10 States With the Highest Sales Taxes

Before you embark on a shopping spree in any of the 10 worst states for sales taxes featured here, you’ll want to make extra room in your budget. Our biggest offender clocks in at 9.55% once both state and local sales taxes are factored in (continue reading our round-up to find out which state is the priciest culprit).

However, retirees and other relocators shouldn’t judge a state by its sales tax alone. While this expense may be costlier in some areas, residents in states with a high sales tax may be able to reap the benefits of other tax-related perks, such as not having to pay state income tax.

Got your attention? Take a look at our list to find out which states will nickel-and-dime you the most on everyday purchases.

Sales tax values are for 2020 and were compiled by the Tax Foundation. Income tax brackets are for the 2020 tax year. Property tax values are for 2019.

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10. New York

The state of New York.The state of New York.

Overall Rating for Middle-Class Families: Least tax-friendly

State Sales Tax: 4% state levy. Localities can add as much as 4.875%, and the average combined rate is 8.52%, according to the Tax Foundation. In the New York City metro area, there is an additional 0.375% sales tax to support transit. Clothing and footwear that cost less than $110 (per item or pair) are exempt from sales tax. Groceries and prescription drugs are exempt, too. Motor vehicle sales are taxable, though.

Income Tax Range: Low: 4% (on up to $8,500 of taxable income for single filers and up to $17,150 for married couples filing jointly); High: 8.82% (on taxable income over $1,070,550 for single filers and over $2,155,350 for married couples filing jointly).

Starting in 2021, the top rate is 10.9% on taxable income over $25 million (regardless of filing status).

New York City and Yonkers imposed their own income tax. A commuter tax is also imposed on residents of New York City, as well as on residents of Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess, and Westchester Counties.

Property Taxes: In the Empire State, the median property tax rate is $1,692 per $100,000 of assessed home value. 

For details on other state taxes, see the New York State Tax Guide for Middle-Class Families.

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9. California

The state of California.The state of California.

Overall Rating for Middle-Class Families: Most tax-friendly

State Sales Tax: 7.25% state levy. Localities can add as much as 2.5%, and the average combined rate is 8.68%, according to the Tax Foundation. Groceries and prescription drugs are exempt from these taxes, but clothing and motor vehicles are taxed. 

Income Tax Range: Low: 1% (on up to $17,864 of taxable income for married joint filers and up to $8,932 for those filing individually); High: 13.3% (on more than $1,198,024 for married joint filers and $1 million for those filing individually).

Property Taxes: If you’re planning to buy a home in the Golden State, the median property tax rate is $729 per $100,000 of assessed home value. 

For details on other state taxes, see the California State Tax Guide for Middle-Class Families.

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8. Kansas

The state of Kansas.The state of Kansas.

Overall Rating for Middle-Class Families: Least tax-friendly

State Sales Tax: 6.5% state levy. Localities can add as much as 4%, and the average combined rate is 8.69%, according to the Tax Foundation. These rates also apply to groceries, motor vehicles, clothing and prescription drugs. 

Income Tax Range: Low: 3.1% (on $2,501 to $15,000 of taxable income for single filers and $5,001 to $30,000 for joint filers); High: 5.7% (on more than $30,000 of taxable income for single filers and more than $60,000 for joint filers).

Property Taxes: Kansans who own their homes pay a median property tax rate of $1,369 per $100,000 of assessed home value. 

For details on other state taxes, see the Kansas State Tax Guide for Middle-Class Families.

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7. Illinois

The state of Illinois.The state of Illinois.

Overall Rating for Middle-Class Families: Least tax-friendly

State Sales Tax: 6.25% state levy. Localities can add as much as 4.75%, and the average combined rate is 8.82%, according to the Tax Foundation. Food and prescription drugs are taxed at only 1% by the state. Clothing and motor vehicles are fully taxed.

Income Tax Range: There is a flat rate of 4.95% of federal adjusted gross income after modifications.

Property Taxes: For homeowners in Illinois, the median property tax rate is $2,165 per $100,000 of assessed home value — the second highest in our round-up.

For details on other state taxes, see the Illinois State Tax Guide for Middle-Class Families.

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6. Oklahoma

The state of Oklahoma.The state of Oklahoma.

Overall Rating for Middle-Class Families: Not tax-friendly

State Sales Tax: 4.5% state levy. Localities can add as much as 7%, and the average combined rate is 8.95%, according to the Tax Foundation. Prescription drugs are exempt and motor vehicles are taxed at a rate of 1.25% (a 3.25% excise tax also applies). Grocery items and clothing are taxable at 4.5%, plus local taxes. 

Income Tax Range: Low: 0.5% (on up to $1,000 of taxable income for single filers and up to $2,000 for married joint filers); High: 5% (on taxable income over $7,200 for single filers and over $12,200 for married joint filers).

Property Taxes: For Oklahomans who own a home, the median property tax rate is $869 per $100,000 of assessed home value. 

For details on other state taxes, see the Oklahoma State Tax Guide for Middle-Class Families.

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5. Alabama

Photo of AlabamaPhoto of Alabama

Overall Rating for Middle-Class Families: Tax-friendly

State Sales Tax: 4% state levy. Localities can add as much as 7.5% to that, and the average combined rate is 9.22%, according to the Tax Foundation. Prescription drugs are exempt. Groceries and clothing are fully taxable, while motor vehicles are taxed at a reduced rate of 2% (additional local taxes may apply).

Income Tax Range: Low: 2% (on up to $1,000 of taxable income for married joint filers and up to $500 for all others); High: 5% (on more than $6,000 of taxable income for married joint filers and more than $3,000 for all others). 

Some Alabama municipalities also impose occupational taxes on salaries and wages.

Property Taxes: In Alabama, the median property tax rate is $395 per $100,000 of assessed home value — the lowest on our list.

For details on other state taxes, see the Alabama State Tax Guide for Middle-Class Families.

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4. Washington

The state of Washington.The state of Washington.

Overall Rating for Middle-Class Families: Most tax-friendly

State Sales Tax: 6.5% state levy. Municipalities can add up to 4% to that, with the average combined rate at 9.23%, according to the Tax Foundation. Grocery items and prescription drugs are exempt. Clothing is taxable, as are motor vehicles. However, there’s an additional 0.3% tax on sales of motor vehicles.

Income Tax Range: Washington has no state income tax.

Property Taxes: Home buyers in the Evergreen State can expect to pay a median property tax rate of $929 per $100,000 of assessed home value. 

For details on other state taxes, see the Washington State Tax Guide for Middle-Class Families.

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3. Arkansas

The state of Arkansas.The state of Arkansas.

Overall Rating for Middle-Class Families: Mixed tax picture

State Sales Tax: 6.5% state levy. Localities can add as much as 5.125%, and the average combined rate is 9.51%, according to the Tax Foundation. Prescription drugs are exempt. Grocery items are taxed at 0.125% (additional local taxes may apply). Motor vehicles are taxed if the purchase price is $4,000 or more (7% tax rate in Texarkana). However, starting in 2022, the rate on sales of used motor vehicles priced between $4,000 and $10,000 will only be 3.5%. Clothing is taxed at the standard rate.

Income Tax Range: Low: 2% (on taxable income from $4,500 to $8,899 for taxpayers with net income less than $22,200), 0.75% (on first $4,499 of taxable income for taxpayers with net income from $22,200 to $79,300), or 2% (on on first $4,000 of taxable income for taxpayers with net income over $79,300); High: 3.4% (on taxable income from $13,400 to $22,199 for taxpayers with net income less than $22,200), 5.9% (on taxable income from $37,200 to $79,300 for taxpayers with net income from $22,200 to $79,300), or 6.6% (on taxable income over $79,300 for taxpayers with net income over $79,300). Beginning in 2021, the top rate for taxpayers with net income over $79,300 will be 5.9% (on taxable income over $8,000).

A “bracket adjustment” of between $40 and $440 is subtracted from the amount of tax due for taxpayers with net income from $79,301 to $84,600.

Property Taxes: For homeowners in the Natural State, the median property tax rate is $612 per $100,000 of assessed home value. 

For details on other state taxes, see the Arkansas State Tax Guide for Middle-Class Families.

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2. Louisiana

The state of Louisiana.The state of Louisiana.

Overall Rating for Middle-Class Families: Tax-friendly

State Sales Tax: 4.45% state levy. Localities can add as much as 7%, and the average combined rate is 9.52%, according to the Tax Foundation. Groceries and prescription drugs are exempt from the state’s sales tax, but localities may tax these. Clothing and motor vehicles are taxable.

Income Tax Range: Low: 2% (on $12,500 or less of taxable income for individuals, $25,000 for joint filers); High: 6% (on more than $50,000 of taxable income, $100,000 for joint filers). 

Property Taxes: The median property tax rate in Louisiana is $534 per $100,000 of assessed home value. 

For details on other state taxes, see the Louisiana State Tax Guide for Middle-Class Families.

 

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1. Tennessee

The states of TennesseeThe states of Tennessee

Overall Rating for Middle-Class Families: Most tax-friendly

State Sales Tax: 7% state levy. There’s also an additional state tax of 2.75% on sales of single items that applies to the portion of the sales price from $1,600 to $3,200. Localities can add up to 2.75%, with an average combined rate of 9.55%, according to the Tax Foundation. Groceries are taxed at 4% by the state, in addition to any additional local taxes. Clothing is taxed at the standard rate. Motor vehicles are taxed at the basic 7% rate, plus the additional 2.75% on purchases between $1,600 and $3,200. There’s no tax on prescription drugs. 

Income Tax Range: There’s no state income tax in Tennessee. However, dividends and some interest are subject to the Hall Tax at a 1% rate in 2020. The first $1,250 in taxable income for individuals ($2,500 for joint filers) is exempt. 2020 is the last year for this tax, which is being phased out. Also, the tax is waived if you’re over the age of 100.

