What Are the Income Tax Brackets for 2021 vs. 2022?

This is a unique time of the year for taxpayers. On the one hand, you’re getting ready to file your 2021 tax return (which is due April 18, 2022, for most taxpayers). But, on the other hand, you’re also looking ahead (or should be) and starting to think about how to handle your 2022 finances in a tax-efficient way. In either case, you need to be familiar with the federal income tax rates and tax brackets that apply (or will apply) to you.

The tax rates themselves didn’t change from 2021 to 2022. There are still seven tax rates in effect for the 2022 tax year: 10%, 12%, 22%, 24%, 32%, 35% and 37%. However, as they are every year, the 2022 tax brackets were adjusted to account for inflation. That means you could wind up in a different tax bracket when you file your 2022 return than the bracket you were in for 2021 – which also means you could be subject to a different tax rate on some of your 2022 income, too.

Both the 2021 and 2022 tax bracket ranges also differ depending on your filing status. For example, the 22% tax bracket for the 2021 tax year goes from $40,526 to $86,375 for single taxpayers, but it starts at $54,201 and ends at $86,350 for head-of-household filers. (For 2022, the 22% tax bracket for singles goes from $41,776 to $89,075, while the same rate applied to head-of-household filers with taxable income from $55,901 to $89,050.)

When you’re working on your 2021 tax return, here are the tax brackets you’ll need:

2021 Tax Brackets for Single Filers and Married Couples Filing Jointly

Tax Rate

Taxable Income
(Single)

Taxable Income
(Married Filing Jointly)

10%

Up to $9,950

Up to $19,900

12%

$9,951 to $40,525

$19,901 to $81,050

22%

$40,526 to $86,375

$81,051 to $172,750

24%

$86,376 to $164,925

$172,751 to $329,850

32%

$164,926 to $209,425

$329,851 to $418,850

35%

$209,426 to $523,600

$418,851 to $628,300

37%

Over $523,600

Over $628,300

2021 Tax Brackets for Married Couples Filing Separately and Head-of-Household Filers

Tax Rate

Taxable Income
(Married Filing Separately)

Taxable Income
(Head of Household)

10%

Up to $9,950

Up to $14,200

12%

$9,951 to $40,525

$14,201 to $54,200

22%

$40,526 to $86,375

$54,201 to $86,350

24%

$86,376 to $164,925

$86,351 to $164,900

32%

$164,926 to $209,425

$164,901 to $209,400

35%

$209,426 to $314,150

$209,401 to $523,600

37%

Over $314,150

Over $523,600

When you’re ready to focus on your 2022 taxes, you’ll want to use the following tax brackets:

2022 Tax Brackets for Single Filers and Married Couples Filing Jointly

Tax Rate

Taxable Income
(Single)

Taxable Income
(Married Filing Jointly)

10%

Up to $10,275

Up to $20,550

12%

$10,276 to $41,775

$20,551 to $83,550

22%

$41,776 to $89,075

$83,551 to $178,150

24%

$89,076 to $170,050

$178,151 to $340,100

32%

$170,051 to $215,950

$340,101 to $431,900

35%

$215,951 to $539,900

$431,901 to $647,850

37%

Over $539,900

Over $647,850

2022 Tax Brackets for Married Couples Filing Separately and Head-of-Household Filers

Tax Rate

Taxable Income
(Married Filing Separately)

Taxable Income
(Head of Household)

10%

Up to $10,275

Up to $14,650

12%

$10,276 to $41,775

$14,651 to $55,900

22%

$41,776 to $89,075

$55,901 to $89,050

24%

$89,076 to $170,050

$89,051 to $170,050

32%

$170,051 to $215,950

$170,051 to $215,950

35%

$215,951 to $323,925

$215,951 to $539,900

37%

Over $332,925

Over $539,900

How the Tax Brackets Work

Suppose you’re single and had $90,000 of taxable income in 2021. Since $90,000 is in the 24% bracket for singles, is your 2021 tax bill simply a flat 24% of $90,000 – or $21,600? No! Your tax is actually less than that amount. That’s because, using marginal tax rates, only a portion of your income is taxed at the 24% rate. The rest of it is taxed at the 10%, 12%, and 22% rates.

Here’s how it works. Again, assuming you’re single with $90,000 taxable income in 2021, the first $9,950 of your income is taxed at the 10% rate for $995 of tax. The next $30,575 of income (the amount from $9,951 to $40,525) is taxed at the 12% rate for an additional $3,669 of tax. After that, the next $45,850 of your income (from $40,526 to $86,375) is taxed at the 22% rate for $10,087 of tax. That leaves only $3,625 of your taxable income (the amount over $86,375) that is taxed at the 24% rate, which comes to an additional $870 of tax. When you add it all up, your total 2021 tax is only $15,621. (That’s $5,979 less than if a flat 24% rate was applied to the entire $90,000.)

Now, suppose you’re a millionaire (we can all dream, right?). If you’re single, only your 2021 income over $523,600 is taxed at the top rate (37%). The rest is taxed at lower rates as described above. So, for example, the tax on $1 million for a single person in 2021 is $334,072. That’s a lot of money, but it’s still $35,928 less than if the 37% rate were applied as a flat rate on the entire $1 million (which would result in a $370,000 tax bill).

The Marriage Penalty

The difference between bracket ranges sometimes creates a “marriage penalty.” This tax-law twist makes certain married couples filing a joint return pay more tax than they would if they were single (typically, where the spouses’ incomes are similar). The penalty is triggered when, for any given rate, the minimum taxable income for the joint filers’ tax bracket is less than twice the minimum amount for the single filers’ bracket.

Before the 2017 tax reform law, this happened in the four highest tax brackets. But now, as you can see in the tables above, only the top tax bracket contains the marriage penalty trap. As a result, only couples with a combined taxable income over $628,300 are at risk when filing their 2021 federal tax return. For 2022 returns, the marriage penalty is possible only for married couples with a combined taxable income above $647,850. (Note that the tax brackets for your state’s income tax could contain a marriage penalty.)

Source: kiplinger.com

Is a Warehouse Store (Costco, Sam’s Club, BJ’s) Membership Worth It? – Costs, Pros & Cons

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Additional Resources

Smart-shopping blogs and magazines teem with stories about the great deals you can get at warehouse stores. Shopping experts say joining a warehouse club can save you money on nearly everything — groceries, tires, even vacations. 

But there’s one obvious snag. Before you can fill up your cart with these bargains, you have to pay an annual fee of around $50 just to get in the door. How can you tell if your annual savings will be enough to offset this membership fee? 

To answer that question, you need to delve into the murky depths of warehouse store shopping. That means getting the details on how warehouse clubs work, what they cost, and how good the prices are on the items you buy most.

How Warehouse Stores Work

Warehouse stores use a different pricing model from other retail stores. Regular retailers, such as Walmart, make their money from the markup they charge. That’s the difference between the wholesale price they pay to their suppliers and the retail price they charge to customers.

According to Entrepreneur, the markup at a typical retail store is around 50%. In other words, the price you pay is twice what the store paid.

By contrast, warehouse stores charge a much lower markup. For instance, Costco’s markup is only 14% to 15%, according to Forbes. They make up for the lost profits by charging a fixed yearly fee to each customer. 

That’s why these stores sometimes refer to themselves as buying clubs. You pay upfront to become a member, and in return, you get to buy products at rock-bottom prices. In addition, you gain access to various other special deals on everything from health care to travel.

Top Warehouse Store Chains

There are three major warehouse chains in the United States. The biggest is Sam’s Club. Sam Walton, the founder of Walmart, started this store in 1983 as a supplier for small businesses.

Today, Sam’s Club is a nationwide chain with nearly 600 stores in the U.S. and millions of members. Its products range from groceries and office supplies to big-ticket items like jewelry and furniture.

The closest competitor to Sam’s Club is Costco. This chain started in Seattle in 1983. Ten years later, it merged with another club store called Price Club, which had been catering to business owners since 1976. 

Today, Costco boasts over 100 million members and has hundreds of stores stretching across the United States and beyond. The chain sets itself apart from other warehouse stores with its focus on high-end goods, such as organic food and designer jeans.

The third major chain is BJ’s Wholesale Club. BJ’s is a smaller chain than its competitors, with 200-plus stores in the eastern U.S., Michigan, and Ohio. But like Sam’s Club and Costco, it offers a wide range of goods and services, from groceries to vacation packages.

Warehouse Stores Work

People who love warehouse stores really love them. Forbes reports that Costco members are extremely loyal, with more than 9 out of 10 choosing to renew their membership each year.

And they have many good reasons to feel this way. Warehouse stores offer a plethora of benefits, including the following:

1. Low Prices — At Least on Certain Items

The main reason shoppers love warehouse stores is their low prices. Independent studies have found that warehouse clubs really do offer great bargains in certain areas, such as:

  • Groceries. In 2018, Consumers’ Checkbook went grocery shopping at warehouse clubs and supermarkets. It found that prices at both Sam’s Club and Costco beat major supermarket chains by 17% to 41%. (However, BJ’s prices failed to beat Walmart’s.)
  • Gasoline. A 2020 analysis by CSP compared prices across gas stations around the country. Costco was the winner, beating the national average price by nearly $0.25 per gallon.
  • Prescription Drugs. In 2018, Consumer Reports checked retail prices on five drugs at over 150 U.S. pharmacies. The complete set cost over $900 at CVS, but only $153 at Sam’s Club and $105 at Costco. And some generic drugs at Sam’s Club are only $4.
  • Car Tires. In a 2021 analysis by Clark Howard, Sam’s Club was second only to Walmart for the lowest average price on car tires. All three warehouse clubs were in the top six.
  • Booze. According to Spoon University, Costco offers the lowest unit prices on all types of alcohol. For those willing to buy in bulk, the club charges significantly less for Skyy vodka and Blue Moon beer than other retailers.
  • Pet Food. In a 2019 analysis of name-brand pet food prices by Consumers’ Checkbook, Sam’s Club and BJ’s topped the list for lowest average prices. (Costco, which mainly sells its own Kirkland Signature brand, was not covered.)

