticism is sharpened by the fact that an ING trust is only particularly useful to someone seeking to avoid the gift tax, which does not apply until a taxpayer has transferred roughly $13 million in total assets.
In 2014, New York state banned the use of ING trusts to avoid state taxes. They did this by redefining what New York state considers a grantor and non-grantor trust. Specifically, it updated its income tax laws to include any income generated by a non-grantor trust funded by an incomplete gift. (While this contradicts the IRS interpretation of the matter, because this law applies only to taxes in the state of New York it has not run afoul of any supremacy clause issues.)
California would like to follow New York’s lead. Under Newsom’s proposal, the state would update its own tax laws based on the Empire State’s model. It would stop using the IRS definition of incomplete gifts and would instead set its own definitions for when a taxpayer has made a complete transfer of assets. As proposed, this change would apply to California residents, which could leave an open question regarding non-resident taxpayers. Legislators would have to resolve that issue when drafting the actual law.
This proposal “which would be effective beginning in tax year 2023, is projected to increase tax revenues by $30 million in 2023-24 and by $17 million annually thereafter,” according to a state news release. At time of writing, this remained in the governor’s proposed budget. However, the legislature appears to have omitted this issue from the text of the budget itself, which is scheduled for a vote later this week.
What Is an ING Trust?
An incomplete-non grantor trust is a specialized form of trust designed to shift the tax base of its assets. If properly created, it allows the creator to pay no state taxes on the assets they put in trust while also paying no federal gift taxes on the underlying transfer. Given the high IRS cap on gift taxes, an ING, which is a self-settled irrevocable trust, is typically only useful for taxpayers with a very high net worth.
To understand how this works, we need to look at the nature of trusts.
A trust is a legal entity set up to hold, manage and distribute assets. Every trust has three (or more) main parties to it:
The Grantor – The person or persons creating the trust and putting assets in it
The Trustee – The person or firm who manages and distributes the trust’s assets
The Beneficiary – The person or persons getting assets from the trust
When you create a trust, you set its terms. This means you can identify who the trustee and beneficiaries will be, how and when its assets will be distributed, and any other rules for how the entity should work. The trust then becomes an independent third party that can legally own, control and distribute its assets.
While there are many kinds of trusts, there are two broad categories for tax purposes: grantor and non-grantor trust.
Grantor Trusts
A grantor trust is one in which you, as the grantor, maintain some measure of control over the assets in trust. For example, you might allow yourself to take assets out of the trust. Or you may retain the right to change the trust’s beneficiaries or rules, to take loans from the trust, or collect its investment income. However you do it, if you keep a meaningful measure of ownership or control over the trust’s assets, the entity is considered a grantor trust.
With a grantor trust, you pay the trust’s taxes. The assets are still considered functionally yours, so any income or capital gains that the trust generates are reported on your taxes.
Non-Grantor Trusts
A non-grantor trust is one in which you, as the grantor, have no meaningful control over the assets in trust. While you might retain some de minimis connection, you have made a complete gift of the assets to the trust. Any trust that is not considered a grantor trust is a non-grantor trust.
With a non-grantor trust, you pay any applicable gift taxes at the time of your transfer. Then, as the full owner of the underlying assets, the trust itself pays all applicable income and capital gains taxes.
Incomplete Non-Grantor Trusts
An ING is a type of trust designed to thread the needle between these two categories. It is a non-grantor trust, which moves the tax burden of the trust’s assets onto the trust itself. However, it is funded with a legally incomplete gift, which allows the grantor to avoid federal gift taxes while maintaining a measure of control over the assets.
Grantors take three basic steps to set up an ING trust:
Create a trust that is legally based in a state with no taxes on income and capital gains. This effectively nullifies state taxes the trust would otherwise be liable for. Keep in mind, this will not affect the trust’s federal income tax status.
Fund the trust as a non-grantor trust. This shifts the tax base of any assets to the trust itself, which pays the taxes of the state in which it is based (thanks to step one, this will be zero). To do this the grantor must fund the trust with a gift that effectively relinquishes control and ownership of their assets to the trust.
Structure the gift as a defective transfer. This is where an ING gets tricky. By carefully wording the asset transfer, you can structure it as complete enough to qualify for non-grantor trust status yet not complete enough for the IRS to consider it a taxable gift. This is typically done by transferring almost all ownership rights to the underlying assets, but still retaining some narrow, specific measure of control over them. A financial advisor can help guide you.
If properly structured, you will have created a non-grantor trust that assumes all the tax liability for its assets without paying gift taxes on the assets you transfer in. Since the trust is based in a tax-haven state, it will owe no state taxes on the income and capital gains that it generates, while leaving you a small measure of control over how those assets are managed.