Property Taxes: In Tennessee, the median property tax rate is $636 per $100,000 of assessed home value. 

For details on other state taxes, see the Tennessee State Tax Guide for Middle-Class Families.

Source: kiplinger.com

What Is a Bond Mutual Fund – Risks & Different Types of This Investment

Investing is an important part of saving for the future, but many people are wary of putting their money into the stock market. Stocks can be volatile, with prices that change every day. If you can’t handle the volatility and risk of stocks or want to diversify your portfolio into a less risky investment, bonds are a good way to do so.

As with many types of investments, you can invest in bonds through a mutual fund, which gives you easy diversification and professional portfolio management — for a fee.

Are bond mutual funds a good addition to your portfolio? Here are the basics of these investment vehicles.

What Is a Bond?

A bond is a type of debt security. When organizations such as national and local governments, government agencies, or companies want to borrow money, one of the ways they can get the loan they need is by issuing a bond.

Investors purchase bonds from the organizations issuing them. Typically, bonds come with an interest rate and a maturity. For example, a company might sell bonds with an interest rate of 5% and a maturity of 20 years.

The investor would pay the company $1,000 for a $1,000 bond. Each year, that investor receives an interest payment of $50 (5% of $1,000). After 20 years, the investor receives a final interest payment plus the $1,000 they paid to buy the bond.


What Is a Mutual Fund?

A mutual fund is a way for investors to invest in a diverse portfolio while only having to purchase a single security.

Mutual funds pool money from many investors and use that money to buy bonds, stocks, and other securities. Each investor in the fund effectively owns a portion of the fund’s portfolio, so an investor can buy shares in one mutual fund to get exposure to hundreds of stocks or bonds.

This makes it easy for investors to diversify their portfolios.

Mutual fund managers make sure the fund’s portfolio follows their stated strategy and work towards the fund’s stated goal. Mutual funds charge a fee, called an expense ratio, for their services, which is important for investors to keep in mind when comparing funds.

Pro tip: Most mutual funds can be purchased through the individual fund family or through an online broker like Robinhood or Public.


Types of Bond Mutual Funds

There are many types of bond mutual funds that people can invest in.

1. Government

Government bond funds invest most of their money into bonds issued by different governments. Most American government bond funds invest primarily in bonds issued by the U.S. Treasury.

U.S. government debt is seen as some of the safest debt available. There is very little chance that the United States will default on its payments. That security can be appealing for investors, but also translates to lower interest rates than other bonds.

2. Corporate

Corporate bond funds invest most of their assets into bonds issued by companies.

Just like individuals, businesses receive credit ratings that affect how much interest they have to pay to lenders — in this case, investors looking to buy their bonds. Most corporate bond funds buy “investment-grade” bonds, which include the highest-rated bonds from the most creditworthy companies.

The lower a bond’s credit rating, the higher the interest rate it will pay. However, lower credit ratings also translate to a higher risk of default, so corporate bond funds will hold a mixture of bonds from a variety of companies to help diversify their risks.

3. Municipal

Municipal bonds are bonds issued by state and local governments, as well as government agencies.

Like businesses, different municipalities can have different credit ratings, which impacts the interest they must pay to sell their bonds. Municipal bond funds own a mixture of different bonds to help reduce the risk of any one issuer defaulting on its payments.

One unique perk of municipal bonds is that some or all of the interest that investors earn can be tax-free. The tax treatment of the returns depends on the precise holdings of the fund and where the investor lives.

Some mutual fund companies design special municipal bond funds for different states, giving investors from those states an option that provides completely tax-free yields.

The tax advantages municipal bond funds offer can make their effective yields higher than other bond funds that don’t offer tax-free yields. For example, someone in the 24% tax bracket would need to earn just under 4% on a taxable bond fund to get the equivalent return of a tax-free municipal bond fund offering 3%.

4. High-Yield

High-yield bond funds invest in bonds that offer higher interest rates than other bonds, like municipal bonds and government bonds.

Typically, this means buying bonds from issuers with lower credit ratings than investment-grade bonds. These bonds are sometimes called junk bonds. Their name comes from the fact that they are significantly riskier than other types of bonds, so there’s a higher chance that the issuer defaults and stops making interest payments.

Bond mutual funds diversify by buying bonds from hundreds of different issuers, which can help reduce this risk, but there’s still a good chance that some of the bonds in the fund’s portfolio will go into default, which can drag down the fund’s performance.

5. International

Foreign governments and companies need to borrow money just like American companies and governments. There’s nothing stopping Americans from investing in foreign bonds, so there are some mutual funds that focus on buying international bonds.

Each country and company has a credit rating that impacts the interest rate it has to pay. Many stable governments are seen as highly safe, much like the United States, but smaller or less economically developed nations sometimes have lower credit ratings, leading them to pay higher interest rates.

Another factor to keep in mind with international bonds is the currency they’re denominated in.

With American bonds, you buy the bond in dollars and get interest payments in dollars. If you buy a British bond, you might have to convert your dollars to pounds to buy the bond and receive your interest payments in pounds. This adds some currency risk to the equation, which can make investing in international bond funds more complex.

6. Mixed

Some bond mutual funds don’t specialize in any single type of bond. Instead, they hold a variety of bonds, foreign and domestic, government and corporate. This lets the fund managers focus on buying high-quality bonds with solid yields instead of restricting themselves to a specific class of bonds.


Why Invest in Bond Mutual Funds?

There are a few reasons for investors to consider investing in bond mutual funds.

Reduce Portfolio Risk and Volatility

One advantage of investing in bonds is that they tend to be much less risky and volatile than stocks.

Investing in stocks or mutual funds that hold stocks is an effective way to grow your investment portfolio. The S&P 500, for example, has averaged returns of almost 10% per year over the past century. However, in some years, the index has moved almost 40% upward or downward.

Over the long term, it’s easier to handle the volatility of stocks, but some people don’t have long-term investing goals. For example, people in retirement are more concerned with producing income and maintaining their spending power.

Putting some of your portfolio into bonds can reduce the impact of volatile stocks on your portfolio. This can be good for more risk-averse investors or those who have shorter time horizons for their investments.

There are some mutual funds, called target-date mutual funds, that hold a mix of stocks and bonds and increase their bond holdings over time, reducing risk as the target date nears.

Income

Bonds make regular interest payments to their holders and the majority of bond funds use some of the money they receive to make payments to their investors. This makes bond mutual funds popular among investors who want to make their investment portfolio a source of passive income.

You can look at different bond mutual funds and their annual yields to get an idea of how much income they’ll provide each year. For example, if a mutual fund offers a yield of 2.5%, investors can expect to receive $250 each year for every $10,000 they invest in the fund.

Pro tip: Have you considered hiring a financial advisor but don’t want to pay the high fees? Enter Vanguard Personal Advisor Services. When you sign up you’ll work closely with an advisor to create a custom investment plan that can help you meet your financial goals. Read our Vanguard Personal Advisor Services review.


Risks of Bond Funds

Before investing in bonds or bond mutual funds, you should consider the risks of investing in bonds.

Interest Rate Risk

One of the primary risks of fixed-income investing — whether you’re investing in bonds or bond funds — is interest rate risk.

Investors can buy and sell most bonds on the open market in addition to buying newly issued bonds directly from the issuing company or government. The market value of a bond will change with market interest rates.

In general, if market rates rise, the value of existing bonds falls. Conversely, if market rates fall, the value of existing bonds rises.

To understand why this happens, consider this example. Say you purchased a BBB-rated corporate bond with an interest rate of 2% for $1,000. Since you bought the bond, market rates have increased, so now BBB-rated companies now have to pay 3% to convince investors to buy their bonds.

If someone can buy a new $1,000 bond paying 3% interest, why would they pay you the same amount for your $1,000 bond paying 2% interest? If you want to sell your bond, you’ll have to sell it at a discount because investors can get a better deal on newly issued bonds.

Of course, the opposite is true if interest rates fall. In the above example, if market rates fell to 1%, you could command a premium for your bond paying 2% because investors can’t find new bonds of the same quality that pay that much anymore.

Interest rate risk applies to bond funds just as it applies to individual bonds. As rates rise, the share price of the fund tends to fall and vice versa.

Generally, the longer the bond’s maturity, the greater the effect a change in market interest rates will have on the bond’s value. Short-term bonds have much less interest rate risk than long-term bonds. Bond funds usually list the average time to maturity of bonds in their portfolio, which can help you assess a fund’s interest rate risk.

Credit Risk

Bonds are debt securities, meaning they’re reliant on the bond issuer being able to pay its debts.

Just like people, companies and governments can go bankrupt or default on their loan payments. If this happens, the people who own those bonds won’t get the money they lent back.

Bond mutual funds hold thousands of bonds, but if one of the issuers defaults, some of the fund’s bonds become worthless, reducing the value of the investors’ shares in the fund.

Bonds issued by organizations with higher credit ratings are generally less risky than those with poor credit ratings. For example, most people would consider U.S. government bonds to have a very low credit risk. A junk bond fund would have much more credit risk.

Foreign Exchange Risk

If you’re buying shares in a bond fund that invests in foreign bonds, you should consider foreign exchange risk.

Currencies constantly fluctuate in value. Over the past five years, $1 could buy anywhere between 0.80 and 0.96 euros.

To maximize returns, investors want to buy foreign bonds when the dollar is strong and receive interest payments and return of principal when the dollar is weak.

However, it’s incredibly hard to predict how currencies’ values will change over time, so investors in foreign bonds should consider how changing currency values will affect their returns.

Some bond funds use different strategies to hedge against this risk, using tools like currency futures or buying dollar-denominated bonds from foreign entities.