2. Access to Services

When you join a warehouse club, you don’t just get access to its products. These stores also offer a variety of services exclusively for members.

For instance, a Costco membership gives you access to Costco’s car-buying service. It provides haggle-free low prices on new and used cars and RVs from approved dealers. It also gives you 15% off car parts and services from participating providers.

Costco members can also save on vacations with Costco Travel. It provides special deals on airfare, hotels, auto rentals, cruises, and travel packages. The store also offers photo printing, banking services, insurance, home renovation, eye care, and bottled water delivery.

Other warehouse clubs offer a similar menu of services. Sam’s Club doesn’t provide banking or insurance services, but it gives members discounts on concert and theater tickets, theme parks, and attractions. 

Sam’s Club also offers discounts on various subscription services. Members can get lower prices on music streaming, video streaming, educational apps for kids, and fitness apps.

Likewise, BJ’s offers travel, vision care, home improvement, and photo services for members. One special perk it provides is free technical support for all its electronics.

3. High-Quality Store Brands

Shoppers are impressed with the quality of warehouse stores’ house brands — especially at Costco. In a 2019 Consumer Reports survey, Costco was one of only three out of 96 grocery chains to earn top marks for the quality of its store brands. 

The magazine’s editors get more specific in a 2017 article. They call several Kirkland products  as good as or better than name-brand competitors. These include laundry and dishwasher detergent, batteries, toilet paper, bacon, mayonnaise, and organic chicken stock. 

Another product that gets high marks from reviewers is Kirkland Signature dog food. According to DogFood.Guide, this brand has “surprisingly high quality” for a store brand. It’s made by Diamond Pet Foods, a leading manufacturer of high-end foods like Taste of the Wild.

Both Kirkland and Member’s Mark, the house brand from Sam’s Club, get good reviews for some wines and liquors. The Beverage Tasting Institute gives ratings of at least 90 points out of 100 to several Kirkland wines and to Member’s Mark tequila, vodka, and gin.

4. One-Stop Shopping

Warehouse stores allow you to condense many errands into one. You can pick up your glasses, shop for shoes, get new tires, book a vacation, and buy groceries all in one trip.

5. Free Samples

On weekends, shoppers at warehouse stores can stroll through the aisles noshing on samples of assorted food items. Naturally, the stores hope that trying the products will inspire you to buy them, but there’s no obligation. You’re perfectly free to chow down and walk away.

6. A Pleasant Shopping Experience

On the whole, warehouse club members are satisfied shoppers. In a survey by Consumer Reports, Costco shoppers reported being more satisfied with their experience than shoppers at nine other major retail chains. 

A 2021 report by the American Customer Service Index found similar results. Costco topped a list of 20 retailers, with 81% customer satisfaction. Sam’s Club and BJ’s came in a bit lower down the rankings, with a respectable 79% and 77% respectively.

7. Good Returns Policies

One likely reason why warehouse store shoppers are so satisfied is that if they’re ever unhappy with a purchase, it’s easy to return. Both Costco and Sam’s Club offer an absolute 100% money-back guarantee on virtually everything they sell.

If you’re not satisfied for any reason, you can return it with your receipt at any time. One exception is electronic items, which can’t be returned after 90 days. BJ’s policy is a bit more restrictive, allowing returns only up to one year.

Costco Warehouse Good Returns Policies

Although warehouse stores have undeniable benefits, they have their drawbacks too. Here are a few good reasons not to do your shopping at a warehouse store:

1. Membership Fees

The most obvious downside of warehouse club membership is the membership cost. The standard annual membership fee for a household or a business is $45 per year at Sam’s Club, $55 per year at BJ’s, and $60 per year at Costco. 

In addition, all three of the major warehouse chains offer higher-tier memberships. They’re called Executive Membership at Costco, Plus at Sam’s Club, and Perks Rewards at BJ’s.

These tiers cost roughly twice as much as a regular club membership. In exchange, they give you 2% back on nearly everything in the store. That means you have to spend between $2,750 and $3,000 per year before the higher-level membership will pay for itself.

2. Oversized Packages and Quantities

Warehouse stores are known for their jumbo-size packages. Buying in bulk to save money makes perfect sense with nonperishable goods, such as soap or paper towels. You can safely stock up on these bulk items as long as you have the space to store them. 

However, bulk buying can be a problem with products that don’t keep well. A five-pound bag of shredded cheese is no bargain unless you can (and actually want to) eat that much cheese before it goes bad.

3. Limited Selection

Warehouse clubs are good for grocery shopping, but you can’t always buy everything on your shopping list there. In the 2018 Consumers’ Checkbook study, the three warehouse stores only carried about half the items in a standard basket of groceries.

BJ’s was the best of the lot, with about 57% of the items available. Sam’s Club had 52% of them, and Costco had only 44%. Moreover, most of the items at all three stores were only available in bulk containers, not standard sizes.

4. Impulse Buys

Warehouse stores are huge and crammed with an incredible variety of goods. Even if all you need is cereal, milk, and toothpaste, you’ll probably have to walk past jewelry, clothes, and toys to get to those three staples. 

This makes it very easy to fall victim to the temptation of impulse buys. You could easily go in with your three-item shopping list and walk out with a whole cart full of unplanned purchases. Worse, some of these could be big-ticket items like a TV set.

5. Restrictions on Coupons

If you’re in the habit of using coupons to save money on groceries, the warehouse store isn’t the place to do it. Neither Costco nor Sam’s Club accepts manufacturer’s coupons at all. BJ’s takes them, but it only accepts select coupons in digital form.

5. Deals That Aren’t So Great

With such a vast assortment of goods gathered together in one store, warehouse stores seem ideal for one-stop shopping. However, if you buy everything on your list there, you’ll probably spend more than you need to.

My local Costco has great prices on a few staple foods, such as nuts. But its fresh foods, such as produce and eggs, are nearly always more expensive than the ones at nearby supermarkets.

Even paper goods like paper towels and toilet paper aren’t such great deals. Two dozen rolls of toilet paper at Costco cost more per roll than one dozen of the store brand from Trader Joe’s.

Warehouse stores also tempt buyers with big-ticket items like appliances, furniture, and electronics. But these products are almost never bargains. 

For instance, the current Costco savings brochure advertises LED TV sets for $700 to $3,000. But the top-rated LED TV in the same size range at Best Buy costs just $600. And a laptop Costco advertises for $700 is similar to one Lenovo sells for $565.

Deals That Arent Great

Deciding Whether It’s Worth It

The best way to figure out whether a warehouse club membership is worth it for you is to check it out in person. Scout up and down the aisles, check prices on the items you buy regularly, and  compare them to the prices at your local supermarket.

There’s just one problem with this plan. Most warehouse stores won’t even let you in the door to check prices without a membership card. One way to get around this problem is to ask a friend who’s a member to let you tag along on their next trip. 

Also, nonmembers are allowed to shop at Costco with a store gift card. However, only Costco members can buy these cards. To get around that rule, ask a friend to buy one for you or buy one secondhand through a gift card exchange site.

Two Real-Life Examples

Back in 2006, my husband and I took advantage of a free day pass to check out the prices at our local BJ’s Wholesale Club. We found that for most items we buy, BJ’s didn’t have lower prices than other stores. 

For instance, the $18 DVDs and $700 laptops in the electronics section couldn’t beat online deals. A 12-pound bag of baking soda cost more per pound than a supermarket store brand. And 24-roll packs of toilet paper cost nearly twice what we paid per roll at Trader Joe’s.

We still found good deals on a few items, like cereal, rice, and chocolate chips. But crunching the numbers, we found that we wouldn’t save enough on these items in a year to pay for the club membership.

But in 2017, we decided to give Costco a try. My husband needed new glasses, and we found the savings on those would more than pay for the $60 membership cost. 

Once we were inside the store, we started finding deals on all sorts of other things we buy regularly. Organic sugar, raisins, nuts, oatmeal, milk, and olive oil were all cheaper at Costco than at local supermarkets.

Here’s a sample of our savings from a single Costco trip. For each item, I’ve listed the amount we bought, the price, and what the same amount would have cost at the next cheapest store.