Bottom Line
California Gov. Gavin Newsom has proposed closing a tax loophole known as the incomplete non-grantor trust. This is a structure used by the very wealthy to avoid paying state income taxes and federal gift taxes, and which may soon be less available than it was before.
Estate Tax Planning Tips
A financial advisor with estate planning experience can help you plan for the future, including how to minimize future tax bills. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
There are grantor trusts and non-grantor trusts. There are also revocable and irrevocable trusts, intentionally defective grantor trusts, lifetime trusts, testamentary trusts and many more. Let’s take a look at which, if any, are right for you.
Eric Reed
Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.
When someone passes away, there can be plenty of questions over who gets what, especially if there’s a home in the mix. An often-overlooked question centers on who is responsible for paying property taxes when the owner dies. A delinquent property tax bill could result in a lien against the home or worse, a tax foreclosure. It’s the job of the deceased person’s executor to make sure that property taxes—and any other outstanding debts—are paid when finalizing their estate. If you’re ready to create an estate plan, a financial advisor can help.
Understanding What Happens to Property Taxes When Someone Dies
When someone passes away, their debts don’t automatically disappear. Any outstanding financial obligations must be paid, either from the proceeds of their estate or by individuals who are jointly responsible for debts.
For instance, if a husband and wife both sign off on a $30,000 car loan and one of them dies unexpectedly, the other spouse is responsible for the remaining debt since they’re co-borrowers. The same would be true for other co-signed loans, including mortgages and private student loans or joint credit card accounts.
Property tax bills that are outstanding when someone dies must still be paid. Failing to pay property taxes can result in a lien being placed on the property. The agency responsible for collecting property taxes could go a step further and foreclose on the home. In that case, the home could then be sold at auction to the highest bidder.
Who Is Responsible for Paying Property Taxes When the Owner Dies?
The executor of a deceased person’s estate is responsible for making sure that any remaining property taxes are paid when the owner dies. An executor can be named in a will or if there is no will, they can be appointed by the court. Any interested party can petition the probate court to become the executor when one isn’t named in a will.
In terms of where the money comes from that goes to pay property taxes when someone dies, the answer is typically the estate itself. There are different ways this can be handled, depending on how the person structured their estate plan.
For instance, they might specify in their will that certain assets in their estate should be used to pay property taxes. If they’ve set up a trust as part of their estate plan, they could also allocate assets within the trust to cover any remaining tax bills. In that case, a trustee, not an executor would be responsible for making sure the taxes are paid.
If there are no assets set aside to pay property taxes, then the executor or trustee could use assets from the estate to do so. For instance, they might draw money from the deceased person’s bank account or sell tangible assets to raise the money that’s needed. That could even include selling the home itself to pay the tax bill if the will or trust doesn’t specifically disallow it.
Certain assets are beyond an executor or trustee’s reach when settling an estate. For example, if your parents named you as the beneficiary to a life insurance policy or retirement account, that money would come directly to you when they pass away.
Are Beneficiaries or Heirs Responsible for Property Taxes When an Owner Dies?
Inheriting a home from someone doesn’t necessarily make you responsible for any property taxes right away. Again, the responsibility for paying taxes would fall on the executor until the legal title is transferred to you.
However, once the property is in your name, you’d have to pay any property taxes owed on it, including past due amounts, current bills and future bills. The only exception would be if the property owner’s will or trust directs the executor or trustee to pay any and all debts associated with the home before it’s transferred to you. How quickly a home’s title is transferred after death can depend on where you live.
If someone dies without a will in place, their heirs receive their assets in accordance with state inheritance laws. Whomever the home goes to under state law would be responsible for paying property taxes once the title is transferred to them.
What if you have no heirs? In that case, the home becomes the property of the state. The state could then sell the home and use money from the proceeds to pay any remaining taxes due.
Accounting for Property Taxes in an Estate Plan
If you don’t want to leave your heirs with a property tax burden when you pass away, there are some things you can do now to ensure that doesn’t happen. The easiest way to do that is by including a provision for handling property taxes in your will.
You can name an executor and leave directions on which assets they should use to pay the property taxes. You can also direct them to pay the taxes from estate assets before distributing any remaining assets to your beneficiaries. If you’re concerned that there may not be enough assets to cover the tax bill, you can also state that it’s okay for them to sell the home if necessary.
If you’ve put your home into a trust, you can do the same thing in the trust document. That includes directing the trustee to pay property taxes out of trust assets or requiring the beneficiary to pay the taxes before they can inherit the property. Talking to a financial advisor can help you decide what the best option might be.