Fees

Mutual funds charge fees, which they commonly express as an expense ratio.

A fund’s expense ratio is the percentage of your invested assets that you pay each year. For example, someone who invests $10,000 in a mutual fund with a 1% expense ratio will pay $100 in fees each year.

Expense ratio fees are included when calculating the fund’s share price each day, so you don’t have to worry about having cash on hand to pay the fee. The fees are taken directly out of the fund’s share price, almost imperceptibly. Still, it’s important to understand the impact fees have on your overall returns.

If you invest $10,000 in a fund that produces an annual return of 5% and has a 0.25% expense ratio, after 20 years you’ll have $25,297.68. If that same fund had an expense ratio of 0.50%, you’d finish the 20 years with $24,117.14 instead.

In this example, a difference of 0.25% in fees would cost you more than $1,000.

If you find two bond funds with similar holdings and strategies, the one with the lower fees tends to be the better choice.


Final Word

Bond mutual funds are a popular way for investors to get exposure to bonds in their portfolios. Just as there are many different types of stocks, there are many types of bonds, each with advantages and disadvantages.

If you don’t want to pick and choose bonds to invest in, bond funds offer instant diversification and professional management. If you want an even more hands-off investing experience, working with a financial advisor or robo-advisor that handles your entire portfolio may be worth considering.

Source: moneycrashers.com

5 Tips on How to Store Winter Clothes

Sewing is not something everyone is fluent in, and let’s face it — it is a time-consuming and often frustrating activity. Fortunately, with the right resources, you can easily repair your winter items before storing them with iron-on patches. (Here’s a side gig opportunity for you sewers out there. Offer to make these repairs for friends or the winter sports community for cash, of course.)
Most department stores stock iron-on patches, making it as simple as heading to your local Walmart or Joann Fabrics to quickly and economically get your winter clothes ready for long-term storage.

5 Ways to Get More Life Out Cold Weather Clothes

Patagonia offers a free repair for all of its branded clothing, for example. All you need to do is submit a repair assessment form and Patagonia will pay for the shipping and repair of your item.
You may be tempted to stuff that down parka in a box and store it in the attic. After all, you want that closet space for summer clothes. But don’t. Down needs to breathe. Follow the tips below but let the coat hang loose in the closet. When you’re ready to wear it again, and doesn’t that come too soon, toss it in the dryer on low for about 10 minutes.

1. Repair Before You Pack

To wash a down jacket, aim to use a front-loading washer (top-loading washer drums can sometimes agitate or distort down items). Place the down jacket in the washer with like items (ahem, your other winter clothes), set the wash and rinse setting to cold water, and use a down-specific detergent.
One unique trait of winter clothing is that much of it is waterproof or water-resistant. This comes in handy during snowstorms, sleet and slush that are trademarks of the year’s most frigid months.
There are tons of waterproofing products on the market to protect your winter gear. Many exist in the form of sprays or paint-on coatings that dry quickly and do not impact the look or feel of the clothing. Most cost under and will help your winter clothes last for numerous snowstorms to come.
Source: thepennyhoarder.com
Whether you’re hoping to make your winter wardrobe more resistant to the elements or protect a particularly cozy sweater from the cold, making the investment in waterproofing before storing winter clothes will help you save time and money next year and beyond.
Being proactive is rarely a bad thing. In this case, taking steps to prevent winter clothes-loving critters like moths and mice will pay dividends in keeping your winter gear creature-free.

2. Prepare for the Next Snowstorm … a Year in Advance

REI also makes it easy to extend the life of your winter gear before storing it into a closet. Whether you have a backpack, jacket, shirt, or winter shoes  that could use some love, REI has you covered and will provide you with a free estimate for any repairs.
Instead, make your first stop in storing winter clothes the repair shop. And thanks to nationally available programs, fixing a rip or tear doesn’t have to cost you a fortune.
Wool coats, however, can be stored in bug-proof garment bags and stored in the attic or basement. Read on for more tips.
It may seem obvious, but giving winter gear a once-over with detergent or other cleaning supplies will help winter coats, winter shoes, and other cold-weather items to maintain their textile integrity and bonus —  it will help keep clothes smelling fresh for the next time you pull them out and over your head.
The sting of winter’s cold is finally giving way to the warmer, sunnier days of spring. As the seasons change, so too does our wardrobe. Goodbye parka, hello light sweater. It’s a welcome change for many of us to store our winter clothes and not give them a second thought for many months.

3. Bring the Heat to the Cold

Winter is a harsh season. For many of us, it entails snow, wind, mud and sidewalk salt. All of these can impact the integrity of your favorite winter clothes.
To ward off moths and other bugs, spend less than on a bag of cedar chips. Place the chips in the storage bin, plastic bag, or closet where you are storing winter clothes and let the refreshing cedar scent not only soothe your nose, but naturally ward off undesirable insects. Cedar will not damage clothes or alter them, either, making it a cheap way to keep winter clothes fresh.
Ensuring that down-filled products — and all winter gear — are entirely dry before storing them in a closet for months is critical. Down products can go in a low-heat dryer. For other products such as shoes and boots, using a low-heat setting on a hairdryer or good ole’ air drying should suffice.
But knowing how to store winter clothes is key to making garments last beyond one season. Down parkas can cost anywhere from 0 to ,000. No matter what you spend, you don’t want to flush that money away. Taking care to store winter clothes with an eye for longevity can help turn your one-season parka purchase into a multi-decade investment, saving you hundreds  — if not thousands — of dollars over the years.

Depending on how big the tear is, a tailor might charge to . If you have a good relationship with a cleaners, their tailor might make the fix for less. On a less expensive coat, the repair might not be worth it but if you’ve paid 0 or more and only worn the coat for one season, consider the repair.

4. Ward Off the Vermin

Colorado-based writer Kristin Jenny focuses on lifestyle and wellness. She is a regular contributor to The Penny Hoarder.
Instead of chucking those winter boots into a closet and hoping for the best, be proactive  by restoring waterproof abilities prior to tossing in a storage container.
Iron-on patches are extremely cheap — often less than —and only require a hot iron in order to be effective.
Storing winter clothes is a process that should be done with some thought and should not be a haphazard process of tossing things into plastic bags, shoving them under the bed, and calling it good.
Although bugs are typically the main culprit in clothing destruction, mice are not uncommon predators to winter clothing in long term storage or hastily-packed storage bins.

5. Keep it Clean

Winter clothing is rarely cheap and is often a budget-altering expense. From boots costing over 0 to specialized pants and accessories starting in the -range, it is to your benefit to know how to store winter clothes. When done correctly, you’ll have gear that lasts for years —if not decades — and will save you enough money to perhaps take that ski trip you’ve always dreamed about.
There are a variety of iron-on patches to choose from, with some made specific for nylon gear, some for jeans, and others for standard cotton clothing.
For synthetic and water-resistant products like Gore-Tex, a damp towel with some gentle soap should be enough to wipe away a winter’s worth of grime. The same goes for many winterized shoes and winter boots.
Even the most durable of winter gear can rip, snag or tear. While programs like those of Patagonia and REI will assist in repairing everything from damaged clothing to worn winter boots, sometimes it can be easier and more efficient to fix a small hole yourself.
For just about , you can purchase these ultrasonic sensors to put in your closet, small space, or attic and know that your winter gear will be safe for another season.
Outside of mouse traps, ultrasonic mice repellent sensors are a natural and slightly less grisly way to defend against these four-legged foe.
Nothing lasts forever, including the waterproof coating that protects much of the winter gear you’re getting ready to put into a storage bin.

What Is a Security – Definition & Types That You Can Invest In

Securities are one of the most important assets to understand when you’re starting to invest. Almost every investment you can make involves securities, so knowing about the different types of securities and how they fit in your portfolio can help you design a portfolio that fits with your investing goals.

What Is a Security?

A security is a financial instrument investors can easily buy and sell. The precise definition varies with where you live, but in the United States, it refers to any kind of tradable financial asset.

Securities may be represented by a physical item, such as a certificate. Securities can also be purely electronic, with no physical representation of their ownership. The owner of a security, whether it is physical or digital, receives certain rights based on that ownership.

For example, the owner of a bond is entitled to receive interest payments from the issuer of that bond.


Types of Securities

There are many different types of securities, each with unique characteristics and a different role to play in your portfolio.

Stock

A stock is a security that represents ownership of a company.

When a business wants to raise money — for example, to invest in expanding the business — it can issue stock to investors. Investors give the business money and receive an ownership interest in the company in exchange.

The number of shares that exist in a company determine how much ownership each individual share confers. For example, someone who owns one share in a company with 100 shares outstanding owns 1% of the company. If that business instead had 100,000 shares outstanding, a single share would represent ownership of just 0.001% of the business.

Investors can easily buy and sell shares in publicly traded companies through the stock market. Shares regularly change in value, letting investors buy them and sell them for either a loss or a profit. Owning stock also entitles the shareholder to a share of the company’s earnings in the form of dividends if the company chooses to pay them, and the right to vote in certain decisions the company must make.

Bonds

A bond is a type of debt security that represents an investor’s loan to a company, organization, or government.

When a business or other group wants to raise money but doesn’t want to give away ownership, it can instead borrow money. Individuals typically borrow money from a bank, but companies and larger organizations often borrow money by issuing bonds.

When an organization needs to borrow money, it chooses an interest rate and the amount that it wants to borrow. It then offers to sell bonds to investors until it sells enough bonds to get the amount of money it wishes to borrow.

For example, a company may decide to issue $10 million worth of bonds at an interest rate of 5%. It will sell bonds in varying amounts, usually with a minimum purchase requirement, until it raises $10 million. Then, the company stops selling the bonds.

With most bonds, the issuing organization will make regular interest payments to the person who owns the bond. The payments are based on the interest rate and the value of the bond purchased. For a $1,000 bond at an interest rate of 5%, the issuer might make two annual payments of $25.

