Ask Liz Weston

Get smart with your money

Liz Weston

Q&A: How to pay taxes electronically

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Dear Liz: You recently wrote about check theft and the fraud possibilities when paying with checks through the mail. The largest checks that I send are to the IRS and California’s Franchise Tax Board. Is there a way to send in tax payments electronically rather than by check?

Answer: Absolutely, and tax authorities typically encourage you to use these electronic payment methods.

The IRS has a number of options. Its Direct Pay service allows you to schedule payments from your bank account at no cost. You also can pay using a credit card, debit card or digital wallet service such as PayPal, although these methods incur a processing fee. California’s FTB also has electronic options. (Electronic payment options for other states can be found by searching for the state tax agency’s name and the word “payment.”)

Q&A: More reasons to ditch paper checks

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Dear Liz: Personal checks are not stolen while in transit; they’re stolen from mailboxes which are, for the most part, unprotected and not covered by security cameras. So, if you want your check to go through the mail, walk it into the post office. More than once I’ve found that previous mailers had just slipped their letters into the chute of the drive-up mailbox and driven off. In their ignorance or naivete they left their letters for the thieves, but I shoved their letters downward into the chute. One of my neighbors whined that someone altered a check that she had made out to “AT&T.” She left a lot of room on the payee line and that’s something one never wants to do.

Answer: Checks are not just stolen from unprotected mailboxes. Thieves have attacked mail carriers for keys to secure mailboxes. Checks also can be stolen in transit and from the recipients’ mailrooms. Even people who have mailed their payments at a post office have reported being the victims of check theft.

There are some ways to reduce your risk, but that doesn’t change the fact that writing checks is a risky habit.

Take a moment to look at your checks. Each one is printed with your name, account number and bank routing number. That’s all the information a thief needs to create new checks and make fraudulent payments.

Also, check washers can remove all the writing from your checks except for the signature, so just filling out the payee line won’t prevent fraud. (If you must write a check, consider using a gel pen, because the gel is generally harder to remove with solvents than ballpoint ink.)

Electronic payments, by contrast, offer a secure way to pay that’s faster and easier to track than a check through the mail. Electronic payment options are nearly ubiquitous now, so it’s a good time to break the bad habit of writing checks.

Gambling risks rise for young people. How to lower the stakes

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For Ambus Hunter, what started as a fun trip to Las Vegas when he was 25 soon turned into a gambling addiction. “I got consumed with the vibes,” he says, recalling how he loved the feeling of winning at first. He began gambling back home in the Midwest and on business trips, playing roulette whenever possible. He burned through thousands of dollars of savings before realizing he needed to find a way to stop.

Now fully financially recovered at 37, Hunter works as an accredited financial counselor in Baltimore, helping other people recover their finances that have been damaged by problematic gambling. “I learned a lot about myself and my relationship with money,” he says, lessons he helps others apply to their own lives and budgets.

Gambling is a growing problem among young adults, according to experts, largely because sports betting and other forms of online wagering are so easily accessible. “More and more youth are becoming vulnerable to gambling and problem gambling. It’s a social contagion,” says Dorothy Nuckols, who teaches personal finance for the University of Maryland Extension in Central Maryland. In Kimberly Palmer’s latest for the Seattle Times, learn how to lower gambling risks.

This week’s money news

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This week’s top story: Life insurance living benefits. In other news: What you can do dealing with FAFSA glitches and confusion, what you can do when no-warning credit limit cuts happen, and more student loan changes are on the way.

What Are Life Insurance Living Benefits?
Life insurance living benefits provide extra financial security while you’re still alive, but they come at a cost.

Dealing With FAFSA Glitches and Confusion? Here’s What You Can Do
Technical glitches, new processes and confusing questions are making it tough to complete the redesigned 2024-25 FAFSA, which fully launched on Jan. 8.

Why No-Warning Credit Limit Cuts Happen and What You Can Do
Issuers often cut credit limits to reduce their own risk exposure, but there are things you can do to protect your credit lines.

More Student Loan Changes Are on the Way. Here’s What to Expect
From a redesigned FAFSA to halved monthly payments, a debt cancellation Plan B and more, here’s what’s coming in the college financial aid world.

Q&A: What to know about capital gains tax on a house sale

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Dear Liz: My husband died in November 2022. I was told that if I sell the house within two years of his death, I can benefit from two capital gains exclusions, his and mine, each for $250,000. The house was appraised at $912,000 based on his date of death. I don’t imagine it would sell for much more than that now. Can you tell me approximately what I would owe in capital gains? My tax rate is 24%.

Answer: That’s a great question to ask a tax pro, since there are a number of variables involved.

If you live in a community property state such as California, then both halves of the property got a favorable step-up in tax basis when your husband died. That means the house’s new tax basis would be $912,000.

If you don’t live in a community property state, then only half of the house got the step up at his death (to $456,000, or half of $912,000). The other half — yours — retains its original tax basis. If the original purchase price of the home was $300,000, for example, your basis would be $150,000. The home’s total basis would be $606,000 (which is $456,000 plus $150,000). If you sold the house for $912,000, your capital gain could be $306,000, which would be well below the $500,000 exemption you could take if you sell the house within two years of the death. If you sell after the two-year mark, the gain above your single $250,000 exemption would be taxable.

The rate you would pay depends on your taxable income and what state you live in.

For example, a single person with taxable income of between $47,026 and $518,900 in 2023 would pay a 15% federal capital gains rate, plus whatever rate their state imposes. (California doesn’t have a separate capital gains tax system, so any taxable gain would be subject to the state’s regular income tax.)

These numbers are just to give you an idea of how capital gains taxes work. Your mileage may vary. If you renovated the kitchen or did any other significant improvements on the home, those costs could be added to your tax basis to reduce any potentially taxable gain. Also, selling costs will reduce what you actually pocket from the sale and your potentially taxable gain. For more information, see IRS Publication 523, Selling Your Home.

Taxes shouldn’t be your only consideration, of course. Relocating can be disruptive and expensive. Getting the house sold before the two-year mark makes sense if you were planning to move anyway, but don’t let fear of taxes scare you out of a home that otherwise suits you.

Q&A: Using 529 accounts on groceries

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Dear Liz: You said 529 accounts could not be used for groceries. I searched on the internet and found that students can use 529 money to purchase meals off campus and buy groceries. Which is correct?

Answer: The original letter writer’s child lived on campus, so the amount the family can withdraw tax free from the 529 account is limited to what they spent on a campus meal plan. Grocery runs and restaurant meals aren’t covered.

Once the child moves off campus, the family can use the college’s official “cost of attendance” figures to determine the maximum they can withdraw tax free to pay for food. The child should keep all receipts as proof to back up the withdrawal.

Please be careful about assuming that the results of any internet search are reliable, especially if artificial intelligence is involved in creating — or inventing — the answer. Tax law can be particularly tricky to interpret, which is why I rely on tax experts such as Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting, who helped with the original answer.