Ask Liz Weston

Get smart with your money

Liz Weston

Monday’s need-to-know money news

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Today’s top story: Combating inflation, and saving for retirement amid climate change. Also in the news: 3 ways to lessen the impact of inflation on your small business, 3 ways small-business owners will feel a fed rate increase, and how to get on top of planned expenses with sinking funds.

Smart Money Podcast: Combating Inflation, and Saving for Retirement Amid Climate Change
Things may seem grim, but you can still take steps to set yourself up for long-term financial success.

3 Ways to Lessen the Impact of Inflation on Your Small Business
Lessen the impact of inflation on your business by raising your prices, refining your operations and working with a financial advisor.

3 Ways Small-Business Owners Will Feel a Fed Rate Increase
The Federal Reserve plans to raise interest rates multiple times in 2022.

Get on Top of Planned Expenses With Sinking Funds
Mapping out big purchases in advance gives you time to save by adding regularly to “sinking funds” for each goal.

Q&A: Reporting caregivers’ pay to the IRS

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Dear Liz: We have a gardener, pool man and caregivers. We pay the gardener, pool man and some of the caregivers directly, while we pay an agency for the other caregivers. Do we have an obligation to report payments to the IRS?

Answer: As an individual taxpayer, you typically don’t have to report payments to businesses. Your gardener and pool cleaner probably either are self-employed or work for a company that takes care of reporting requirements for its workers. Likewise, the caregiving agency should handle reporting requirements for its employees.

The caregivers you pay directly, however, are generally considered your household employees. That means you may be responsible for reporting their wages to the IRS and paying their employment taxes. That responsibility kicks in if a caregiver receives at least $1,000 in any calendar quarter or at least $2,400 per calendar year for 2022 (or $2,300 per calendar year for 2021), says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. IRS Publication 926, Household Employer’s Tax Guide, has details.

Q&A: Taxes on trust’s income

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Dear Liz: My father passed away last year leaving an estate that will make us comfortable through the foreseeable future. His holdings are mostly securities that are traded either on the NYSE or the Nasdaq. From our investments, we currently have non-earned income of between $75,000 and $100,000 annually without any other income. After estate taxes are paid for my father’s estate, the annual yield (mostly dividends) will be in the $225,000 to $250,000 range. My question for you is should we keep my father’s holdings within his trust and let the trust pay the taxes on the income, or should we take the income and pay the taxes ourselves?

Answer: Tax rates on trusts are notoriously high. If you have a choice, you probably would want to pay the taxes yourself rather than letting the trust do so. The question is whether you have a choice, and that will be determined by the wording of your father’s trust, Los Angeles estate planning attorney Burton Mitchell says.

Speaking of estate planning attorneys, you need to hire one, along with a tax pro and a fee-only financial planner, so you can get solid, personalized advice on questions like this. You already had substantial income, and you just inherited an estate worth multiple millions, so you’re long past the point when doing it yourself makes sense.

Q&A: How to protect your identity beyond a credit freeze

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Dear Liz: I volunteer for an organization that does background checks every two years. A recent check found my name and Social Security number was used in Texas from 2019 to 2021. I have never been to Texas. What can I do to find out how this happened, and how to protect my Social Security number? I have already frozen my account with the three main credit bureaus.

Answer: You may never know exactly how this happened, but you can make an educated guess.

Most Americans’ Social Security numbers have been exposed in one database breach or another, including the massive Equifax breach in 2017 that exposed the personal information of nearly 150 million people. As a result, Social Security numbers are sold by criminals on the dark web for just a few dollars.

Because Social Security numbers have become all-purpose identifiers — something they were never intended to be, by the way — criminals can use a purloined number to get jobs, steal your tax refunds, receive medical care and apply for credit, among other misuses. They also could pretend to be you if they’re ever arrested, something known as criminal identity theft.

Freezing your credit reports will help prevent someone from opening new credit accounts. Credit freezes typically won’t help with the many other types of identity theft, however.

If you haven’t already done so, create a personal account on Social Security’s site to check your earnings record. If what you see doesn’t match your own records, contact the Social Security Administration by calling (800) 772-1213. If someone used your Social Security number to work or get your text refund, contact the IRS at irs.gov/identity-theft-central or by calling (800) 908-4490.

You also can report the fraud to the Federal Trade Commission at IdentityTheft.gov, a site that will create a recovery plan to help you navigate the next steps.

Friday’s need-to-know money news

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Today’s top story: Steps to build healthy spending habits and make the transition out of college easier. Also in the news: How to avoid risk of student loan default, why you should file your taxes early, and the cheapest American metro areas to buy a home right now.

Get Ready to Spend Like a College Grad With These Top Budget Tips
Soon-to-be graduates can take these steps to build healthy spending habits and make the transition out of college easier.

Are You At Risk of Student Loan Default?
Student loan default starts the same way for everyone: a missed payment.

Why You Should File Your Taxes Early
Don’t wait until the last minute to get in line for your refund.

The Cheapest American Metro Areas to Buy a Home Right Now
With the cost of houses continuing to rise, location can make a big difference.

Thursday’s need-to-know money news

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Today’s top story: How to put your tax refund to work for you. Also in the news: 7 ways to improve your small-business website, how ‘impact investment’ perform better than evil investments, and how to get the most out of every drop of gas right now.

How to Put Your Tax Refund to Work for You
Paying into an emergency fund and getting rid of high-interest debt are top priorities.

7 Ways to Improve Your Small-Business Website
Keep it simple and take your time while revamping your small-business website or establishing an online presence.

Does ‘Impact Investment’ Perform Better Than Evil Investments?
Impact investing is not charity, but it’s also not an automatic route to higher returns.

How to Get the Most Out of Every Drop of Gas Right Now
With prices well over $4 per gallon, you’ll want to squeeze every last inch of road from your fuel.