The bonds also come with a maturity date. Once the maturity date arrives, the bond issuer returns the money it raised to the bondholders and stops making interest payments. For example, when it matures, the holder of the $1,000 bond might receive a final interest payment of $25 plus the $1,000 they initially paid to buy the bond.

Interest payments and returned principal go to the person who holds a bond on the payment date, not necessarily the original purchaser. This means that people who own bonds can sell them to other investors who want to receive interest payments. The value of a bond will depend on how much time is left until it matures, the bond’s interest rate, the current interest rate market, and the bond’s principal value.

Money Market Securities

Money market securities are incredibly short-term debt securities. These types of securities are similar to bonds, but their maturities are generally measured in weeks instead of years.

Because of their short maturities and their safety, investors often see money market securities and investments in money market funds as equivalent to cash.

Mutual Funds and ETFs

Mutual funds and exchange-traded funds (ETFs) are both securities that purchase and hold other securities. They make it easier for investors to diversify their portfolios and offer hands-off management for investors.

For example, a mutual fund may purchase shares in many different companies. Investors can purchase shares in that mutual fund, which gives them an ownership stake in the different shares that the fund holds. By buying shares in one security — the mutual fund — the investor gets exposure to many securities at once.

The primary difference between mutual funds and ETFs is how investors buy and sell them. With mutual funds, investors place orders that settle at the end of the trading day. That makes mutual funds best for long-term, passive investment. ETFs are traded on the open market, so investors can buy them from or sell them to other investors whenever the market is open. This means ETFs can be used as part of an active trading strategy.

There are many different types of mutual funds and ETFs, each with its own investing strategy. Some mutual funds aim to track a specific index of stocks. Others actively trade securities to try to beat the market. Some funds hold a mix of stocks and bonds.

Mutual funds and ETFs are not free to invest in. Most charge fees, called expense ratios, that investors pay each year. For example, a fund with an expense ratio of 0.25% charges 0.25% of the investor’s assets each year. Fees vary depending on the fund provider and the fund strategy.

Preferred Shares

Preferred shares or preferred stock are a special kind of shares in a company, which have different characteristics than shares of common stock.

Compared to common stock, preferred shares typically:

  • Have priority for dividends over common stock
  • Receive compensation before common shares if a company is liquidated
  • Can be converted to common stock
  • Do not have voting rights

Derivatives

Derivatives are securities that derive their value from other securities rather than any value inherent to themselves.

One of the most common types of derivatives is an option, which gives the holder the right — but not the requirement — to buy or sell shares in a specific company at a set price. Derivatives are more complex financial instruments than generally aren’t suitable for beginners because they can be confusing and come with elevated risk.


How Securities Fit in Your Portfolio

Most investors use securities to build the majority of their investment portfolios. While some people may choose to invest solely in assets like real estate rather than securities like stocks and bonds, securities are highly popular because they make it easy for people to build diversified portfolios.

The mix of investments you choose is called asset allocation. Each type of security fits into an investment portfolio in different ways.

The Role of Stocks

For example, stocks generally offer high volatility and some risk, but higher rewards than fixed-income securities like bonds. People with long-term investing plans and the risk tolerance to weather some volatility may want to invest in stocks.

Within stocks, investors often hold a mixture of large-cap (large, well-known companies) and small-caps (smaller, newer businesses). Typically, larger companies are more stable but offer lower returns. Small-caps can be risky but offer greater rewards.

Large-caps often pay dividends, which are regular payments to shareholders. This makes them popular for people who want to produce an income from their portfolio but who don’t want to shift too heavily into safer, but less lucrative investments like bonds.

Pro tip: Earn a $30 bonus when you open and fund a new trading account from M1 Finance. With M1 Finance, you can customize your portfolio with stocks and ETFs, plus you can invest in fractional shares.

The Role of Bonds

By contrast, bonds are good for people who want to reduce volatility in their portfolios. A retiree or someone who wants to preserve their portfolio’s value instead of growing it might use bonds.

Bonds experience much less volatility than stocks, with their values changing primarily with changes in interest rates. If rates rise, bond values fall. If rates fall, bond values rise.

If you hold individual bonds and don’t sell them, you can only lose value from the bonds if the issuer defaults and stops making payments. That means that bonds can provide a predictable return, assuming you can hold them to maturity.

Bonds also make regular interest payments, often twice annually, making them very popular for income-focused investors.

The Role of Mutual Funds

A huge number of everyday investors opt to invest in mutual funds and ETFs instead of buying individual stocks and bonds. These funds hold dozens or hundreds of different stocks and bonds, making it easy for investors to diversify their portfolios. There are also many different funds that follow different investing strategies, meaning that almost everyone can find a mutual fund that meets their needs.

One of the most popular types of mutual funds is the target-date fund. These funds reduce their stock holdings and increase their bond holdings as time passes and gets closer to the target date. This makes them an easy way for investors to reduce risk and volatility in their portfolio as they get closer to needing the money,

For example, someone who wants to retire in 2062 might invest their money in a target date 2060 or 2065 fund. In 2020, the fund might hold a 90/10 or 80/20 split of stocks and bonds. By 2060, the fund will have reduced its stock holdings and increased its bond holdings so that its portfolio is a 40/60 split between stocks and bonds.

The Role of Derivatives

Derivatives are designed for advanced investors who want to use more complex strategies, such as using options to hedge their portfolio’s risk or to leverage their capital to produce greater gains.

For example, a trader could use options to short a stock. Shorting a stock is like betting against it, meaning the trader earns a profit if the share price falls. On the other hand, if the share price increases, the trader will lose money.

These are best used by advanced investors who know what they’re doing. Derivatives can be more volatile than even the riskiest stocks and can make it easy to lose a lot of money. However, if they’re used properly, they can be a safe way to produce income from a portfolio or a hedge to reduce risk.


Final Word

A security is the basic building block of an investment portfolio. Most assets that people invest in — like stocks, bonds, and mutual funds — are securities. Each type of security has different features and plays a different role in an investor’s portfolio.

Many investors succeed by investing in mutual funds or ETFs, which give them exposure to a variety of securities at once. If you want an even more hands-off investing experience, working with a robo-advisor or financial advisor can help you choose the best securities to invest in.

Source: moneycrashers.com

Micro Wedding Is Sign of the Times

Micro weddings have become ultrachic in the time of coronavirus. These smaller weddings allow you and your future spouse to exchange your vows, enter into a legal relationship and get access to each other’s health insurance all while living through these socially-distanced times.

What Are Micro Weddings?

A micro wedding is generally a wedding with less than 50 guests. In the before times, micro weddings were often a cost-cutting measure as the most effective way to cut your budget is to cut your guest list.

When you cut your guest list, you’re cutting down on the amount of space you’ll need at the venue. Simultaneously, you’re cutting down on the costs of food, alcohol and favors.

During the time of Coronavirus, micro weddings are helpful to your health as well as your wallet. You may even want or be required to cut your guest list further than the normal standard of 50 guests.

Planning a Micro Wedding

When you’re planning a micro wedding the first thing you’ll want to start with is your guest list. You may only want your closest friends and family there for your big day. Or, in this time of pandemic, you may only want it to be the two of you and the officiant. In some states, you can even eliminate the officiant via a self-uniting marriage.

Whether you have a handful of guests or just the couple at your micro wedding, venues and vendors across the wedding industry have many ways to help you share your big day while saving money.

Get Creative with the Venue

Because you have a smaller guest list, your venue doesn’t need to be nearly as large. Your favorite art gallery might be renting out space, or you might be able to book a private room at your favorite restaurant. If a venue had a minimum guest count prior to 2020, those minimums have likely been reduced or eliminated altogether.

If you are absolutely set on having a larger wedding despite the pandemic, you could book your local park or another outdoor venue to make the event safer. Be sure to remind your guests that they still need to wear masks and observe the 6-foot rule even though the event will be taking place outside.

Newly weds get married as hot air balloons are released all around them on top of a mountain.
Getty Images

Destination Weddings

You may have a bit of pent up wanderlust, dreaming of a destination wedding. Destination weddings are usually micro weddings. Because you or your guests will have to pay for extra expenses like hotel rooms and travel costs, the number of people who can attend usually becomes inherently smaller.

There are certainly some Caribbean destinations that are allowing Americans to visit during the pandemic, and some of the resorts are offering great deals. But despite more and more Americans getting vaccinated, many people are still avoiding air travel. Be prepared for some guests to decline your invitation if air travel is involved.

Instead of air travel, you can either commit to a long road trip through locales where the infection rate is low, or pick a venue within convenient driving distance. Traveling in your car with other members of your bubble is a far safer way to get from point A to point B.

Remember that even if you’re fully vaccinated, there is still potential for you to spread the virus to your guests, your hosts and anyone else you may come into contact with. The more the virus spreads, the more likely it is to harm the unvaccinated, even if those unvaccinated people aren’t in your immediate circle.

Allowing the virus to spread like this also provides it with increased opportunities to mutate into vaccine-resistant variants, which could force us all into lockdown again until boosters for new strains are available.

Invest in Quality Videography

Maybe you never dreamt of having a micro wedding. You might even be upset that you can’t have a huge party with your family and friends.

One way to help soften the blow of having a micro wedding during the pandemic is to share your big day with quality videography. You can either livestream your ceremony or hire a videographer to document the celebration.

Because business has been slower and videography has new importance during the pandemic, some venues and videographers are offering discounts on these services.

Curbside Tastings

The mere fact that you’re feeding less people at your micro wedding means you can spend less on your wedding cake and any catering your micro wedding may require.

During the pandemic, some bakeries, restaurants and caterers are offering curbside tastings to ensure everyone’s safety.