You could also buy a life insurance policy just to cover final expenses or debts, including property taxes. Instead of naming a loved one as the beneficiary to the policy, you could name your estate instead. That way, you can be assured that the executor will have the funds they need to cover property tax bills once the probate process gets underway.
The Bottom Line
Unpaid property taxes can add a wrinkle to the settlement of an estate after a homeowner passes away. If you own a home that you intend to pass on to someone else, early planning can help your beneficiaries avoid financial hiccups once it’s time for them to inherit the home.
Tax Planning Tips
Working with a financial advisor to flesh out an estate plan can make it easier to decide how to divide your assets while accounting in advance for any debts you might leave behind. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you don’t have a will yet, you might want to consider making one so you can specify how you want property taxes to be handled when you pass away. You can work with an estate planning attorney to draft a will or make one online. There are a number of affordable online will-making software options that you can use to make a basic will. Just keep in mind that once you make the will, you’ll typically need to have it witnessed and notarized for it to be considered legally valid.
Rebecca Lake, CEPF®
Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
Editor’s note: This post has been updated with new information.
Nobody likes a delayed flight, and so far this year, about 21.9% of flights have been delayed, according to data from FlightAware. You can even monitor a live airline flight cancellation page and a misery map showing airport locations and delays.
However, since the airlines can’t control the weather, delays are a necessary evil that passengers must put up with. Even if there’s a maintenance issue causing the delay, you don’t want to stray too far from the gate and risk missing your flight in case the issue is resolved quickly and the airline revises the departure time.
So before you head off to the airport lounge to drink away your sorrows, there are some things you need to know about flight delays. In some instances, you may even be entitled to financial compensation for your inconvenience.
Here’s what you should do if your flight is delayed.
Check in with the gate agent
Don’t skip off to the airport lounge immediately after finding out about a flight delay. I’ve admittedly been guilty of this, and it’s almost caused me to miss a twice-delayed flight. After getting delayed during a flight a few years back, I figured I had enough time to grab some food and catch a cat nap at the lounge. I hadn’t realized that the flight had somehow been “un-delayed” until I happened to wake up a short time later. With just minutes to spare before the boarding doors closed, I arrived to catch my connecting flight — harried and out of breath.
I would have avoided this entirely had I checked with the gate agent to find out the new time or asked an employee at the lounge. They typically know these things.
Another thing: Don’t rely solely on the airport departure and arrival board, as they aren’t always updated. They’re usually accurate, but you’re likely to get the most up-to-date flight departure information by downloading your airline’s app to your phone and signing up for text flight alerts.
On another flight between my hometown airport Norfolk International Airport (ORF) and LaGuardia Airport (LGA), I discovered my outbound flight had been delayed minutes before the gate agent announced it over the intercom. Having multiple sources of information, especially as more flights experience operational delays these days, is better than relying on just one source.
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Know your credit card’s delay and cancellation policy
At TPG we talk a lot about how to make your travel rewards credit cards work for you — and not only about earning elite status with airlines or finding the best lounge to plane spot. Sometimes your credit card will come in handy when a trip doesn’t go quite as planned.
One underrated benefit that can come to the rescue when things go wrong is trip delay coverage, according to TPG senior editor Nick Ewen. A delay isn’t just frustrating. It can cause you to miss a crucial flight segment and potentially leave you stranded at an airport.
Trip delay protection ensures that you won’t be responsible for additional (reasonable) expenses that occur due to a lengthy trip delay. However, some credit cards can save you money and hassle if you’re delayed due to weather, operational problems, strikes or other unplanned events. You will likely need to pay for the expenses upfront, but you may be eligible for reimbursement afterward.
Credit cards with trip delay protection include:
*Eligibility and Benefit level vary by card. Terms, conditions and limitations apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by New Hampshire Insurance Company, an AIG Company.
Related: Best credit cards that offer trip delay reimbursement
You may be eligible for a refund
Know your rights if there’s a delay or cancellation.
If you decide not to fly your originally scheduled flight due to significant delays and cancellations, you should get your money or points back. Airlines will generally try and push a voucher on you. However, you don’t have to settle for it as you are entitled to cash.
Related: Can I get flight delay compensation? These are the ways you qualify
You may have a cancel and refund option available online or in the airline’s app. Although, as I’ve found in the past, the airlines don’t make it a simple process. So, you may end up having to call the customer service line. Remember, even if the airline offers you a voucher or miles, you’re typically entitled to a cash refund.