Product Costco Price Competitor’s Price Savings

Raisin Bran (14.34 pounds) $21.87 $24.38 (Aldi) $2.51

Brussels Sprouts (2 pounds) $4.99 $4.99 (Trader Joe’s) $0

Clementines (5 pounds) $5.49 $5.49 (supermarket sale) $0

Birdseed (80 pounds) $27.98 $31.96 (Lowe’s) $3.98

Organic Raisins (4 pounds) $10.79 $11.96 (Trader Joe’s) $1.17

Walnuts (3 pounds) $10.89 $14.97 (Aldi) $4.08

Canola Oil (6 quarts) $7.69 $9.00 (Shop-Rite) $1.31

Organic Sugar (10 pounds) $7.99 $17.45 (Trader Joe’s) $9.46 (less packaging waste as well)

On this one trip, we saved a total of $22.51 on a bill of $99.54. That means we saved about 22% off our entire bill. According to our credit card statement, we spent a total of $723.50 at Costco in 2018. If we saved 22% on everything we bought there, that’s a savings of $159.17.

In addition, by becoming members, we qualified for a Costco credit card. It offered 4% cash back on gas, 3% on restaurants and travel, and 2% on everything at Costco. Those rewards save us another $34 per year or so.

So, all told, our Costco membership is saving us over $193 per year. That’s more than three times the cost of the membership card. 

Factors That Affect Your Choice

As you can see from our experience, warehouse stores aren’t all the same. BJ’s Wholesale Club definitely wasn’t a money-saver for us, but Costco definitely was.

However, what works for our family isn’t necessarily what will work for yours. It depends largely on what you buy and how much you pay for it.

Based on our experience, these are the factors most likely to make a warehouse club membership a good deal for you.

Bulk Buying

On our initial trip to BJ’s, we had to pass up a lot of deals because the containers were too big. A 30-pound sack of rice cost less per pound than a 10-pound bag, but it would have taken us years to go through it all.

However, if you have a large family or a small business, you probably go through supplies faster. That makes these jumbo-sized packages a more reasonable deal for you. All you need is enough storage space to hold them and keep them fresh.

Brand Loyalty

My husband and I usually prefer to buy store brands rather than name brands. For most products, we find their quality is just as good and their price is much lower. Most of the products we buy at Costco are the ones that come in the Kirkland store brand. 

That’s one reason we didn’t have much luck at BJ’s on our first trip. Most of its products, at least at the time, were name brands. The store’s price for Star-Kist tuna was cheaper than the price for Star-Kist at our local Stop & Shop, but no cheaper than the Stop & Shop store brand.

However, many people are loyal to specific brands. For instance, your family may insist on Heinz ketchup or Downy fabric softener. If so, there’s a good chance that a warehouse store can offer you a better price on it than your regular supermarket. 

But before you sign up for a membership, make sure the warehouse store actually stocks the specific brands you want. If you shelled out $50 for a membership card and then find out the store doesn’t carry Heinz ketchup, you’re out of luck.

Few Local Supermarkets

Nearly all our food savings from Costco come from just a few items. On most foods, especially fresh foods, the warehouse can’t beat the prices at our area supermarkets. Even if their regular prices are higher than Costco’s, we can always wait for a sale.

However, in some areas — especially rural areas — there are no big supermarkets. The main food sellers are local grocery stores and convenience stores with high prices and few great sales. If you live in an area like this, the regular prices at warehouse stores look a lot more appealing. 

A Convenient Location

Finally, location matters. If the nearest warehouse store is 50 miles away, it isn’t practical to shop there more than once or twice per year. That hardly gives you a chance to get your money’s worth out of your membership. Plus, the cost of gas will eat into your savings. 

But if the distance to the store is less than 10 miles, regular trips become practical. You can visit every few weeks to stock up on everything you need. 

Factors Affect Choice

Avoiding the Pitfalls

If you decide to invest in a warehouse club membership — or you already have one — use it wisely. To get the most for your money, maximize the benefits of warehouse shopping and minimize the drawbacks.

Don’t Give In to Temptation

Impulse buys are one of the biggest hazards of the warehouse store. This can happen at the supermarket too, but Costco and Sam’s Club have a much wider array of shiny toys to tempt you. 

However, you can avoid them the same way you would in any other store. Make a shopping list and stick to it. If you see something that looks irresistible, don’t stick it right in your cart. Instead,  jot down the item and the price and walk away. 

The next day, take another look at your note. If you still want the item, you can go back to the store and get it. But chances are, by the time you’ve had 24 hours to cool off, the new toy will have lost a lot of its appeal.

Check Unit Prices

Warehouse stores don’t always beat the supermarket on price. However, comparing prices is tricky because the containers at the warehouse store tend to be so much larger. 

To be sure you’re getting a good deal, compare unit prices. That’s the cost per ounce, quart, or whatever unit the product is measured in. 

Some stores have the unit prices of different products marked on the shelf. However, if your warehouse store doesn’t, it’s easy to calculate. Just whip out your phone and divide the total price by the container size. 

Then compare this number to the price you’re used to paying at your regular store. It helps to keep a grocery price book that lists each store’s unit prices for items you buy often. That way you don’t have to try to remember one number while staring at another.

Don’t Overbuy

When you compare unit prices, the biggest container often looks like the best deal. However, a five-gallon tub of mayonnaise is no bargain if it goes bad before you use it up. 

If you’re buying something with an unlimited shelf life, such as shampoo, then buying by the case is no problem. But when you’re shopping in the food department, try to be realistic. Go for a size you can handle, even if the unit price is a bit higher.

Focus on the Best Deals

It’s tempting to take advantage of the warehouse’s store’s variety and do all your shopping in one trip. But if you do this, you’re almost sure to overpay for something. To get the most bang for your buck, focus on the items that are great deals at your particular store. 

This goes double when you’re shopping for a big-ticket item, such as jewelry or electronics. Don’t assume the warehouse store’s prices are lowest. Take the time to shop around and look for the best deal.

Focus Best Deals

Final Word

A single visit may not be enough to figure out whether a warehouse club membership is a good deal for you. If you’re still on the fence, try signing up on a trial basis. 

From time to time, BJ’s Wholesale Club offers a free 90-day membership to give shoppers a chance to get to know the store. Keep your eyes out for these offers in your mailbox and in coupon circulars.

If you don’t want to wait, try BJ’s discounted membership offer. It gives you all the benefits of membership for $25 — less than half the regular price. It’s not free, but it’s a chance to try the store without risking the full $55.

Moreover, all three warehouse chains — BJ’s, Costco, and Sam’s Club — promise a full refund of your membership fees at any time if you’re not satisfied. You can give any of these stores a try for a month or two, then cancel if you decide it’s not for you.

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Amy Livingston is a freelance writer who can actually answer yes to the question, “And from that you make a living?” She has written about personal finance and shopping strategies for a variety of publications, including ConsumerSearch.com, ShopSmart.com, and the Dollar Stretcher newsletter. She also maintains a personal blog, Ecofrugal Living, on ways to save money and live green at the same time.

Source: moneycrashers.com

The Problem with Today’s Hot Real Estate Investment Market

Jessica Schmidt (not her real name) is a qualified intermediary for a large national firm specializing in 1031 exchanges for investment real estate. Lately, she has been working 10-hour days, six days a week.

Some days she takes up to 50 calls a day from real estate investors seeking to cash in on a hot real estate market without paying large sums of tax on their highly appreciated real estate investment.

It’s a seller’s market, and most real estate investors can garner a quick sale on amounts they had previously only dreamed of.

Everything’s great, right? Not so fast.

A Seller’s Market Isn’t Exactly a Dream

Jessica usually spends 10-15 minutes with a caller explaining the rules and regulations of a 1031 exchange. She often refers callers to her website for educational videos on the 45-Day Rule, the 3 Property Rule, and the 180 Day Rule. These are all essential and specific requirements for an investor to take advantage of our tax code’s ability to defer taxes upon a property sale.

She explains that the seller must open an exchange “ticket” BEFORE the sale of their investment property closes. Then the seller has up to 45 days to identify a qualified replacement property.

And that’s where the situation gets sticky.

Problems Finding Replacement Properties

“The problem with the inventory in the marketplace is that there isn’t any,” the chief economist for a large national title company was quoted as saying at a recent economic forum.

Today, more often than not, hopeful 1031 exchange investors find themselves in quite the conundrum. According to Jessica, the high-ticket sale and the tax deferral via the 1031 exchange may be the easy part, but finding a suitable replacement property seems to be the biggest obstacle and a common dilemma.

A Potential Solution – DST, or Delaware Statutory Trust

With that in mind, Jessica has been increasingly offering her clients a different option to consider instead of a 1031 exchange: a DST, or Delaware Statutory Trust.

DSTs are passive real estate investments that qualify as replacement property for 1031 exchanges. DSTs invest in multifamily apartments, medical buildings, self-storage facilities, Amazon distribution centers, industrial warehouses, hotels and other vital real estate asset classes. The investments are passive in nature and generate regular monthly income to investors and the potential and opportunity for growth.

Many DSTs are syndicated with some debt, usually about 50% loan-to-value. However, the debt to investors is considered non-recourse, which means that an investor has no personal guarantee or personal liability for such debt. This could be very helpful, Jessica explains to her clients, because they all want to receive a full tax deferral, and the rules stipulate that in an exchange, the investor must reinvest the sale proceeds AND replace any debt.

DSTs have been around since 2004 when the IRS issued Ruling 2004-86, which made DSTs qualify for replacement in a 1031 exchange.

Must Be an Accredited Investor

DSTs are for “accredited” investors only, which means that an investor must have a net worth of at least $1 million apart from their primary residence or have an income of $200,000 for a single person or $300,000 for a married couple. And DSTs are offered as SEC-registered securities and therefore are obtained from broker-dealers or registered investment advisers. The advisers perform extensive due diligence on the real estate syndications and each specific DST-sponsored property.