Drive-By Wedding Visits

Maybe in normal times, your sister would have been your matron of honor, but she has a disabled child who is high-risk. Even though you are both vaccinated, her child is not. She can’t risk exposing herself to even asymptomatic cases of the virus as she could unknowingly pass them on to her child.

You still want her to be a part of your big day. If she lives within driving distance, you could schedule a drive-by visit prior to the micro wedding ceremony. Either she and hers could drive by your place, where you’d be on display in your gown or tux, or you could drive by her place, stepping just outside the car to show her how good you look while keeping a masked distance of well over six feet.

It’s not the same. It’s still incredibly sad that she can’t be there, and you might even want to consider postponing your wedding until she can attend. But if the show must go on, these drive-by visits can still provide you both with a special memory from your special day.

Include Remote Readings

If you’re having a Zoom micro wedding, even those who cannot attend can participate in your ceremony. In the case of your sister, she may perform a reading or conduct a prayer through the screen. You can customize your ceremony any way you see fit, using your creativity and the power of the internet to make your micro wedding all that much bigger.

Micro Wedding Ideas for a Smaller Guest List

When planning a micro wedding, you may find that you have a bit of a budget surplus because of these cut costs. Both the budget surplus and the fact that you’ll have far fewer guests at your wedding allow you to get creative and a little more personal with the finer details of micro wedding planning.

Hand sanitizer and face masks are set out for guests to use during a wedding reception.
Getty Images

Wedding Favors

The following are a few favor ideas you might consider for your micro wedding, depending on your budget and your wedding’s theme. The dollar signs are meant to show you the relative expense but the exact dollar amount of each is based on your own budget.

  • Masks. ($-$$) Masks can be custom-printed with names and wedding date, nodding to the extraordinary times we’re all living in while giving your guests a functional gift they’ll be able to use in their day-to-day lives. You may even want to make these favors available to guests upon arrival rather than at the end of the celebration. That way if anyone forgot to bring their mask, they’ll literally be covered.
  • Hand sanitizer. ($) You can find plenty of beautiful yet affordable options for custom-printed hand sanitizer right now. Instead of the “Germ-X” label, your label will include your names, the wedding date and perhaps some adorable quote about love. This is another good favor to make available to your guests upon arrival.
  • Fauci-approved smooches. ($) Want to DIY your micro wedding favors? One cute idea is to get a glass jar, fill it with Hershey Kisses, and affix a label that reads “Social Distance Kisses.”
  • Flip flops. ($-$$) If you plan on driving to the beach for your destination wedding, flip flops can make a great wedding favor. If guests forget about the sand and wear fancy shoes to your celebration, they’ll appreciate the option to switch to beach-friendly attire upon arrival. Because your guest count is small, you can ask each guest for their shoe size beforehand so everyone is accurately accounted for. You can also go the extra mile and order custom flip flops with your names and wedding date printed on them.
  • Custom luggage tags. ($$$) This option is a little more expensive, but if you find yourself with extra padding in your wedding budget you may decide they’re worth it. Luggage tags can serve as a token of hope that life will go back to normal soon and we won’t have to stress as heavily should we have to get on a plane and traipse through the airport.

Guest Book

Similarly, because micro weddings have so few people in attendance, you can use creative ideas for a non-traditional guest book. Your guest book can then be integrated in your day-to-day married life.

Here are some ideas that can be customized to any micro wedding budget:

  • Picture frame. ($-$$$) When you get your wedding pictures back from the photographer, there’s likely to be one photo that just blows you away. Before the wedding, purchase a frame where you can display that much-anticipated picture. Buy a frame with a removable mat. Then, you can have your guests sign the mat in lieu of a guestbook on your wedding day. Their well-wishes can be displayed in your home alongside your favorite wedding photo.
  • Ornaments. ($-$$$) Have you ever known someone who has a tradition of picking up a Christmas ornament on every vacation? Their tree then reminds them of all the journeys they’ve enjoyed. You can do a similar thing for your wedding day — especially if you have a small guest list. Instead of a guestbook, provide ornaments and paint pens coordinated with your wedding colors. Each guest will sign one. Every year, you can display your wedding-day memories on your tree, remembering those who were there with you.
  • Tiles or stepping stones. ($-$$$) Are you and your soon-to-be spouse remodeling? Or doing some landscaping work? If so, you can integrate your wedding day into your design plans. For instance, if you’re doing interior repairs and plan to lay tile, you can put out some tiles at your micro wedding in lieu of a guest book. Each guest would then sign one, and you could integrate your guest book into your home. If you’re doing outside work, you could have each guest sign a wet stepping stone, even adding their handprint if they want to. You can then integrate these stepping stones into your garden.

Stationary

Things are a lot more hopeful right now with somewhat improved vaccine distribution, but there are still so many unknowns. As you plan your micro wedding during uncertain times, you might want to familiarize yourself with some Corona-era additions to the wedding stationary world:

  • Change-the-date announcements. Change-the-date cards are now incredibly common for wedding postponements. Just like wedding invitations, these cards range from cute and witty all the way to incredibly formal. You can look for a template that matches the tone of your wedding day.
  • Virtual wedding invitations. Maybe you’re doing your part by giving the virus as few opportunities to mutate as possible. That’s why you’re doing a Zoom micro wedding with just the two of you plus your officiant. Paper invitations to your wedding are still a beautiful touch, but the most convenient way to invite your guests to livestream the event is through a virtual invitation. With virtual invitations, your guests will have access to a clickable link where they can participate in your ceremony live.
  • Elopement announcements. Whether you elope or simply choose not to announce to anyone but your micro wedding guests that you’re getting married, after-the-fact wedding announcements are a good way to include family and friends. Prior to the pandemic, these were commonly used for elopements, so you can find plenty of templates online even if they predate 2020. But you can also find pandemic-specific announcements whether you eloped or did, indeed, plan and have a few guests. Ideally, this announcement will contain a link to a wedding website where friends and family can view either pictures or video of your celebration after the fact.

It can be hard to break it to family or friends that they are either not invited or are uninvited to your wedding. But you are not the only one going through this situation. The silver lining is that because so many couples have faced the same circumstances, there are plenty of templates online and professionals who have worded the same sentiment for numerous clients. You don’t have to stress about the wording on your own.

Brynne Conroy is a contributor to The Penny Hoarder. She blogs at Femme Frugality.

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Source: thepennyhoarder.com

How to Negotiate Lower Rent With a Potential Landlord

It starts with determining your leverage.

By Alex Starace for MyFirstApartment.com

When you’re looking for an apartment, you might be under the impression that the list price is the only price. In some cases, that’s true. But if you’re a bit savvier, you could end up negotiating your way into a great deal. Before you approach the landlord, however, make sure you’ve done your homework.

Determine your leverage     

Are you in a tight or loose rental market? In tight markets — where there are more renters than available apartments — it’s unlikely a potential landlord will negotiate. Why? If three or four other people are willing to pay list price for the apartment, a landlord has little motivation to lower the price for you.

A good way to determine whether you’re in a tight rental market is to browse apartment listings for a few days. How many open units are in each building? How quickly do listings disappear? The longer the listings are on the market and the more listings per building, the looser the market. Another way to tell: Have you had any apartment showings canceled because the place was suddenly rented? If not, this again points to a looser market.

In loose markets, landlords will be anxious to rent their place, even at a rate lower than list price. After all, an empty unit is a money-sink for landlords. If you’re offering to fill the vacancy, the landlord might be happy to lower the price, especially if the choice is between renting to you or letting the apartment sit on the market a month longer.

Can you demonstrate that you are a responsible person? Even in a tight market you can have personal leverage. Landlords want security and predictability. In the long run, these things save a landlord a lot of money. If you can demonstrate that you have these qualities — the primary attributes landlords look for are a steady job and good credit — you may get a landlord to knock a bit off your rent or to make other concessions.

Can you show commitment to staying? If you’re planning on staying in the apartment for two or three years or longer, that’s a big benefit in a landlord’s eyes. When a landlord has to rent an apartment to a new tenant every year, he or she loses a lot in transaction costs (repainting, brokers fees, professional cleaning fees), as well as in the simple effort of finding a new tenant. So if you’re planning on staying a while, highlight this when discussing what makes you a great potential renter.

Negotiate from strength

After you have determined where your points of leverage are, it’s time to make your move. When approaching the landlord, the key is to be confident and calm. Avoid hyper-aggressiveness or a mouse-like timidity. A good way to strike the right balance and show confidence is to know your stuff. Know what an average apartment rents for in the neighborhood. Compare the amenities in the apartment to those available in nearby complexes. Have in mind a price you think is fair for your potential place, and have reasons why — whether it’s because the kitchen is too small, or it doesn’t provide parking, or it’s simply too expense relative to comparable places in the neighborhood. And emphasize your points of leverage — that you’ll be a responsible, long-term tenant.

When negotiating, ask for an even lower price than you’re hoping to pay. Do this for two reasons: First, you might end up getting it. Second, if the landlord is at all interested in bargaining, you’ll likely need to meet halfway between your initial offer and the list price. If you give a low (but not unreasonable) initial offer, meeting somewhere in the middle will be a win for you, and both you and the landlord will feel like you’ve made a good deal.

In the end, successful negotiating is all about knowing the market, doing research about the specific apartment in your sights and negotiating calmly and rationally. If you do all this, you have a good chance of paying lower monthly rent. Good luck!

 Related:

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

Source: zillow.com

Apple Card Review – Does It Live Up to the Hype?

Advertiser Disclosure: This post includes references to offers from our partners. We receive compensation when you click on links to those products. However, the opinions expressed here are ours alone and at no time has the editorial content been provided, reviewed, or approved by any issuer.

Apple Card immodestly claims to “completely [rethink] everything about the credit card.” Is it correct? Maybe.