You have even more options if your travel falls under the EU261 regulation — which establishes rules on compensation and assistance to passengers in the event of denied boarding, cancellation or long flight delays.
EU261 provides some travel protections if your flight is delayed at departure, depending on how long the delay is. If you arrived at your final destination with a delay of more than three hours, you are entitled to compensation (unless the delay was due to extraordinary circumstances, like terrorism.)
As we reported last year, the regulation applies to the following:
Flights wholly within the European Union and operated by any airline;
Flights departing from the EU to a non-EU country and operated by any airline; and
Flights arriving in the EU from outside the EU and operated by an EU airline.
For rates and fees of the Amex Platinum card, click here. For rates and fees of the Delta Reserve card, click here.
Donating to charity isn’t just a way to have a positive impact on society – it’s also a savvy approach to reducing your tax liability. Schwab suggests people who donate to charity on an annual basis may want to consider a tax-smart strategy known as “bunching,” which involves making at least two years’ worth of charitable contributions in one year. Doing so can allow you to itemize your deductions for that year and increase the size of your tax deduction over the two-period. Consider working with a financial advisor if you need help with tax planning or charitable giving.
Standard Deduction vs. Itemizing
Each year, tax filers must choose between taking the standard deduction or itemizing their deductions. If your individual tax deductions exceed the standard deduction in a given year, itemizing is likely the preferable approach. The opposite also rings true. If the total value of your itemized deductions is less than the standard deduction, you’ll want to claim the latter.
2023 Standard Deduction
Single filers and married couples filing separately: $13,850
Married couples filing jointly: $27,700
Heads of household: $20,800
2022 Standard Deduction
Single filers and married couples filing separately: $12,950
Married couples filing jointly: $25,900
Heads of household: $19,400
Choosing between taking the standard deduction or itemizing is key when determining how to best maximize the tax benefit of your charitable contributions.
When to Bunch Charitable Donations
If you regularly donate to charity but your total itemized deductions fall short of the standard deduction, you may want to consider bunching your contributions. Doing so means you’ll make multiple years’ worth of contributions in the current tax year, pushing your itemized deductions above the standard deduction threshold. You’ll then take the standard deduction in the following year(s) since you won’t be making any additional donations.
To illustrate the potential benefits of bunching, Schwab ran the numbers on a hypothetical couple with no children. Schwab assumed the couple made $10,000 in charitable donations in both 2022 and 2023. Their other deductions for both years total $13,000. By taking the standard deduction ($25,900 in 2022 and $27,700 in 2023) in both years, the couple’s two-year deduction adds up to $53,600 – more than would have been had they itemized in both years.
However, if the couple made two years’ worth of donations in 2022, their itemized deductions would have added up to $33,000. They could have then taken the standard deduction in 2023 and their two-year deduction would have added up to $60,700.
By bunching their charitable contributions, the couple would have lowered their combined taxable income in the two years by $7,100.
Bottom Line
Tax filers who regularly donate to charities should consider how to maximize the tax benefit of their goodwill. Schwab recommends making multiple years’ worth of donations in a single year, so your total itemized deductions exceed the standard deduction. This strategy, which is known as bunching, then calls for you to take advantage of the standard deduction in subsequent years when you won’t be making any donations. Doing so can increase the size of your total deductions over that two-year period and lower your taxable income.
Tips for Reducing Your Tax Bill
A financial advisor can help you assess your tax situation and potentially limit how much you end up owing Uncle Sam. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Capital gains can increase the amount of money you ended up owing the government each year. However, harvesting tax losses can help offset those gains. And if your tax losses exceed your capital gains, the IRS permits you to deduct up to $3,000 worth of excess losses from your total income for that year.
If you’re approaching retirement and thinking about moving to a new state, consider the tax environment for retirees in that state. SmartAsset’s retirement tax friendliness tool provides an in-depth look at the places with the best and worst tax environments for retirees.
Patrick Villanova, CEPF®
Patrick Villanova is a writer for SmartAsset, covering a variety of personal finance topics, including retirement and investing. Before joining SmartAsset, Patrick worked as an editor at The Jersey Journal. His work has also appeared on NJ.com and in The Star-Ledger. Patrick is a graduate of the University of New Hampshire, where he studied English and developed his love of writing. In his free time, he enjoys hiking, trying out new recipes in the kitchen and watching his beloved New York sports teams. A New Jersey native, he currently lives in Jersey City.
We may primarily focus on airline loyalty programmes and air miles here at TPG but there are a ton of other money-saving loyalty programmes that we also love and help us save money and maximise our travel adventures.