Jessica concludes that DSTs could be a perfect solution for many of her clients and investors, especially those getting closer to retirement and maybe not wanting to actively manage real estate assets any longer. Between the tax savings, the passive nature of the investments, and the high-quality assets that are generally part of DSTs, many of her clients’ problems could be effectively solved using this important passive investment strategy.

Although DSTs are attracting billions of dollars of investment funds, most CPAs and real estate investors are still unaware of this important and viable solution that could potentially solve so many problems for so many real estate investors.

After explaining all this so many times in calls from clients the past several months, Jessica decided to come up with the following “Letterman” style Top 5 Benefits of DSTs for her clients:

5 Top Benefits of DSTs in a 1031 Exchange

1. Potential Better Overall Returns and Cash Flows

It depends upon the investor. Still, some investors find DSTs could offer a better risk-return profile than a property they might manage themselves.

2. Tax Planning and Preserved Step-Up in Basis

DSTs offer the same tax advantages of real estate that an investor would own and manage themselves. Depreciation and amortization are passed along to DST investors by their proportionate share. DSTs can be exchanged again in the future into another DST via a 1031 exchange.

3. Freedom

Passive investing allows older real estate owners the time and freedom to travel, pursue other endeavors, spend more time with family, and/or move to a location removed from their current real estate assets.

4.  As a Backup Strategy

In a competitive market, an investor may not be able to find a suitable replacement property for their 1031 exchange. DSTs might be a good backup option and could be named/identified in an exchange if only for that reason.

5. Capture Equity in a Hot Market

When markets are at all-time highs, investors may want to take their gains off the table and reinvest using the leverage inside a DST offering.

DST investments come with a risk common to real estate investing and are offered to accredited investors only and by private placement memorandum only. Therefore, a prudent investor would be best served by evaluating all details of each specific offering and the track record of the sponsor firm before investing in a DST offering.

Chief Investment Strategist, Provident Wealth Advisors

Daniel Goodwin is the Chief Investment Strategist and founder of Provident Wealth Advisors, Goodwin Financial Group and Provident1031.com, a division of Provident Wealth. Daniel holds a series 65 Securities license as well as a Texas Insurance license. Daniel is an Investment Advisor Representative and a fiduciary for the firms’ clients. Daniel has served families and small-business owners in his community for over 25 years.

Source: kiplinger.com

Tax Day 2022: When’s the Last Day to File Taxes?

Most Americans must file their federal tax returns for the 2021 tax year by April 18, 2022. Note that we say “most Americans.” Taxpayers in two states have until April 19 to submit their 1040s to the IRS. Victims of certain natural disaster also get more time to file, with varying dates depending on when the disaster hit.

In any case, if for some reason you can’t file your federal tax return on time, it’s relatively easy to get an automatic six-month extension to October 17, 2022, by filing Form 4868 or making an electronic tax payment. But you must act by the original due date for your return, whether that’s April 18, April 19, or some other date.

Keep in mind, however, that an extension to file doesn’t extend the time to pay your tax. If you don’t pay up by the original due date, you’ll owe interest on the unpaid tax. You could also be hit with additional penalties for filing and paying late.

Why Are Taxes Due April 18 Instead of April 15 This Year?

As most people know, Tax Day is usually on April 15, unless it falls on a weekend or holiday, in which case it’s pushed back to the next available business day. April 15 is on a Friday this year, so the weekend rule doesn’t apply. However, Emancipation Day is being observed in the District of Columbia on April 15. The holiday honors the end of slavery in Washington, D.C. Since April 15 is a legal holiday in D.C., the IRS can’t require tax returns be filed that day. The next business day is April 18 – so that becomes Tax Day in 2022 for most people.

Tax Filing Deadline for Maine and Massachusetts Residents

Residents of Maine and Massachusetts get an extra day – until April 19 – to file their federal income tax return. Why? Because Patriots’ Day, an official holiday in Maine and Massachusetts that commemorates Revolutionary War battles, falls on April 18 this year. So, for the same reason Tax Day is moved from April 15 to April 18 for most people (i.e., a local holiday), the IRS can’t set the tax filing and payment due date on April 18 for taxpayers in those two states. As a result, the deadline is shifted to the next business day for Maine and Massachusetts residents, which is April 19.

Natural Disaster Victims Get Tax Filing and Payment Extensions

If the Federal Emergency Management Agency (FEMA) declares a disaster area following a natural disaster, the IRS usually jumps in with tax relief for the disaster victims in the form of tax filing and payment extensions. In the case of certain recent natural disasters, the April 18 (or April 19) tax filing and payment deadline has been extended for individuals and businesses residing or located in the disaster area.

So far, victims of the following natural disasters have been granted extensions that push back this year’s federal personal income tax filing and payment deadline:

Additional extensions may be announced later that impact this year’s tax return filing due date.

State Tax Return Due Dates

Don’t forget about your state tax return. Most states synch their income tax return deadline with the federal tax due date – but there are some states that have different deadlines. Check with the state tax agency where you live to find out when your state tax return is due.

Source: kiplinger.com

5 Mortgage REITs for Yield-Hungry Investors

In the search for rich dividend yields, mortgage REITs (mREITs) are in a class all their own. 

These are companies are structured as real estate investment trusts (REITs), but they own interest-bearing assets like mortgages and mortgage-backed securities rather than physical real estate.

One of the biggest reasons to own mortgage REITs is their exceptional yields, currently averaging around 8% to 9%, according to Nareit – the leading global producer on REIT investment research – more than four times the yield available on the S&P 500. These outsized yields are enticing, but investors should approach these stocks with caution and hold them only as one part of a larger, more diversified portfolio. 

One reason for this is their sensitivity to changes in interest rates. When interest rates rise, mortgage REIT earnings generally decline. The Federal Reserve is signaling plans for multiple rate hikes in 2022 that could create headwinds for these stocks.   

And increasing interest rates hurt mREITs because these businesses borrow money to fund their operations. Their borrowing costs rise with interest rates, but the interest payments they collect from mortgages remain the same, causing profit margins to compress. Some of this risk can be managed with hedging tools, but mortgage REITs can’t eliminate interest-rate risk altogether.  

Another caveat is that mortgage REITs frequently cut dividends when times are tough. During the height of the COVID-19 pandemic in 2020, 30 of this sector’s 40 companies either cut or suspended dividends. On the flip side, dividends were quickly restored in 2021, with 20 mREITs raising dividends.

We searched the mortgage REIT universe for stocks whose dividends appear safe this year.

Read on as we explore five of the best mREITs for 2022. A few of these REITs are reducing interest-rate risk via acquisitions or an unusual lending focus, while others have strong balance sheets or outstanding track records for raising dividends. And all of them offer exceptional yields for investors.

Data is as of Jan. 12. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Stocks are listed in order of lowest to highest dividend yield.

1 of 5

Hannon Armstrong Sustainable Infrastructure Capital

green investing conceptgreen investing concept
  • Market value: $4.1 billion
  • Dividend yield: 2.9%

Hannon Armstrong Sustainable Infrastructure Capital (HASI, $48.56) is a bit of an oddball for a mortgage REIT in that it specializes in clean energy and infrastructure rather than pure real estate. Specifically, the real estate investment trust invests in wind, solar, storage, energy efficiency and environmental remediation projects – making it not only one of the best mREITs, but also one of the best green energy stocks to own.

Its loan portfolio encompasses 260 projects and is valued at $3.2 billion. In addition to its own loans, Hannon Armstrong manages roughly $8 billion of other assets, mainly for public sector clients.   

This mREIT boasts a $3 billion pipeline and is ideally positioned to capture some portion of the spending from the $1.2 trillion infrastructure bill that was passed by Congress in late 2021.  

Over the last three years, Hannon Armstrong has generated 7% annual earnings per share (EPS) gains and 1% yearly dividend growth. Over the next three years, HASI is targeting accelerated gains of 7% to 10% yearly earnings per share growth and 3% to 5% in dividend hikes. Future earnings growth should be enhanced by the firm’s prudent 1.6 times debt-to-equity ratio.

Hannon Armstrong produced exceptional September-quarter results, showing 45% year-over-year loan portfolio growth and a 14% increase in distributable earnings per share. 

Analysts expect earnings of $1.83 per share this year and $1.91 per share next year – more than enough to cover the REIT’s $1.40 per share annual dividend.

HASI is well-liked by Wall Street analysts, with five of the six that are tracking the stock calling it a Buy or Strong Buy. 

2 of 5

Starwood Property Trust

little red house surrounded by little white houseslittle red house surrounded by little white houses
  • Market value: $7.7 billion
  • Dividend yield: 7.6%

Starwood Property Trust (STWD, $25.44) has a $21 billion loan portfolio, making it the largest mortgage REIT in the U.S. The company is affiliated with Starwood Capital Group, one of the world’s biggest private investment firms. 

STWD is considered a mortgage real estate investment trust, but it operates more like a hybrid by owning physical properties as well as mortgages and real estate securities. Its portfolio comprises 61% commercial loans, but the REIT also has sizable footholds in residential loans (11%), properties (12%) and infrastructure lending (9%), a relatively new focus for the company.