Backed by the Mastercard network, Apple Card certainly has a host of innovative features that old-fashioned credit cards don’t, such as daily cash-back and numberless physical cards. And it’s a harbinger of the cashless, contactless payments landscape to come. No serious observer can dispute that Apple Card is ahead of its time.

But any product that’s truly ahead of its time must also be competitive in the present. And beyond its novel features, Apple Card works pretty much like any other credit card. Indeed, in spite – or perhaps because – of its novel additions, it lacks some consumer-friendly features common to other popular cash-back cards and general-purpose rewards cards.

Here’s a closer look at what sets Apple Card apart, and how it stacks up against other credit cards.

Things to Keep in Mind About Apple Card

Before we dive into Apple Card’s details, two points bear mentioning.

First, though cardholders who don’t pay their statement balances in full each month are subject to interest charges that vary with their creditworthiness and prevailing benchmark rates, Apple Card charges none of the fees typically levied by credit card companies: no annual fee, no late fee, and no over-limit fee.

Second, Apple Card is designed to work with Apple Pay, which runs on Apple (Mac) hardware only. If you’re one of the many millions of iPhone users in the United States, this card is for you. If you’re an Android loyalist, you’re out of luck.

Key Features

Here’s a closer look at Apple Card’s most notable features.

Earning Cash Back

Apple Card has a three-tiered cash-back program:

  • 3% Cash Back. All purchases from Apple earn unlimited 3% cash back. These include, but are not limited to, purchases from Apple.com, physical Apple Stores, the iTunes Store, the App Store, and in-app purchases. Certain non-Apple purchases made using Apple Pay earn 3% cash-back rewards as well.
  • 2% Cash Back. All other purchases made using Apple Pay (including through your Apple phone or Apple Watch) earn unlimited 2% cash back. Hundreds of major retailer chains and brands, encompassing more than 2 million individual merchant locations online and off, accept Apple Pay. These include but aren’t limited to Walgreens, Nike, Uber Eats, Duane Reade, Amazon, and thousands of gas stations. If you’re not familiar with how Apple Pay works, see its site for details.
  • 1% Cash Back. Purchases made with merchants – online, offline, and in-app – that don’t accept Apple Pay earn an unlimited 1% cash back.

Redeeming Cash Back

Cash back earned through Apple Card purchases accrues daily. Each day a purchase posts to your account, you’ll receive the requisite cash back on your Apple Pay Cash card in the Apple Wallet app.

From there, you can use it to pay for purchases within or without the Apple ecosystem or to make payments on your Apple Card balance.

If you don’t have an Apple Pay Cash card and aren’t interested in getting one, you must accept cash back earned to your Apple Card via statement credits, which may not be much of a sacrifice.

Apple Pay Integration

Apple Card is essentially an offshoot of Apple Wallet. It’s designed for use in conjunction with Apple Pay – or, more specifically, as the user’s default Apple Pay payment method. Apple clearly expects most Apple Card transactions to be contactless, executed through a Web portal or with the tap of an iPhone.

Beyond Apple Card’s novelty as the first truly “contactless first” credit card, users benefit from Apple Pay’s stringent security features. These include:

  • Unique Device Number. Your Apple Card is issued with a unique number that’s stored in your iPhone’s Secure Element, the secure microchip that hosts the phone’s most sensitive functions.
  • Two-Factor Purchasing. Every purchase requires your unique device number, plus a unique one-time code generated on the spot.
  • Purchase Authorization Via Face ID or Touch ID. This renders stolen phones all but useless for making purchases.

Apple Card also takes data security seriously. Apple and Goldman Sachs, the card’s issuer, vow never to share customer data with third parties. Only Goldman Sachs has access to users’ transaction histories and personal information.

Physical Credit Card

Apple Card isn’t 100% virtual. The physical Apple Card is a titanium card that looks and feels just like any other premium credit card, except that it’s much sleeker. The card face is a minimalist triumph, with no cardholder name, card number, or CVV and virtually no marks to mar its metallic hue.

Apple and Goldman Sachs tout the security benefits of Apple Card’s featurelessness. Without any information to identify the card, it’s useless in the wrong hands.

Real-Time Fraud Protection

Apple Card’s real-time fraud protection feature notifies you every time your card is used to make a purchase. If something doesn’t seem right about a transaction, or you know for a fact that you didn’t make it, you can immediately initiate the dispute process by tapping the notification.

Purchase Organization and Mapping

Apple Card automatically organizes purchases by purchase category – entertainment, food and drinks, and so on – and merchant. Categories are color-coded for easy visualization and totaled monthly for easy budgeting. With features like that, who needs a paid budgeting app?

Apple Card also automatically maps purchases, showing you where you’ve spent money recently, literally. If a real-time fraud protection notification slips your notice, perhaps seeing a purchase in a city you’ve never visited will jog your memory.

Spending Summaries

Apple Card’s spending summaries, visible in the Wallet app, reveal how much you’re spending, and on what, in any given week or month. You can view spending trends over time here too, which comes in handy for the periodic budget reviews you should be doing.

Payment Due Dates & Frequency

By default, Apple Card statements are due at the end of the month. If you prefer to pay balances more frequently – and reduce interest charges when you can’t pay off your balance in full before the statement due date – you can set weekly or biweekly payments too.

Interest Calculator

Apple Card’s built-in interest calculator automatically tallies expected interest charges when you pay less than the full balance due on your card before the end of the grace period.

Credit card issuers are required to reveal on each statement the true cost of making only the minimum payment due in comparison with at least one larger monthly payment.

However, this is a far more robust and interactive interest calculator that’s significantly more likely to nudge you to boost your monthly payment.

Interest-Reduction Suggestions

If the interest calculator isn’t enough, Apple Card also provides “smart payment suggestions” that encourage cardholders to increase their monthly payments, thereby decreasing their total interest liability.

It’s not clear how Apple Card arrives at these suggestions, but they appear to be based on cardholders’ spending patterns and payment history.

Interest-Free Installment Payments

Apple Card offers interest-free monthly installment payments for select Apple products purchased through the company’s sales channels. You can easily see the size of your installments and how much you have left to pay in the app.

Text-Based Support

Apple Card has a text-based support system that’s available 24/7. If you run into an issue with the card or have a question that doesn’t concern a disputed charge, which you can handle through the real-time fraud protection interface, this is your ticket to a resolution.

Important Fees

Apple Card charges no fees to cardholders: no foreign transaction fees, balance transfer fees, or annual fees.

Advantages

These are among Apple Card’s principal advantages.

1. No Fees

Apple Card doesn’t charge any fees to cardholders. This makes it all but unique, as even avowedly low-fee cards assess fees for less common occurrences such as late and returned payments.

2. Cash Back Accrues Daily

Apple Card is among the only widely available credit cards to accrue cash back on a daily basis, rather than at the end of the statement cycle.

Although the accrual frequency doesn’t affect net cash-back earnings or cash back earning rates, it’s certainly nice to see your spending subsidized in near-real-time.

3. Solid Cash Back Rates on Apple & Apple Pay Purchases

This card earns 3% cash back on virtually all purchases within the Apple ecosystem, excluding purchases with Apple Pay merchants. This 3% category covers, but isn’t limited to, the following:

  • Apple.com purchases
  • Purchases at physical Apple Stores
  • iTunes Store purchases
  • App Store purchases
  • In-app purchases

Apple Card also earns 2% cash back on purchases made with Apple Pay merchants. So if you’re able to limit your spending to the Apple and Apple Pay ecosystems, you’ll net somewhere north of 2% cash back on this no-annual-fee card, depending on your exact spending mix.

4. Above-Average Security Features

Apple Card is more secure than your average credit card. The physical card doesn’t have a card number or CVV, so you won’t have to worry about what could happen between the moment you lose your card and the moment you freeze your account.

The virtual card is denoted by a unique device number locked away in your iPhone’s Secure Element, far from prying eyes.

Perhaps most consequentially, Apple has a strict privacy policy that forbids data sharing with third parties. There’s no need to opt out, which is often easier said than done, and only Goldman Sachs has access to your transaction history.

5. Real-Time Fraud Protection

Apple Card has another security feature worth touting: real-time fraud protection that alerts you whenever your card is used to make a purchase and lets you flag potentially fraudulent transactions with a single tap.

Compared with the traditional dispute resolution process, this is a snap, even when flagged charges turn out to be legitimate.

6. Easy, Flexible Payments

Apple Card’s default payment due date – the last day of the month – is easy to remember, even without the helpful reminders.

If you’re trying to budget on an irregular income and prefer not to wait until the end of the month to pay off your entire balance, Apple Card’s customized weekly and biweekly payment intervals have you covered.

Other credit cards let you pay off balances throughout the month, but few make it as easy as Apple Card.

7. Interest-Reduction Features

Apple Card’s interest calculator and interest-reduction suggestions are classic examples of “nudge” theory in action. By revealing just how much you’ll save over time by paying a little more upfront, these features nudge you to make smart financial decisions.

Of course, it’s always best to pay off your balance in full by the statement due date, but when unexpected expenses make that impossible, it’s nice to feel like your credit card issuer is on your side.

8. Useful Budgeting and Spending Control Features

With so many budgeting and spending control features, Apple Card feels like a personal budgeting suite with a spending aid built in.

Maybe that’s the point. Though most small-business credit cards have basic expense tracking and reporting features, Apple Card’s package is unusually robust for a consumer credit card.

If what’s keeping you from building and sticking to a household budget is the inconvenience inherent in standalone budgeting software, this is a potential game-changer.

9. Text-Based Customer Support

Apple Card’s text-based customer support is a low-friction alternative to menu-laden, over-automated phone support and unpredictable email support.

Whether this feature is as efficient as Apple and Goldman Sachs promise remains to be seen, but it’s difficult to see it being worse than the status quo – for relatively simple issues, at least.