There are dozens of U.K. loyalty schemes out there – of which the Tesco Clubcard and the cross-retailer Nectar card are among the best known.
Both of the above work for travellers who use points and miles, albeit in different ways (their points earned from the loyalty programmes can be converted to Virgin Points and Avios respectively) – but there are other loyalty cards and programmes out there that have similar potential, if sometimes small, benefits for holidaymakers. The key thing to remember is that everything is cumulative, and even the smallest reward can eventually add up.
Here are a handful of loyalty programmes that may be worth signing up for, helping you earn on everyday spending, such as grocery shopping, buying toiletries, or even filling up your car with a tank of petrol.
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Tesco Clubcard
Good for: Collecting Virgin Points, earning points on everyday spending, and getting discounts on select items in your weekly food shop Sign up here: Tesco
Tesco Clubcard is perhaps one of the best-known loyalty schemes in Britain– you can read TPG U.K.’s full guide here.
Though you can no longer transfer Clubcard points into Avios (its partnership with BA ended in early 2021), you can turn £1.50 of Clubcard vouchers into 375 Virgin Points, to boost your Virgin Atlantic Flying Club total. Essentially, you can get 2.5 Virgin points for every one Clubcard point.
So, how do you earn Clubcard points? Once you’ve got the card (or have it attached to your online account), you just do your usual grocery shopping at Tesco, picking up one Clubcard point for every £1 you spend. If you drive, fill up your car with fuel at Tesco and earn one point for every £2 spent. Once you’ve earned a certain amount of points, they’ll be collected into Clubcard vouchers, which you can then transfer into Virgin Points. Simple, really.
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Another benefit for Clubcard holders is that it can help save cash on shopping if they keep an eagle eye out for Clubcard Prices (reductions in prices) and various offers, both in-store and online.
Finally, if you’re keen to rack up even more Clubcard points, there is the Tesco Clubcard Credit Card –a no-fee Mastercard (alas with no signing bonus) that offers points for every transaction over a certain amount. Namely, you’ll get five points per £4 spent at Tesco supermarkets, five points for every £4 spent on fuel at Tesco, plus one point per £8 you spend at other shops and retailers. This is on top of the one point per £1 you’ll get from scanning your card, or shopping online.
Say you spend £100 a week (or £400 a month) at Tesco on your family’s food shopping, that’s 400 points (from your loyalty card) and 500 (from your credit card), totalling 900 Tesco Clubcard points, a £9 voucher or 2,250 Virgin Points per month.
Nectar
Good for: Collecting Avios, earning points on everyday purchases and regular food shopping. Sign up here: Nectar
If you’re an Avios collector, then it’s definitely worth also getting a Nectar account. If you’re yet to sign up, you can read TPG U.K.’s full guide here.
Similar to the Tescon Clubcard you can earn Nectar points on everyday transactions. 400 Nectar points can be transferred into 250 Avios, meaning your everyday shopping can contribute to your points-funded dream trip. Until 16 November you can also transfer Avios back to Nectar points at this same rate (250 Avios to 400 Nectar points), after this date this conversion rate will change so you need to convert 300 Avios to get 400 Nectar points. The Nectar to Avios conversion however will remain (for now) set at 400 Nectar points for 250 Avios.
The easiest ways to collect Nectar are to shop at Sainsbury’s (where many purchases, including fuel, will earn you one Nectar point for every £1 spent), as well as at Sainsbury’s Bank, Esso, Argos, Very, even eBay on eligible items. You can also earn by spending with Booking.com, British Airways, DFDS, Expedia and Nectar Hotels (plus more brands, listed on the Nectar website).
To amplify your Nectar-collecting ability, there’s also the Nectar American Express Credit Card, which has a £0 annual fee in the first year (£25 from year two), offers a bonus of 20,000 Nectar points (when you spend £2,000 in the first three months) and a friend referral bonus of 5,000 Nectar points.
Spending on this card gives you two Nectar points per £1 spent on virtually all purchases, but you’ll earn three points per £1 on purchases at Sainsbury’s, Argos and other Nectar partners — as you can double dip for that third point with your loyalty card. Say you spend £100 a week (or £400 a month) at Sainsbury’s on your family’s shopping, that’s around 4,800 Nectar points or 3,000 Avios earned per month.
Related: The ultimate guide to British Airways Avios
Boots Advantage Card
Good for: Buying travel essentials, earning points on regular purchases Sign up here: Boots
With Boots Advantage Card, you collect four points for every £1 you spend in shops, online or via their app, meaning you’ll be racking up points every time you pick up toiletries, make-up, skincare or even a Boots meal deal.