The mREIT benefits from access to the databases of Starwood Capital Group, which makes over $100 billion in real estate transactions annually and has a portfolio consisting of 96% floating-rate debt. This high percentage of floating-rate debt and unusually short loan durations – averaging just 3.3 years – minimizes Starwood’s risk from rising interest rates. 

STWD is also one of the nation’s largest servicers of commercial mortgage-backed securities (CMBS) loans; sizable, reliable loan servicing fees help mitigate risk if loan credit quality deteriorates.

Starwood Property Trust closed $3.8 billion of new loans during the September quarter and generated distributable earnings of 52 cents per share – up sequentially from June and slightly above analysts’ consensus estimate. After the September quarter closed, the mREIT booked a huge $1.1 billion gain on the sale of a 20% stake in an affordable housing real estate portfolio.   

The company has made 12 consecutive years of quarterly dividend payments, and unlike many other mortgage REITs, held its ground in 2020 by maintaining an unchanged dividend.

Of the seven Wall Street pros following STWD, one says it’s a Strong Buy, five call it a Buy and just one says Hold. Adding fuel to the bullish fire, CNBC analyst Jon Najarian recently tapped Starwood as one of his top stocks to watch, given its impressive 7.6% dividend yield.

3 of 5

Arbor Realty Trust

mortgage-backed securities conceptmortgage-backed securities concept
  • Market value: $2.8 billion
  • Dividend yield: 7.7%

Arbor Realty Trust (ABR, $18.70) stands out as one of the best mREITS given its six straight quarters of dividend hikes and a compound annual growth rate (CAGR) of nearly 18% for dividend growth over the past five years. 

What’s more, Arbor Realty Trust has delivered 10 straight years of dividend growth while maintaining the industry’s lowest dividend payout rate.

This mortgage REIT is able to steadily grow dividends thanks to the diversity of its operating platform, which generates income from agency and non-agency loans, physical real estate (including rentals) and servicing fees.

Agency loan originations and the servicing portfolio have grown at a 16% CAGR over five years. And during the first nine months of 2021, Arbor Realty Trust set a new record with balance sheet loan originations, coming in at $7.2 billion – 2.5 times its previous record. Loan volume rose 45% over its previous record to total $13.2 billion over the nine-month period.

While September EPS declined year-over-year due to a reduced contribution from equity affiliates, earnings for the first nine months of the year were up 164% from the year prior to $1.56 per share.

Arbor Realty Trust earns Buy ratings from two of the three Wall Street analysts following the stock, and Zacks Research recently named ABR one of its top income picks for 2022. 

Valued at only 10 times forward earnings – which is 15.4% below industry peers – ABR shares appear bargain-priced at the moment.   

4 of 5

MFA Financial

person looking for business loan on laptopperson looking for business loan on laptop
  • Market value: $2.1 billion
  • Dividend yield: 8.2%

MFA Financial (MFA, $4.68) just closed an impactful acquisition that reduces its exposure to interest-rate changes and accelerates loan growth. This REIT was already hedging its bets by investing in both agency and non-agency mortgage securities. 

Agency securities are guaranteed by the U.S. government and tend to be safer, lower-yielding and more sensitive to interest rates than non-agency securities. By combining these in one portfolio, MFA Financial generates nice returns while reducing the impact of changes in interest rates and prepayments on the portfolio. 

Through the July acquisition of Lima One, MFA Financial becomes a major player in business purpose lending (BPL), an attractive niche comprised of fix-and-flip, construction, multi-family and single-family rental loans. 

An aging U.S. housing stock is creating demand for real estate renovations and causing BPL to soar. BPL loans are good quality and high-yielding, but difficult to source in the marketplace. With the purchase of Lima One, MFA Financial gains a $1.1 billion BPL loan-servicing portfolio and an established national franchise for originating these types of loans. 

Lima One’s impact was apparent in MFA Financial’s September-quarter results. The REIT originated $2.0 billion of loans, the highest quarterly total on record, and grew its portfolio by $1.5 billion after runoff. 

Net interest income increased 15% on a sequential basis, and gains recorded on the Lima One purchase contributed 10 cents to the mREIT’s earnings of 28 cents per share. MFA Financial also took advantage of the strong housing market to sell 151 properties, booking a $7.3 million gain on the sale. MFA’s book value – the difference between the total value of a company’s assets and its outstanding liabilities – rose 4% sequentially to $4.82 per share, a modest 3% premium to its current share price.

Raymond James analyst Stephen Laws upgraded MFA to Outperform from Market Perform – the equivalents of Buy and Hold, respectively – in December. He thinks the Lima One acquisition will accelerate loan growth and reduce the mortgage REIT’s borrowing costs.

MFA Financial has a 22-year track record of paying dividends. While payments were reduced in 2020, the REIT recently signaled improving prospects with a 10% dividend hike in late 2021.

5 of 5

Broadmark Realty Capital

real estate contract with keys and penreal estate contract with keys and pen
  • Market value: $1.3 billion
  • Dividend yield: 8.6%

Broadmark Realty Capital (BRMK, $9.77) is unusual for its zero-debt balance sheet, robust loan origination volume and sizable monthly dividends. This mortgage REIT provides short to mid-term loans for commercial construction and real estate development that are less interest-rate sensitive. As such, BRMK is a solid play on America’s housing boom.  

Lending activities focus on states with favorable demographics and lending laws. Plus, 60% of its business comes from repeat customers, ensuring low loan acquisition costs.

Broadmark Realty Capital achieved record loan origination volume of $337 million during the September quarter, roughly twice prior-year levels and up 68% sequentially. The overall portfolio grew to $1.5 billion. Broadmark Realty Capital also originated its first loans in Nevada and Minnesota, with expansion into additional states planned during the December quarter. 

Despite rising revenues and distributable EPS, Broadmark Realty’s results came in slightly below analyst estimates and its share price declined in reaction. However, this price slip may present an opportunity to pick up one of the best mREITs at a discount. At present, BRMK shares trade at just 12.7 times forward earnings and 1.1 times book value – the latter of which is a 15% discount to industry peers.

The mortgage REIT cut its dividend in 2020, but continued to make monthly payments to shareholders. And in 2021, it raised its dividend 17% in early 2021. While dividend payout currently exceeds 100% of fiscal 2021 earnings, analysts are forecasting a 17% rise in fiscal 2022, which would comfortably cover the current 84 cents per share annual dividend.     

Source: kiplinger.com

Tax Deadlines Extended for Washington Flooding and Mudslide Victims

Residents and business in Washington State impacted by the flooding and mudslides beginning November 13, 2021, now have until March 15, 2022, to file and pay certain federal taxes. The IRS extended the deadlines after parts of the state were declared a disaster area by the Federal Emergency Management Agency (FEMA). The tax relief applies to residents and businesses in Clallam, Skagit, and Whatcom Counties who were affected by the flooding and mudslides. This includes victims who reside or have a business in the Lummi Nation, Nooksack Indian Tribe, and Quileute Tribe.

Various federal tax filing and payment due dates for individuals and businesses from November 13 to March 14 will be shifted to March 15. This includes the quarterly estimated tax payments that are due on January 18, 2022.

The tax relief also applies to the quarterly payroll and excise tax returns normally due on January 31, 2022. Penalties on payroll and excise tax deposits due from November 13 to November 28 will also be waived if the deposits were made by November 29, 2021.

Victims of the flooding and mudslides in Washington don’t have to contact the IRS to get this relief. However, if you receive a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, call the number on the notice to have the penalty abated.

The IRS will also waive fees for obtaining copies of previously filed tax returns for taxpayers affected by the storms and flooding. When requesting copies of a tax return or a tax return transcript, write “Washington Flooding and Mudslides” in bold letters at the top of Form 4506 (copy of return) or Form 4506-T (transcript) and send it to the IRS.

In addition, the IRS will work with any taxpayer who lives outside Washington, but whose records necessary to meet a deadline occurring during the postponement period are located in the state. Taxpayers qualifying for relief who live in another state need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2021 return that you will file this year), or the return for the prior year. This means that taxpayers can, if they choose, file an amended return to claim these losses on their 2020 return. Be sure to write the FEMA declaration number (DR-4635-WA) on any return claiming a loss. It’s also a good idea for affected taxpayers claiming the disaster loss on an amended 2020 return to put the Disaster Designation (“Washington Flooding and Mudslides”) in bold letters at the top of the form. See IRS Publication 547 for details.

Source: kiplinger.com

How Risky is Investing in Rental Properties?

I am trying to buy as many rental properties as possible because of the great returns they provide. I am also trying to help other investors discover the fantastic world of investing in long-term rentals through my blog. However, I run into a lot of feedback from people who are worried about how risky it is to invest in rental properties. I hear: “my friend went broke investing in real estate” or “my parents had a rental and it was a money pit up until the day they were forced to sell it.” There are many horror stories involving real estate, but I have no doubt whatsoever long-term rentals are a great investment if you do your homework and buy properties right. Most of those horror stories come from people who did not do their homework, turned a personal residence into a rental out of necessity, or were hoping for appreciation. What are the real risks of rental properties and how can you mitigate these risks?

What are the main risks of investing in rental properties?

There are real risks with investing in rental properties. Many people felt the wrath of these risks in the last housing crash. Housing values plummeted and in some areas rents plummeted as well. Interestingly enough, not every area saw lower rental rates. Some areas saw rents increase because there were so many more renters (people who lost their houses) and the demand pushed rents up.