10. No Penalty Interest Charges

Apple Card doesn’t charge penalty interest. While it’s best never to find yourself in a position where penalty interest would apply, the assurance that you won’t be unduly penalized for a lapse beyond your control is certainly welcome.

Disadvantages

Consider these potential disadvantages before applying for Apple Card.

1. Requires Apple Pay and Apple Hardware

Apple Card’s biggest drawback is its exclusivity. The card requires Apple Pay, which runs exclusively on Apple hardware, meaning it’s not appropriate for Android or Windows device users.

If you’re set on applying for Apple Card but don’t have an iPhone or other compatible Apple device, Apple Watch is your most cost-effective option. Apple Pay runs on Apple Watch just fine, and you can pick up refurbished older versions – Series 1, 2, and 3 – for less than $100.

That’s still a significant outlay, though, and no other credit card on the market requires compatible hardware.

2. Only 1% Cash Back on Non-Apple Pay Purchases

Apple Card earns just 1% cash back on non-Apple Pay purchases. If your daily, weekly, and monthly consumption habits involve merchants that mostly accept Apple Pay, you shouldn’t have trouble earning the higher 2% cash-back rate, but not all merchants do.

Square has a non-exhaustive list of major merchants that do accept Apple Pay. Do yourself a favor and review it before applying for this card.

3. Goldman Sachs’ First Credit Card

Apple Card is the first consumer credit card issued by Goldman Sachs Bank. Apple touts this as an advantage, arguing that Goldman Sachs isn’t bound by the constraints of legacy credit card issuers such as Chase and Barclays.

And it’s not as if Goldman Sachs is entirely new to the consumer finance realm. Its Marcus by Goldman Sachs loan and savings products are innovative and well-liked.

That said, it’s not hard to imagine a first-time credit card issuer experiencing some growing pains, especially given Apple Card’s novelty. At a minimum, don’t be surprised to see iterative changes to Apple Card as Goldman Sachs figures out what works and what doesn’t.

Final Word

If you’re a committed Apple Pay user with the hardware to back it up – an iPhone, Apple Watch, or maybe an iPad – then it might make sense for you to ditch your traditional credit cards and going all-in on Apple Card.

Users who restrict their spending to Apple Pay merchants only stand to earn 2% cash back across the board, about as good as it gets on a consistent basis for premium cash-back credit cards. To do better than that, you’ll need to upgrade to a premium travel rewards credit card with a hefty annual fee.

Source: moneycrashers.com

15 types of credit cards

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Whether you’re a seasoned cardholder or a first-timer, you may be surprised at how many types of credit cards are available. Depending on your credit score and the length of your credit history, you may not be able to qualify for the ones with the most favorable terms and lowest interest rates. But chances are, there’s a card that fits your needs and—if used responsibly—may help you build credit.

Broadly speaking, there are four different types of credit card categories:

  1. Cards That Help Build Credit
  2. Cards That Can Save You Money
  3. Cards That Offer Cash Back and Rewards
  4. Cards for People With Bad Credit

Here, we’ll break down each category, discuss the specific card types and explain each one’s unique benefits so that you can make the most of your card.

Cards That Help Build Credit

If you’re new to the world of credit, you may be wondering how to build credit quickly, without going into debt. If you’re in college, you may have the added load of student debt. When you’re just starting out, it’s important to find a card that’s right for you and manage it carefully to start your credit health out on the right foot. You may even be able to earn some rewards along the way.

Cardholders ages 18 – 22 have an average credit score of 672.

1. Student Credit Cards

Student credit cards operate exactly the same way that standard credit cards do. The main difference is that their total credit limits tend to be lower. Additionally, since they are marketed toward students who likely don’t have much of a credit history, the requirements for approval are typically more lenient. 

Benefit: Some student cards offer incentives for good grades, like a small cash reward for each school year that you earn a GPA of 3.0 or higher.

Example: Discover it® Student Cash Back

2. Starter Credit Cards

Starter credit cards are designed for those with little to no credit history. Consider getting one if you’ve never had a line of credit, or if you have one that hasn’t been open very long. These cards typically don’t offer great rewards programs or cash-back incentives, and they come with high interest rates. However, if you can find one with no annual fee, it can be a great option to begin building credit.

Benefit: Establish your credit and build a solid payment history with this type of credit card, which is generally easy to qualify for.

Example: Capital One Platinum® Credit Card

3. Joint Credit Cards

Unlike authorized user credit cards, joint credit cards require both parties to apply together. Both parties are equally responsible for paying the balance. Therefore, late or missed payments may ding both credit scores—while consistent, on-time payments will benefit both scores. 

Benefit: If a person doesn’t have a high enough credit score to qualify for a good credit card, they may consider applying with their partner for a joint credit card with more favorable terms.

Example: Bank of America® Cash Rewards Credit Card

Cards That Can Save You Money

Sometimes applying for a credit card is a strategic move. Maybe you want to transfer your balance to a card with a lower interest rate, avoid paying interest for an introductory period or customize features for your business. These cards can help you save money—your way.

Approximately 74% of credit cards have no annual fee.

4. Zero Percent Purchase APR Credit Cards

Sometimes cards will offer temporarily lower APRs for an introductory period. Cards that boast zero percent APR don’t require you to pay interest on new purchases for a set amount of time, usually about 12 months. 

Benefit: Save money on interest by borrowing money essentially for free. Just make sure to pay off your balance by the time your introductory period is over to avoid interest charges.

Example: U.S. Bank Visa® Platinum Card

5. No Annual Fee Credit Cards

Many credit cards charge annual fees for the convenience of having the card and for the benefits and rewards they offer. Depending on how elite the card is, these fees can be up to $450 or more. However, almost three-fourths of cards offer no annual fee—and many of these still come with decent cash back programs. Scan your credit card offer or the terms and conditions to make sure your card has no annual fee. 

Benefit: Save an average of $58 each year by avoiding unnecessary annual credit card fees.

Example: Citi® Double Cash Card

6. Balance Transfer Credit Cards

Similar to zero percent purchase APR credit cards, balance transfer cards offer temporarily low introductory rates—but specifically for balance transfers. This is a great option for those who want to save money on a high-interest credit card. Rather than closing the unfavorable card—which may lower your credit score—a balance transfer may be a better option.

Benefit: Avoid paying hefty amounts of interest by transferring your balance to a card with a much lower introductory rate. 

Example: Wells Fargo Platinum Card

7. Business Credit Cards

If you’re a business owner, you may want to apply for a credit card specifically for business use. This will help you separate personal and business expenses, and the rewards may help your business save money. You’ll then begin to build business credit. To apply you’ll need decent credit and either a federal tax ID or employer identification number (EIN).

Benefit: Enjoy business-specific perks like higher credit limits, expense management reports and the ability to add more cards for employees. 

Example: Costco Anywhere Visa® Business Card by Citi

Cards That Offer Cash Back and Rewards

In order to get the most out of their spending, most cardholders gravitate toward credit options that offer cash back and rewards. 

Cardholders carry an average of 4.1 cards, 2.4 of which are rewards-based.

8. Cash Back Credit Cards

Cash back credit cards allow you to earn a certain percent—typically ranging from one to five—of the money back every time you make a purchase with the card. Some issuers will pay this amount annually, while others pay monthly.

Benefit: Find a card that allows you to customize where you get your cash back. For example, certain cards allow you to earn five percent cash back in a store category of your choice.

Example: Chase Freedom Unlimited®

9. Retail Credit Cards

Retail or store credit cards are offered by specific businesses and can only be used to make purchases with that store. While these cards aren’t ideal for everyday purchasing needs, they’re a great way to earn generous rewards with stores that you frequently shop at. There are over 300 store credit cards available, from Walmart and Target to Lowe’s and JCPenney. 

Benefit: Store cards typically don’t charge annual fees, don’t require excellent credit and offer substantial first-purchase discounts as well as long-term cash back rewards.

Example: Amazon Prime Store Card

10. Hotel Credit Cards

Hotel credit cards are affiliated with a specific hotel chain and offer rewards on a “points” basis. Typically, they’ll offer some points for purchases made at unrelated businesses such as grocery stores, gas stations and restaurants. But the main attraction is the bonus points earned on eligible purchases made directly with the hotel. 

Benefit: Earn generous sign-up bonuses, rewards when you spend money on hotel bookings and yearly free nights. 

Example: Hilton Honors American Express Surpass® Card

11. Airline Credit Cards

Certain credit cards offer rewards on purchases made with a specific airline, while others allow you to earn rewards with any airline or travel-related expense. These rewards rack up in the form of “miles.” For example, many cards offer two miles for every one dollar spent on flights. 

Benefit: For frequent travelers, airline credit cards are a great way to score free and discounted flights.

Example: Delta SkyMiles® Gold American Express Card

12. Gas Rewards Credit Cards

Not to be confused with gas station credit cards—which operate like retail cards—a gas station rewards card offers cash back when you pay at the pump. It can be used anywhere, but you’ll enjoy bonus rewards at gas stations.

Benefit: Earn up to three to five percent cash back on gas purchases, often with no annual fee and a zero percent introductory APR. 

Example: PenFed Platinum Rewards Visa Signature® Card

13. Charge Cards

Charge cards operate in exactly the same manner as regular credit cards, except for one major caveat: you must completely pay off the total balance each month. Failure to do so results in late fees and penalties and will cause a drop in your credit score. On the flip side, they typically come with sizable initial bonuses and rewards.

Benefit: Enjoy higher credit limits and generous point systems—oftentimes offering up to five points per one dollar spent.

Example: ThePlatinum Card® from American Express

Cards for People With Bad Credit

If you’re struggling to get approved for credit cards, loans or other lines of credit because of bad credit, don’t be discouraged. There are credit cards with terms designed specifically for those with poor credit. 