Every point is worth 1p, meaning 1,000 points is £10 to spend. They quickly add up, and though you can’t use your points to get money off a purchase (only to wipe out the full amount), they may well come in handy for frequent travellers. Whether you travel by plane or train, you might find yourself in an airport or station Boots picking up some forgotten sunscreen, travel minis, flight socks, travel adapters, eye masks, or a disposable camera to document your trip… the list could go on.
A range of offers and discounts will be available to holders, too, potentially saving you a bit of money in the long run… though only if you aren’t tempted by sales prices, and only buy what you actually need.
Heathrow Rewards
Good for: Collecting Virgin Points, Avios or other airline rewards Sign up here: Heathrow
In a nutshell: if you spend a lot of time (and money) at London Heathrow Airport (LHR), then you’d be daft not to consider joining Heathrow Rewards.
Generally speaking, you get one point per £1 spent at the airport, as well as one point for every £10 spent at Travelex exchanging money, with a sign-up bonus of 100 points. You’ll even get extra points when you splash out on expensive items from the airport’s designer shops.
You can transfer your points (at a 1:1 rate) to either Virgin Atlantic Flying Club, into Avios points for use with British Airways, as well as Singapore Airlines KrisFlyer and Emirates Skywards, among others. Check out our guide to Heathrow Rewards for the full list.
Related: The best points and miles promotions running right now
Superdrug Health & Beautycard
Good for: Buying travel essentials, earning points on regular purchases Sign up here: Superdrug
Similarly to Boots’ Advantage Card, Superdrug has its own rewards scheme called the Health & Beautycard, which could be useful for travellers in need of a few essentials such as travel toiletries, skincare products, vitamins, etc.
You’ll earn one point per £1 spent, with 100 points equating to £1 to spend in-store – though crucially you can use your points to pay for part of a purchase if you prefer. You’ll also have the chance to earn extra points as you shop, with periods where quadruple points are on offer, as well as receive various offers and discounts.
BPme Rewards
Good for: Collecting Avios, getting money off travel products such as luggage and tech, and earning points on regular fuel top-ups Sign up here: BPme Rewards
Previously, petrol station BP’s rewards scheme was linked to Nectar, but it now runs its own programme called BPme Rewards.
Essentially, you can earn every time you top up your vehicle, wash your car or by nipping into a BP garage for a snack – snapping up two points for every one litre of Ultimate fuel, one point for every litre of regular fuel, and one point for every £1 spent in a BP shop or car wash.
So, how does this help holidaymakers? Well, you can convert 40 BPme points into 25 Avios (though note you can’t turn Avios into BPme points), with an upper limit of 30,000 BPme points being turned into Avios per day. An alternative might be saving them up for Amazon or Marks & Spencer gift cards, to be used for big travel-related purchases such as new luggage, camping gear, clothing, cameras or other handy tech.
Related: British Airways is launching a new wine club where you can earn up to 15 Avios for every £1 spent
Airtime Rewards
Good for: Saving money on your phone bill, earning cashback on everyday spending (even at stores without their own loyalty schemes). Sign up to the app: Airtime Rewards
Airtime Rewards is a bit of an outlier in this list, as though its app rewards you for shopping at around 150 retailers like a traditional loyalty scheme, the reward comes not in point form but as cashback — which can only be used for the specific, immovable purpose of knocking some money off your monthly phone bill.
All you need to do is check if your phone provider will actually let you get the money off your bill (O2, 3, EE, GiffGaff and Vodafone are signed up) and be willing to download the Airtime Rewards app and submit your debit or credit card details, allowing them to track your spending and automatically apply the discount to your account’s wallet when relevant (but P.S. it won’t work for American Express cards).
Retailers signed up to Airtime Rewards offer varying percentages of cashback on your purchases, which could be anything from 1% to as much as 8%. Popular retailers the app lists include Boots (5% back), Argos (2%), Wilko (3%), New Look (2%), Halfords (4%), Currys (1%) and Waterstones (6%). Foodies can get money back from Wagamama, Zizzi, YO! Sushi and Ocado, while people who utilise public transport can get 8% cashback on LNER Trains.
How much you save depends on how often you shop at retailers like these, but it all adds up – and could knock the odd £5 or £10 off your phone bill, perhaps even monthly, meaning more to save for your next getaway. Or to help with any unexpected roaming charges.