The investors who were hurt the most in the housing crash were those who were breaking even on their properties or losing money each month and hoping prices would increase to make money. When the bottom dropped out, they now had a property that was losing money each month and was worth less than they had bought it for. Many investors allowed these homes to go into foreclosure because they didn’t think they were worth keeping.

Other risks come from rentals when people buy a property and do not have enough cash to maintain the property or hold it when it is vacant. Most banks will require a certain amount of reserves when you get a loan on an investment property. But as soon as the property is purchased there is nothing stopping the owners from spending that reserve money. When you own a rental there will be times when the tenants move out, there can be evictions, and rarely a tenant can destroy a property. We see these situations occur quite often because people love to see drama but for the most part our tenants take care of our rentals and are awesome.

Why invest in rentals with these risks?

Rental properties have made me a ton of money over the last decade. Prices have increased significantly, which is great, but the properties also make money every month, and I always get a great deal on everything I buy which means I build equity on day one. There are many ways to mitigate the risks of rentals and the money I have made from my properties more than makes the risks worth it!

A lot of people will assume that when you are investing in large value assets like real estate and there can be huge returns, that the risk must be through the roof. There are types of real estate that can be very risky. We flip houses as well, and that is a much riskier venture than owning rental properties in my opinion. Development can also be much riskier but again come with huge rewards as well.

I also was an REO broker during the housing crash and I talked to many investors who lost homes. I was able to see why they lost their homes, what they could have done differently, and what happened after they lost their homes. For the most part, they bought houses that did not cash flow or make money every month and when things went bad they lost the motivation to keep paying into them. Losing the houses was also not the end of the world for these investors. Many of them had put little money down thanks to the crazy lending that was happening prior to that last crash. They were also able to keep those houses for quite a while after they stopped making payments. Many investors kept collecting rent during this time period which may or may not have been legal, but it did happen.

Many of those investors got right back in the real estate game after recovering and invested the right way with cash flow!

How can you mitigate the risk from rentals?

Buy below market value

One key to a low-risk rental strategy or any successful real estate strategy is to buy property below market value. Buying a property below market enables you to create instant equity, increase your net worth, and protects against a downturn in the market. One of the investors who was hurt badly during the crash was buying brand new houses and turning them into rentals. The houses were in great shape, but he paid full retail value for them.

When I buy rentals I want to pay at least 20% less than they are worth after considering any repairs are needed. For example:

  • A home needs $20,000 in repairs and will be worth $200,000 after those repairs. I want to pay $140,000 or less for that property ($200,000 x .80 – $20k). If I am flipping houses, I need to get an even better deal!

I also usually put about 20% down when I buy rentals which means after the property is repaired I have a loan around $110,000 and a property worth $200,000. Even if prices lost 30%, which is about how much they dropped across the county I am fine.

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Cash flow

I consider cash flow the most important factor in my long-term rental strategy. I want every property to make money each month after paying all expenses. Finding these properties that are also a great deal is not easy, but if you want to change your life with massive returns, it is not easy! When I invest I look for a return of 15% cash on cash. That means I make 15% on the money I have invested into the property. These are very high returns and not everyone needs to make this much but it is what I shoot for.

When you have cash flow coming in every month, it does not matter if values decrease because you do not need to sell the property. While it is true that rents can decrease and lower your cash flow, that is very rare and was even very rare in the last housing crash. There were some areas like Florida and Arizona that were massively overbuilt that saw lower rents, but the nation as a whole barely saw any drop.

My cash flow calculator can help you figure the real income on rentals.

Type of property

The older the property, the better the chance of a major repair needing to be done. I have enough cash flow coming in to account for major repairs, but homes over 100 years old can have issues come up that could wipe out all equity. It is rare, but a foundation or structural problem can make a property uninhabitable and cost tens of thousands of dollars to repair. By purchasing newer properties, I lessen the chances of running into repairs that could wipe out my profit for a year or even two.

Multifamily and commercial real estate can also carry more risk. Those types of properties are more complicated and have fewer buyers. I also buy multifamily and commercial properties but I am very careful what I buy and understand there will most likely be way more costs and exposure if the market changes.

If you buy properties that need a ton of work that can add to the risk as well. On my flips and rentals, the worst deals I have done were properties that needed massive remodels. It takes so much time, so many resources, and there is so much that can go wrong. It can also be risky trying to do all of that work yourself!

Cash reserves

One of the most important things to have when investing in real estate is cash! If you buy rentals or flips that can be expensive at times. It is very important to set aside cash to take care of the problems that might come up. When I figure my cash flow I set aside money for vacancies and repairs. You need to have cash set aside in case something goes wrong and this is one of the biggest mistakes landlords make is not having cash around.

Ironically, getting a loan allows investors to have more cash in many cases. Paying down the mortgage early or trying to pay it off with all your extra cash can leave you in a bad situation. If you do pay a property off and need to access that money in an emergency it can be hard to get to without selling.

Good management

Another way to have problems with your rentals is to manage them poorly. Many people have no idea how to manage a rental but decide they can do it on their own. They choose a bad tenant after not screening them, then never check on the property, and are surprised when it gets trashed. If you are going to manage rentals on your own you have to take the time to learn how to manage them. You have to screen tenants, and keep tabs on the properties!

If you don’t want to manage them yourself, you can hire a property manager as well. It takes time to find a good property manager and this is where it takes from work from the landlord as well. Again, no one said owning rentals was easy, but there are many ways to make them a great investment if you are willing to put in the work.

Liability and damage

Another risk that comes with rental properties is natural disasters or liability from accidents. People can get hurt and can sue tenants or tornados can wipe your property off the earth. Both instances are rare, but they happen. To mitigate the liability side you can put your properties in an LLC or make sure you have the property insurance coverage like a landlord and umbrella policy. With these policies, if you have a tenant destroy property or need to be evicted, they can help cover those costs as well! Putting a property in an LLC can help with getting sued but is not foolproof.

It is important to make sure your insurance agent knows you are using the property as a rental so you have the right coverage. It might be cheaper to leave homeowners insurance on the property if you used to live there but that can cause problems down the road.

Risks that are tough to mitigate

There are some cases where a landlord does everything right but still has a massive loss. These are rare but can happen and just about any investment or simply living life comes with risks.

  • Meth or drug house: If someone is cooking meth or using meth in your house it can cause damage that insurance will not cover. You may have to make major repairs depending on how bad it is. These risks can be alleviated by good tenant screening and checking on the properties often. It is not always the case, but many drug houses we see have cameras all over. That can be a sign to check the house out more if you see cameras on your rental.
  • Floods: Not all floods are covered by insurance. You often need an additional rider or flood coverage. If you are in a flood zone the lender will require the additional coverage but if you pay cash or use private money you may not be required to have it. There is also the risk of a flood outside a flood zone. If the property has a risk of flooding it is important to talk to your insurance agent about additional coverage.

Why does everyone say rentals are risky?

I won’t tell you it is impossible to lose money investing in long-term rentals. It can easily happen if you don’t have a plan, have reserves, or are impatient. It is not easy to buy properties below market value with great cash flow. If it were easy investing in long-term rentals, everyone would be investing in real estate.

The reason so many people think rentals are risky is that they hear anecdotal stories. Stories are good for entertainment and drama but they don’t give the entire picture. “my cousins, aunts, friend, lost all their money when their rental was trashed!” They failed to tell us the person self-managed a property they used to live in from 4 states away and never once talked to the tenant in 3 years. Then they were surprised it was trashed. There are all kinds of stories but usually, you can find one of the main reasons above for why people lose money on rentals. Overall, real estate is one of the best ways to build wealth!

Don’t be scared to invest in rental properties

There are many people who have gotten rich and retired early by investing in long-term rentals. There is a lot of opportunity and many advantages to investing in real estate. Just because you can have some great rewards does not mean there is a massive risk. Some risk? Yes of course and the less you pay attention to your investment the riskier it will get!

Categories Rental Properties

Source: investfourmore.com

Factoring Inflation into Your Retirement Plan

Right now, inflation is top of mind for everyone, perhaps especially retirees.

Inflation is important. But it is only one of the risks that retirees have to plan for and manage. And like the other risks you have to manage, you can build an income plan so that rising costs (both actual and feared) do not ruin your retirement.

Inflation and Your Budget

Remember that in retirement your budget is different than when you were working, so you will be impacted in different ways. And, of course, when you were working your salary and bonuses might have gone up with inflation, which helped offset long-term cost increases.

Much of your pre-retirement budget was spent on housing — an average of 30% to 40%. Retirees with smaller or paid-off mortgages will have lower housing costs even as their children are busy taking out loans to buy houses, and even home equity loans to pay for home improvements.

On the other hand, while health care looms as a big cost for everyone, for retirees these expenses can increase faster than income. John Wasik recently wrote an article for The New York Times that cited a recent study showing increases in Medicare Part B premiums alone will eat up a large part of the recent 5.9% cost of living increase in Social Security benefits. As Wasik wrote, “It’s difficult to keep up with the real cost of health care in retirement unless you plan ahead.”

Inflation and Your Sources of Income

To protect yourself in retirement means (A) creating an income plan that anticipates inflation over many years and (B) allowing yourself to adjust for inflation spikes that may affect your short-term budget.

First, when creating your income plan, it’s important to look at your sources of income to see how they respond directly or indirectly to inflation.