Approximately 12% of Americans have a FICO score below 550.

14. Secured Credit Cards

Most credit cards are unsecured. This means that you are not required to put up a security deposit. Secured cards, on the other hand, require an up-front payment to act as collateral in the event that you can’t pay your balance. Credit card issuers see borrowers with bad credit scores as riskier, so this deposit helps mitigate some of that risk. 

Benefit: Secured cards give borrowers with poor credit access to credit when they otherwise wouldn’t be able to qualify for a card.

Example: Capital One® Secured Mastercard®

15. Prepaid Cards

Prepaid cards aren’t technically credit cards, because they don’t involve borrowing money. Instead, a cardholder loads a set amount of money onto the card, and purchases are subtracted from the card’s balance, similar to a gift card. The spending limit then renews if and when the card is reloaded. 

Benefit: Prepaid cards help you stay within a budget and avoid getting into credit card debt.

Example: American Express Serve® FREE Reloads

What Type of Credit Card Is Best?

Ultimately, the decision for which card to get is up to your personal preferences and financial goals. However, there are a few good rules of thumb when looking for the best credit cards. Remember to read the terms and conditions carefully before signing up. Generally, cards with any of the following perks may be worth pursuing:

  • Zero percent introductory APR
  • Low APR after the introductory period
  • Sign-up bonus
  • Solid rewards or cash-back program
  • No annual fee

All of the different types of credit cards may seem daunting at first, but once you understand the unique benefits of each one, you’ll be able to find a card that fits your needs. Remember that—regardless of credit card type—good credit management is the key to keeping your credit healthy. After years of on-time payments, low credit utilization, a good mix of credit and few hard inquiries, you’ll be well on your way to your best score yet.


Reviewed by Kenton Arbon, an Associate Attorney at Lexington Law Firm. Written by Lexington Law.

Kenton Arbon is an Associate Attorney in the Arizona office. Mr. Arbon was born in Bakersfield, California, and grew up in the Northwest. He earned his B.A. in Business Administration, Human Resources Management, while working as an Oregon State Trooper. His interest in the law lead him to relocate to Arizona, attend law school, and graduate from Arizona State College of Law in 2017. Since graduating from law school, Mr. Arbon has worked in multiple compliance domains including anti-money laundering, Medicare Part D, contracts, and debt negotiation. Mr. Arbon is licensed to practice law in Arizona. He is located in the Phoenix office.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Source: lexingtonlaw.com

Adoption Tax Credits (Federal & State) – Requirements & Eligibility

The decision to adopt a child is a big one for any prospective parent, and one of the concerns often has to do with costs. Adoption-related expenses can vary widely depending on whether you work with an agency, adopt from foster care, work directly with the birth parents, or adopt internationally.

Fortunately, there are federal and state assistance programs that minimize financial obstacles to adoption.

Federal Adoption Tax Credit and Adoption Assistance Programs

The U.S. Tax Code provides two separate assistance programs for prospective adoptive parents. Both programs help cover qualified adoption expenses, which the IRS defines as:

  • Reasonable and necessary adoption fees
  • Court costs and attorney fees
  • Traveling expenses (including meals and lodging while away from home)
  • Other expenses directly related to the legal adoption of a child

To qualify, you must pay the expense to adopt a child under the age of 18 or someone of any age who is physically or mentally incapable of self-care. Qualified expenses don’t include expenses paid to adopt a stepchild.

Adoption Tax Credit

The federal adoption tax credit is worth up to $14,300 per child for the 2020 tax year.

Parents who adopt a “special needs” child automatically qualify for the maximum credit, regardless of their actual adoption expenses. The IRS’s definition of a special needs adoption might differ from definitions used elsewhere.

The adoption must meet all three of the following criteria to qualify as a special needs adoption:

  1. The child was a citizen or resident of the U.S. or its possessions when the adoption effort began.
  2. The state determined that the child can’t or shouldn’t return to their parent’s home.
  3. The state determined that the child probably wouldn’t be adoptable unless it assists the adoptive family financially.

Based on those criteria, foreign adoptions aren’t considered special needs. Also, U.S. children with disabilities might not be regarded as special needs if the state doesn’t consider them difficult to place for adoption.

Income Limitations

However, the amount of the federal adoption tax credit phases out for high-income taxpayers. It begins to phase out once your modified adjusted gross income (MAGI) reaches $214,520 and phases out entirely at $254,520.

The credit phases out proportionally if your income is between $214,520 and $254,520.

So if your income is $234,520 — the midpoint of the phase-out range — the amount of your credit is cut in half. If your income is $224,520 — one-quarter of the phase-out range — the amount of your credit is reduced by 25%.

The income limits apply whether you’re single or married and file a joint tax return with your spouse. The adoption tax credit isn’t available if your filing status is married filing separately.

Refundability

The adoption tax credit is nonrefundable. In other words, if it reduces your tax liability for the year below zero, you won’t receive the excess as a tax refund.

However, you can carry any unused credit forward for up to five years, using it to offset your tax liability in the future.

When You Can Claim the Credit

The rules for claiming the credit depend on whether the adoption is domestic or foreign.

Domestic Adoptions

If you adopt a U.S. child, you can claim adoption expenses for the tax year following the year of payment, even if you never finalize the adoption. However, any costs you used to claim the credit on an unsuccessful adoption will reduce the amount you can claim for a subsequent adoption.

For example, say you started the adoption process in 2018, but the adoption fell through. You used $3,000 of expenses to claim the adoption tax credit on your 2019 return.

In 2020, you made another attempt to adopt, spending $10,000, and successfully finalized the adoption that year. When you claim the adoption credit on your 2020 tax return, you can only claim $7,000 of expenses ($10,000 – $3,000).

Foreign Adoptions

If you adopt a child who isn’t yet a citizen or resident of the U.S. or its possessions, you can only claim the credit in the year the adoption becomes final.

For example, say you start adopting a child from Ukraine in 2019 and spend $5,000 that year. You cannot claim the adoption tax credit in 2019 because you didn’t finalize the adoption.

In 2020, you spent another $8,000 and finalized the adoption. You can use all $13,000 of expenses to calculate the credit on your 2020 tax return.

You can claim the federal adoption tax credit by completing Form 8839 and attaching it to your federal income tax return, Form 1040.

Employer-Provided Adoption Benefits

Some employers reimburse employees for adoption expenses. The IRS offers a tax break for these benefits as well, as long as the adoption assistance program meets the following criteria:

  • The program benefits all eligible employees, not just highly compensated employees.
  • The program doesn’t pay more than 5% of its benefits to shareholders or owners (or their spouses or dependents).
  • The employer must give reasonable notice of the plan to eligible employees.
  • Employees must provide reasonable substantiation (such as receipts or other documentation) to show that the payments or reimbursements are for qualifying expenses.

If the program meets that criteria, then the payments or reimbursements don’t count as taxable income on the employee’s federal income tax return, and the employer doesn’t have to withhold federal income tax from the payment. However, the employer must still withhold Social Security and Medicare taxes.

Adoptive families can take advantage of both the adoption tax credit and the income exclusion. However, you can’t claim the exclusion and the credit on the same expenses, and the maximum dollar limit ($14,300 for 2020) still applies.

For example, say you have $15,000 of qualified adoption expenses in 2020, and your employer’s adoption assistance program reimburses a maximum of $9,000. You can use the remaining $5,300 of expenses to calculate your adoption tax credit on your 2020 tax return.

That’s the $14,300 maximum dollar limit, minus the $9,000 of expenses already reimbursed by your employer. You won’t get any tax benefits for the remaining $700 of expenses ($15,000 – $14,300).


State Adoption Tax Credits

Many states offer tax credits for families who adopt children from the public child welfare system. Here’s a summary of tax credits available in each state as of the 2020 tax year:

State Tax Credit Amount
Alabama Yes Up to $1,000
Alaska No income tax
Arizona No
Arkansas Yes Up to 20% of the federal adoption tax credit claimed
California Yes Up to $2,500
Colorado No
Connecticut No
Delaware No
District of Columbia No
Florida No income tax
Georgia Yes Up to $2,000
Hawaii No
Idaho No
Illinois No
Indiana Yes The lesser of $1,000 or 10% of your claimed federal adoption tax credit
Iowa Yes Up to $5,000
Kansas Yes 25% of the adoption tax credit claimed on your federal tax return (up to $1,500)
Kentucky No
Louisiana No
Maine No
Maryland No
Massachusetts Yes Income exemption for adoption fees paid to a licensed adoption agency
Michigan No
Minnesota No
Mississippi Yes Up to $2,500
Missouri Yes Up to $10,000
Montana Yes Up to $1,000
Nebraska No
Nevada No income tax
New Hampshire No tax on wages
New Jersey No
New Mexico Yes Up to $1,000
New York No
North Carolina No
North Dakota No
Ohio Yes Up to $1,500
Oklahoma Yes Tax deduction for up to $20,000 of expenses
Oregon No
Pennsylvania No
Rhode Island No
South Carolina Yes Tax deduction for up $2,000 of expenses
South Dakota No income tax
Tennessee No tax on wages
Texas No income tax
Utah Yes Up to $1,000
Vermont No
Virginia No
Washington No income tax
West Virginia Yes Up to $4,000
Wisconsin Yes Up to $5,000
Wyoming No income tax

The rules for claiming adoption tax breaks vary by state and can change from year to year, so talk to your tax advisor to make sure you qualify.


Final Word

Adopting a child can strain family finances, but tax credits can help offset the costs.

And once you’ve finalized the adoption, remember you may be able to take advantage of several more tax breaks for parents. This includes claiming your adopted child as a dependent and claiming the child tax credit and the child and dependent care credit.

Source: moneycrashers.com