Red by Dufry
Good for: Discounts on duty-free shopping, lounge access and even hotels Sign up for the app here: Red by Dufry
Red by Dufry is the loyalty scheme for duty-free shopping at the airport, earning you points when you buy from Dufry shops – such as WorldDutyFree (which we have in the U.K.), ExpressDutyFree, Nuance (Asia, Europe and North America) and Hudson (U.S. and Canada), though tobacco purchases don’t count. You can use the discount and earn points at airport Michael Kors, Gap, Superdry, and Victoria’s Secret stores, too.
Sign up for the app and you’ll immediately get a Silver card (and QR code), which is scanned at checkout to earn five points per €1 EUR spent and get up to 5% off the price of your purchases. Other potential benefits, such as discounts on airport lounge access, various hotels, restaurants, museums and car rentals, are also worth exploring.
Over time, you can increase your discount. Once you’ve spent €400, you’ll have 2,000 and reach Gold status, giving you up to 7% discount – while spending €1,000 EUR gets you 5,000 points and up to 10% off your shopping with the Platinum card. A big bonus is that if your airport of choice is Heathrow, Dufry has confirmed you can also double dip and earn Heathrow Rewards at the same time as Red points – as well as redeem Heathrow Rewards as WorldDutyFree vouchers.
Related: Virgin Red vs BA Shopping: which one is most worth your time?
Waterstones Plus
Good for: Earning point on book purchases, and getting money off your travel guidebooks and holiday reads Sign up here: Waterstones
As far as rewards go, Waterstones Plus is relatively low stakes, but when it comes to maximising your travel, every pound saved is worth the effort. Particularly if you’re an avid reader, who can’t survive a long-haul plane journey without (at least) one book to delve into, need the latest holiday read for a day at the beach, or prefer exploring a new destination with a trusty guidebook in hand.
Simply, you get one Plus stamp for every £10 you spent in Waterstones shops, on the website or in its cafés. When you have 10 Plus stamps, you’ve got £10 to spend in-store. You might also get some useful offers. There’s an option for students, too, which offers the same stamps-to-cash scenario but adds a bumper 5% discount on most purchases.
Texaco Star Rewards
Good for: Earning points on regular fuel top-ups, and getting money off travel purchases such as luggage and tech Sign up here: Texaco Star Rewards
Another rewards scheme for drivers, petrol station Texaco’s offering – called Star Rewards – has another straightforward premise, with one litre of fuel purchased equaling one point. When you have 500 points, you’ve got £5 to spend, either with Texaco or by converting your points into vouchers that can be used with various retailers – plus you get a 200-point sign-up bonus.
Most notably for travellers, Texaco points can be converted into a Love2Shop voucher, which can pay for or be put towards online purchases at Argos, Currys PC World, John Lewis, Marks & Spencer and Sports Direct – potentially saving you money on travel purchases such as luggage, cameras, or even just some new shoes. You can also use a certain value of voucher towards purchases with the National Trust, boosting any U.K. trips you might take.
Costa Club
Good for: Coffee lovers who want regular freebies while in transit Sign up here: Costa Coffee
If you frequently find yourself drawn to the unmistakable mauve exterior of Costa Coffee when at any British train station or airport, then joining Costa Club – the brand’s loyalty scheme – is a no-brainer.
To be fair, there isn’t loads to think about here. When you buy eight (hot or cold) drinks, you’ll get the ninth free, or if you get your beverage in an environmentally-friendly reusable cup, you’ll only need to buy four to get your next freebie. A bonus is a free piece of cake on your birthday, too.
Costs can quickly add up as you wander the airport or while dipping into train station shops to buy snacks for your rail journey, so you might as well make the most of any savings.
If you owe federal income tax and can’t pay in full, the IRS Fresh Start program can help you get caught up. Fresh Start was established by the federal government in 2011 to offer some relief to taxpayers and curb predatory practices by the IRS. Under the Fresh Start Initiative, eligible taxpayers can enroll in a payment plan to clear their tax debt or negotiate an agreement to pay less than what’s owed. Either one could help you get back on track financially if you have an outstanding tax bill. You can also talk to a financial advisor about how to manage your tax liability going forward.
Understanding IRS Fresh Start
The IRS Fresh Start program or Fresh Start initiative was established in 2011 to help eligible taxpayers manage past-due tax debts. The program is designed to aid people who don’t have a prior history of unpaid taxes and aren’t subject to a federal tax lien.
Fresh Start offers help in one of four ways:
Payment plans
Offers in compromise
Currently not collectible status
Penalty abatements
The main goal of the Fresh Start program is to help individuals and business owners resolve their federal tax debt, without being unfairly penalized by the IRS. That includes allowing taxpayers who might otherwise be subject to a tax lien to avoid that scenario.