  1. Some income sources weather inflation quite well. Social Security benefits, once elected, increase with the CPI. And some retirees are fortunate enough to have a pension that provides some inflation protection.
  2. Dividends from stocks in high-dividend portfolios have grown over time at rates that compare favorably with long-term inflation.
  3. Interest payments from fixed-income securities, when invested long-term, have a fixed rate of return. But there are also TIPS bonds issued by the government that come with inflation protection.
  4. Annuity payments from lifetime income annuities are generally fixed, which makes them vulnerable to inflation. Although there are annuities available that allow for increasing payments to combat inflation.
  5. Withdrawals from a rollover IRA account are variable and must meet RMD requirements, which do not track inflation.   The key in a plan for retirement income, however, is that withdrawals can make up any inflation deficit. In Go2Income planning, the IRA is invested in a balanced portfolio of growth stocks and fixed income securities. While the returns will fluctuate, the long-term objective is to have a return that exceeds inflation.
  6. Drawdowns from the equity in your house, which can be generated through various types of equity extraction vehicles, can be set by you either as level or increasing amounts. Use of these resources should be limited as a percentage of equity in the residence.

The challenge is that with these multiple sources of income, how do you create a plan that protects you against the inflation risk — as well as other retirement risks?

Key Risks That a Retirement Income Plan Should Address

A good plan for income in retirement considers the many risks we face as we age. Those include:

  1. Longevity risk. To help reduce the risk of outliving your savings, Social Security, pension income and annuity payments provide guaranteed income for life and become the foundation of your plan. As one example, you should be smart about your decision on when and how to claim your Social Security benefit in order to maximize it.
  2. Market risk. While occasional “corrections” in financial markets grab headlines and are cause for concern, you can manage your income plan by reducing your income’s dependence on these returns.  By having a large percentage of your income safe and less dependent on current market returns, and by replanning periodically, you are pushing a significant part of the market risk (and reward) to your legacy. In other words, the kids may receive a legacy that reflects in part a down market, which can recover during their lifetimes.
  3. Inflation risk. While a portion of every retiree’s income should be for their lifetime and less dependent on market returns, you need to build in an explicit margin for inflation risk on your total income. The easiest way to do that is to accept lower income at the start.  For example, under a Go2Income plan, our typical investor (a female, age 70 with $2 million of savings, of which 50% is in a rollover IRA) can plan on starting income of $114,000 per year under a 1% inflation assumption. It would be reduced to $103,000 under a 2% assumption.

So, what factors should you consider in making that critical assumption about how much inflation you need to account for in your plan?

Picking a Long-Term Assumed Inflation Rate  

Financial writers often talk about the magic of compound interest; in real numbers, it translates to $1,000 growing at 3% a year for 30 years to reach $2,428. Sounds good when you’re saving or investing. But what about when you’re spending? The purchase that today costs $1,000 could cost $2,428 in 30 years if inflation were 3% a year.

When you design your plan, what rate of inflation do you assume? Here are some possible options (Hint: One option is better than the others):

  • Assume the current inflation of 5.9% is going to continue forever.
  • Assume your investments will grow faster than inflation, whatever the level.
  • Assume a reasonable long-term rate for inflation, just like you do for your other assumptions.

We like the third choice, particularly when you consider the chart below. Despite the dramatically high rate of today’s inflation that affects every result in the chart, the long-term inflation rate over the past 30 years was 2.4%. For the past 10 years, it was even lower at 2.1%.

A Long-Term View Smooths Inflation Spikes

A table shows what a $1,000 item would cost today if purchased in years ranging from 2020 to 1991, showing inflation rates of 6.9% currently, down to 2.4% for 30 years.A table shows what a $1,000 item would cost today if purchased in years ranging from 2020 to 1991, showing inflation rates of 6.9% currently, down to 2.4% for 30 years.

Managing Inflation in Real Time

Whether you build your plan around 2.0%, 2.5% or even 3.0%, it is helpful to realize that any short-term inflation rate will not match your plan assumption. My view is that you can adjust to this short-term inflation in multiple ways.

  • Where possible, defer purchases that are affected by temporary price hikes.
  • Where you can’t defer purchases, use your liquid savings accounts to purchase the items, and avoid drawing down from your retirement savings.
  • If you believe price hikes will continue, revise your inflation assumption and create a new plan. Of course, monitor your plan on a regular basis.

Inflation as Part of the Planning Process

Go2Income planning attempts to simplify the planning for inflation and all retirement risks:

  1. Set a long-term assumption as to the inflation level that you’re comfortable with.
  2. Create a plan that lasts a lifetime by integrating annuity payments.
  3. Generate dividend and interest yields from your personal savings, and avoid capital withdrawals.
  4. Use rollover IRA withdrawals from a balanced portfolio to meet your inflation-protected income goal.
  5. Manage your plan in real time and make adjustments to your plan when necessary.

Inflation is a worry for everyone, whether you are retired or about to retire. Put together a plan at Go2Income  and then adjust it based on your expectations and investments. We will help you create the best approach to inflation and all retirement risks you may face.

President, Golden Retirement Advisors Inc.

Jerry Golden is the founder and CEO of Golden Retirement Advisors Inc. He specializes in helping consumers create retirement plans that provide income that cannot be outlived. Find out more at Go2income.com, where consumers can explore all types of income annuity options, anonymously and at no cost.

Source: kiplinger.com

Titan Invest Review – Advanced Strategies for Everyday Investors

At a glance

Titan Logo

Our rating

  • What It Is: Titan Invest is a set-it-and-forget-it investment platform designed to give the average investor a simplified way to invest with a hedge fund-like style.
  • Advantages: The platform offers an aggressive investment style capable of yielding market-beating returns, an insured and secure investing experience, an intuitive mobile app, and multiple account types.
  • Disadvantages: Investors are sometimes turned off by the high cost compared to robo-advisors, relatively high account minimum requirements, and a lack of financial planning tools.
  • Price: Titan Invest charges a monthly or annual fee depending on your account balance. If you have under $10,000 invested, you’ll be charged a $5 monthly advisory fee, while accounts with a value of $10,000 or more are charged a 1% annual fee.

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Additional Resources

Created by Clayton Gardner, Joe Percoco, and Max Bernardy, Titan Invest is a platform designed to give the average investor the ability to follow a hedge fund-like investment strategy without having to manage their portfolios on their own. 

Gardner — the CEO of Titan whose long list of credentials includes a history as a financial analyst for a hedge fund — and his team of investment advisors, analysts, and traders manage your portfolio for you. 

The goal is to give you the upper hand in the stock market, regardless of whether you’re an accredited investor or not. Although Titan Invest is young, it is already building a history of compelling performance. 

Key Features of Titan Invest

Titan Invest is quickly becoming a popular option among the investing community, and for several good reasons. Some of the platform’s most important feature are:

Aggressive Investment Style

The number one reason to consider investing with Titan is the sheer scale of returns the firm has generated for its customers. In 2020, even in the face of the COVID market crash, the firm delivered a 44.42% rate of return, outpacing the S&P 500’s 18.39% and the average robo-advisor return of 14.90% by a wide margin.

On an annualized basis, the company’s investment portfolio has generated 22.4% growth since inception. That’s more than double the long-term average return of the stock market. 

Titan generates these returns through an aggressive investment style that’s focused on picking high quality individual stocks and using inverse exchange-traded funds (ETFs) for hedging.  

When you sign up, a percentage of your assets is placed in the equities side of the portfolio. The remainder of your portfolio value is invested in inverse ETFs, acting as a personalized hedge. From there, you can either watch your money grow or make regular contributions to increase your earnings potential, leaving the legwork to the pros at Titan Invest.

Three Portfolio Options

When you sign up, you’ll have the option to choose from three different portfolio styles. These include:

  • Titan Flagship. The company’s Flagship portfolio invests in a small group of large-cap domestic stocks. The average market cap in the portfolio is around $500 billion, with stocks being chosen for their potential to beat the returns of the S&P 500. 
  • Titan Opportunities. The company’s Opportunities portfolio provides access to domestic small- and mid-cap stocks. The average market cap in the fund is about $9 billion, and stocks are chosen for their ability to provide exceptional returns. After all, small-cap stocks have a long history of outperforming their large-cap counterparts. However, for access to the Opportunities portfolio, you’ll need to maintain a minimum account balance of $10,000. 
  • Titan Offshore. The Titan Offshore portfolio gives you access to a select list of international stocks outside the U.S. in both developed and emerging markets. As with the Opportunities portfolio, the stocks are chosen based on their potential to deliver exceptional returns. 

Safety Is a Top Priority

When deciding where you’re going to invest your money, safety should be a consideration. As technology becomes more sophisticated, hackers and con artists do too. So it’s important that no matter where you park your money, it’s both safe and insured. 

All Titan investment accounts are covered by Securities Investor Protection Corporation (SIPC) insurance on balances up to $500,000. So, if your money becomes lost for any reason other than general losses in the stock market, you can rest assured that you’re covered. 

All Titan accounts are held and cleared with APEX Clearing. APEX is one of the largest financial technology companies in the world, with a history of providing the tech necessary for the safe clearing of stock market transactions. 

Finally, on Titan’s website, your information will be safeguarded by several layers of security. Titan uses an SSL connection with 256-bit encryption and a firewall to ensure the safety of your data.  