IRS Fresh Start Tax Relief Options
As mentioned, there are four avenues taxpayers can use to get tax relief through the Fresh Start initiative. Each one is designed to meet a different type of need.
If you’re interested in seeking tax relief through Fresh Start, here’s how the options compare.
Payment plans: The IRS offers short- and long-term payment plans, also referred to as installment agreements, to eligible taxpayers. Short-term plans must be paid in full within 180 days while long-term plans may allow you up to 84 months to repay tax debt, depending on how much you owe.
Offer in compromise: An offer in compromise allows you to repay tax debt for less than what you owe. You must be able to prove a financial hardship that prevents you from paying what you owe in full. If approved, you’d need to be able to pay the IRS an agreed-upon amount to settle your tax debt in a series of periodic payments.
Currently not collectible status: Currently not collectible status allows you to claim financial hardship and temporarily pause your obligations to repay your tax debt. While your account is marked as currently not collectible, the IRS cannot take any collection actions against you and must halt any levies, including bank account levies and tax refund offsets.
Penalty abatement: When you fail to pay taxes on time, penalties and interest can accrue. Penalty abatement allows you to get some relief from penalties if you owe a significant amount of tax debt.
Who Qualifies for IRS Fresh Start Relief?
Generally speaking, you may qualify for help through the Fresh Start program if you:
Owe federal income tax
Don’t have a history of unpaid taxes
Are not yet subject to a federal tax lien
Cannot pay your tax bill in full
If you’re specifically interested in a payment plan, your ability to qualify can depend on how much you owe. You may qualify to apply online for a long-term payment plan if you owe $50,000 or less in combined tax, penalties and interest, or for a short-term plan if you owe $100,000 or less. Business owners can apply online for a long-term payment plan if they’ve filed their tax return and owe $25,000 or less in combined tax, penalties and interest.
The IRS approves Offers in Compromise on a case-by-case basis. To apply, you’ll need to have filed all required tax returns and made the required estimated payments. You can’t be in a bankruptcy proceeding and you must have filed a valid tax extension. Approval is based on your:
Ability to pay
Income
Expenses
Asset equity
The IRS encourages taxpayers to explore payment plan options before applying for an Offer in Compromise.
You’ll need to contact the IRS to apply for currently not collectible status if you’re experiencing a significant financial hardship. The IRS may ask you to file any past-due tax returns if you haven’t done so and you’ll likely need to provide documentation proving your hardship situation. Late payment penalties and interest will continue to accrue on your account.
If you receive an IRS notice for back taxes, the notice may include instructions on how to apply for penalty abatement. You’ll need to call the IRS and provide some information to the IRS about your taxes and financial situation. You can also submit Form 843, Claim for Refund and Request for Abatement if you’re not able to call.
IRS Fresh Start Advantages and Disadvantages
The Fresh Start program is designed to offer some benefits to people who are dealing with unpaid tax debt. Specifically, this program can help you to avoid:
IRS levies
Federal tax liens
Wage garnishments
Criminal penalties
Once you qualify for Fresh Start relief through a payment plan or Offer in Compromise, you’re automatically sheltered from those types of outcomes since you’re making an effort to resolve your debt with the IRS.
Claiming currently not collectible status can also create some breathing room financially if you’re experiencing an extreme hardship that leaves you unable to pay what you owe. Penalty abatement, meanwhile, can reduce some of what you owe in penalties to the IRS.
Fresh Start is not a perfect solution, however. If you enroll in a payment plan, then penalties and interest will continue to accrue until the balance is paid in full. So, the total paid can exceed more than your actual tax balance due.
If you’re interested in an Offer in Compromise, it’s also important to keep in mind that getting approved can be challenging. The IRS wants to collect as much of your unpaid tax debt as possible. If you’re unable to provide sufficient proof of a hardship that keeps you from paying in full, you may be denied. In that case, you’d have to reconsider a short- or long-term payment plan.
The Bottom Line
IRS Fresh Start can help you get out of a tax debt hole if you owe money to the federal government. If you also owe state income tax, you’d need to reach out to your state tax authority to discuss repayment options. The most important thing to remember if you owe taxes is that some action is better than none since your obligation to pay won’t go away.
Tax Planning Tips
Staying on top of your tax situation can help you avoid being hit with a surprise bill when it’s time to file your return. Talking to a financial advisor about how to minimize your tax liability can ensure that you’re paying enough to stay in favor with the IRS, without paying more than you need to. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
The simplest way to avoid IRS tax penalties and interest is to pay what you owe by the filing deadline. If you don’t have cash readily available to pay, you might consider getting a personal loan to pay instead.
Rebecca Lake, CEPF®
Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.