User-Friendly Mobile App

Everything happens on the go these days, and the same is true when it comes to investing. 

If you enjoy having on-the-go access to your investing accounts, you won’t be disappointed. The Titan Invest mobile app is intuitive and user friendly, offering everything you get when you log in to the platform on a desktop. 

Multiple Account Types

Titan offers multiple account types. Whether you’re simply investing for the sake of investing or you’re building a retirement account, there’s an option available for you. The available account types include individual taxable brokerage accounts, traditional IRAs, and Roth IRAs. 

Popularity

While a fund or investment service’s popularity should never be the determining factor as to whether you’ll invest in it, it is nice to see that the platform is popular. After all, if investors were losing money, it would be hard to build a buzz around the opportunity. 

Titan Invest has already attracted more than $600 million in assets under management (AUM), which is impressive when you think about the fact that the company just launched in 2017.


Advantages of Titan Invest

Considering the fact that so many investors are flocking toward Titan’s services, there’s obviously plenty to be excited about. Here are the biggest advantages to working with the firm:

  1. Low Cost Compared to Typical Hedge Funds. Hedge funds and other active investment managers generally charge performance fees. Sometimes, these fees can be as high as 20% of the profits earned. Compared to these funds, Titan’s 1% per year and $5 monthly fees are far easier to swallow. 
  2. Not Just Available to Accredited Investors. Aggressive strategies that lead to gains that significantly outpace the market are typically only accessible by high net worth individuals and other big-money investors. The Titan Invest platform makes these exclusive returns available to the masses. 
  3. Compelling Performance. Titan has only been around a few years, but in that time it has generated multiples of the average market returns. The potential to consistently and significantly outperform the market is very appealing to investors. 
  4. Referral Program. Titan offers an opportunity to get rid of fees entirely and unlock the Titan Opportunities portfolio without the $10,000 minimum investment through its referral program. Refer two members and you’ll have access to the Opportunities portfolio with a minimum investment of $100. Refer four new members and you’ll get rid of your advisory fees entirely. Even if you only refer one person to the platform, you’ll enjoy a 25-basis-point (0.25%) reduction in your annual fee. 

Disadvantages of Titan Invest

So far Titan may seem like a platform built of sunshine and rainbows, but there are some dark clouds in the sky to consider too. 

  1. High Risk. The strategies used by the pros at Titan Invest are high-risk/high-reward strategies. Without the use of fixed-income investments and heavy diversification, conservative investors with a low risk tolerance or investors with a short time horizon who can’t afford to absorb market downturns will find the volatility associated with the strategy to be a turnoff. 
  2. High Cost Compared to Robo-Advisors. While there are no performance fees, investing with Titan is more expensive than the average robo-advisor. For example, Betterment charges a management fee of 0.25% per year, which makes 1% seem like an exorbitantly high fee. For smaller accounts, $5 per month can actually be pretty pricey. To put it into perspective, if you have a $500 starting balance, $5 per month works out to annual fees of 12%. (Once you have between $6,000 and $10,000, $5 per month works out to an annual fee of 1% or less.)
  3. Account Minimums. All Titan accounts have a $100 minimum investment, which isn’t a big deal. However, if you want access to the Opportunities portfolio, you’ll need to maintain a minimum balance of $10,000, which is too high for some investors. 
  4. Lacks Additional Features. Titan Invest doesn’t offer tax-loss harvesting, financial advisors, or financial planning, all of which are generally available when working with the company’s competitors.  

You Should Invest With Titan Invest If…

There’s no such thing as a one-size-fits-all investing product. Everyone has different goals, a different risk tolerance, and different amounts of capital to put into the investing process. These factors make an investor a perfect fit for the Titan platform:

  • You Have $6,000 or More to Invest. With balances under $6,000, the fees you’re charged will work out to be more than 1% annually. That’s an expensive pill to swallow, and chances are that you’ll find better opportunities elsewhere. 
  • You Have a High Risk Tolerance. Only investors with a healthy appetite for risk should ever consider an aggressive investing strategy that’s solely focused on investments in stocks. Risk-averse investors should consider other opportunities. 
  • You Are Young. Due to the high risk associated with the Titan Invest strategies, younger people are the best candidates for this investing style. The younger you are, the more risk you can accept because you’ll have more time to recover should a significant drawdown take place. Investors nearing retirement or with short-term time horizons simply don’t have the time to recover from significant losses and should consider investing in a product or assets with limited volatility. 

Final Word

All told, the Titan Invest platform is a great option for the audience it was designed to serve. Young investors with a high risk appetite will benefit greatly from the firm’s aggressive investment strategies. 

Regardless of your age, it’s important to keep a sizable balance in your account if you’re going to use Titan to ensure that fees don’t eat into too much of your profits. 

On the other hand, if you’re not a young investor or don’t have a healthy appetite for risk, it’s likely best to look into low-cost, highly diversified ETFs and choose an asset allocation that fits your investing goals and timeline. Also, it won’t hurt to mix some fixed-income assets in to further shield your portfolio from volatility. 

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The Verdict

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Our rating

Titan Invest is a great option for investors with $6,000 or more to start with who are willing to accept increased risk for an opportunity to beat the market. Offering up a hedge-fund investment style with a history of compelling performance, the platform has become a popular option for individual investors.

The platform offers compelling returns on stocks, but that’s about it. Without fixed-income allocation and financial planning features, the platform leaves much to be desired for the average investor.

Editorial Note:
The editorial content on this page is not provided by any bank, credit card issuer, airline, or hotel chain, and has not been reviewed, approved, or otherwise endorsed by any of these entities. Opinions expressed here are the author’s alone, not those of the bank, credit card issuer, airline, or hotel chain, and have not been reviewed, approved, or otherwise endorsed by any of these entities.
Joshua Rodriguez has worked in the finance and investing industry for more than a decade. In 2012, he decided he was ready to break free from the 9 to 5 rat race. By 2013, he became his own boss and hasn’t looked back since. Today, Joshua enjoys sharing his experience and expertise with up and comers to help enrich the financial lives of the masses rather than fuel the ongoing economic divide. When he’s not writing, helping up and comers in the freelance industry, and making his own investments and wise financial decisions, Joshua enjoys spending time with his wife, son, daughter, and eight large breed dogs. See what Joshua is up to by following his Twitter or contact him through his website, CNA Finance.

Source: moneycrashers.com

When Can You File Your Taxes This Year?

The sooner you file your tax return, the sooner you’ll receive any refund due. That’s why some people like to file their return as early as possible. This year, the IRS will start accepting 2021 tax returns on January 24, 2022. That’s much earlier than last year, when you had to wait until mid-February to start filing returns.

If you’re really itching to file your return as soon as possible and made $73,000 or less in 2021, you can use the IRS’s Free File program to file your return as early as January 14. Participating providers will accept completed returns starting on that date and hold them until January 24, when they can be filed electronically with the IRS. Other tax preparation software companies and tax professionals may also accept or preparing tax returns before January 24 and hold them until the IRS itself begins accepting returns.

If you’re more of a procrastinator when it come to taxes, most people have until April 18, 2022, to file your 2021 federal income tax return or request a filing extension. Normally the due date is April 15, but since that day is a holiday in Washington, D.C. (Emancipation Day), the deadline is pushed back to the next business day, which is April 18. However, if you live in Maine or Massachusetts, you get an extra day to file your federal return – until April 19 – because of the Patriots’ Day holiday in those two states. Anyone requesting an extension will have until October 17, 2022, to file their 2021 federal income tax return (although payment of any tax owed is still due on the April 18 or 19 deadline).

Who Must File a Tax Return?

Not everyone is required to file a tax return. If your income is under a certain amount (see table below), you aren’t required to file a tax return because you won’t owe any tax.

Federal Tax Return Filing Requirements (2021 Tax Year):

Filing Status and Age at End of 2021

Income Required to File 2021 Return

Single; Under 65

$12,550

Single; 65 or Older

$14,250

Married Filing Jointly; Both Spouses Under 65

$25,100

Married Filing Jointly; One Spouse 65 or Older

$26,450

Married Filing Jointly; Both Spouses 65 or Older

$27,800

Married Filing Separately; Any Age

$5

Head of Household; Under 65

$18,800

Head of Household; 65 or Older

$20,500

Qualifying Widow(er); Under 65

$25,100

Qualifying Widow(er); 65 or Older

$26,450

However, even if your income is below the applicable threshold, you still may want to file a 2021 tax return anyway. For example, you will need to file a return to claim a recovery rebate credit if you didn’t get a third stimulus check or got less than what you should have received. There also may be other tax credits that are only available if you file a return, such as the:

If you receive monthly child tax credit payments last year, you’ll have to reconcile those payments with the total credit that you’re actually entitled to claim. (Some people may even be required to pay back all or some of the monthly payments if they received too much.)

When Will Tax Refunds Arrive?

If you have a federal tax refund coming, you could get your money back in as little as three weeks. In the past, the IRS has issued over 90% of refunds in less than 21 days. If you want to speed up the refund process, e-file your 2021 tax return and select the direct deposit payment method. That’s the fastest way. Paper returns and checks slow things down considerable.

However, don’t expect your refund before mid-February if you claim the earned income tax credit or the additional child tax credit. By law, refunds for returns claiming these credits must be delayed. This applies to the entire refund, not just the portion associated with the credits.

Source: kiplinger.com