Personal Finance

Some families say back-to-school shopping will put them in debt

Published

5 months ago

August 19, 2024

Business Finance News

A Target store in Queens, New York.

Lindsey Nicholson | UCG | Universal Images Group | Getty Images

The back-to-school shopping season is in full swing, with the hefty bills to prove it.

Nearly one-third — 31% — of back-to-school shoppers said that buying supplies for the new year will put them into debt, according to a new report by Bankrate, which polled more than 2,300 adults in July.

A separate report by Intuit Credit Karma also found that 31% of parents said they can’t afford back-to-school shopping this year and 34% expect to take on debt to cover the cost of supplies. That survey polled more than 1,000 adults last month.

Higher prices are partly to blame: Families are now paying more for some key back-to-school essentials such as backpacks ahead of the new school year. CNBC used the producer price index — a closely followed measure of inflation — to track how the costs of making certain items typically purchased for students has changed between 2019 and 2024.

On the upside, most families say back-to-school shopping is less of a strain in 2024 compared to a year earlier, Bankrate found.

Overall, inflation continues to retreat. The consumer price index, a key inflation gauge, rose 2.9% in July from a year ago, the U.S. Department of Labor reported. That figure is down from 3% in June and the lowest reading since March 2021.

“Shoppers aren’t clutching their wallets nearly as tightly this year,” said Ted Rossman, Bankrate’s senior industry analyst. “It’s important not to let your guard down, though.”

Back-to-school spending may hit nearly $40 billion

Families with children in elementary through high school plan to spend an average of $874.68 on school supplies, just $15 less than last year’s record of $890.07, according to the National Retail Federation.

Altogether, this year’s back-to-school spending, including for college students, is expected to reach $38.8 billion, the NRF also found. That’s the second-highest tally ever, after last year’s $41.5 billion marked the most expensive back-to-school season to date.

More than 75% of parents said they believe schools ask them to buy too much during back-to-school season, according to a report by WalletHub.

Parents ‘influenced’ to splurge

Despite having to navigate tight budget constraints, 85% of parents said they could be influenced to splurge on a “must-have” item or brand, another survey by Deloitte found. In May, the firm polled more than 1,100 parents who will have at least one child in grades K through 12 this fall.

According to Casey Lewis, a social media trend expert, low-rise jeans; Adidas Campus sneakers, which cost as much as $110 at adidas.com; and Jester backpacks from North Face, retailing for $75 or more, are topping students’ wish lists this year.

“There’s a lot of pressure to have the right look,” Lewis said. And as trends cycle through faster and faster, “young people have even more pressure to keep up,” she added. “It feels like their popularity and perceived coolness rides on the products they have.”

How to save on back-to-school shopping

Consumer savings expert Andrea Woroch advises families to shop for gently used clothing, sporting goods, school supplies and certified-refurbished electronics on resale sites, use a price-tracking browser extension or app and apply coupon codes. There are a growing number of online retailers that offer children’s product overstock, open-box and returned goods, often at a significant discount.

If you are buying new, try stacking discounts, Woroch recommended, such as combining credit card rewards with store coupons and cash-back offers while leveraging free loyalty programs. For example, you can get 50% off with 2% cash back at Old Navy and 20% off with 1.5% cash back at Office Depot, among other deals.

Otherwise, shop your own stock, Woroch said. “Rip out pages in a partially used notebook, collect scattered markers and crayons to make a full set and clean up last year’s backpack and lunch tote.”

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Personal Finance

Missing quarterly tax payment could trigger ‘unexpected penalties’

Published

2 hours ago

January 9, 2025

Business Finance News

Israel Sebastian | Moment | Getty Images

The fourth-quarter estimated tax deadline for 2024 is Jan. 15, and missing a payment could trigger “unexpected penalties and fees” when filing your return, according to the IRS.

Typically, estimated taxes apply to income without withholdings, such as earnings from freelance work, a small business or investments. But you could still owe taxes for full-time or retirement income if you didn’t withhold enough.

You could also owe fourth-quarter taxes for year-end bonuses, stock dividends, capital gains from mutual fund payouts or profits from crypto sales and more, the IRS said.

Federal income taxes are “pay as you go,” meaning the IRS expects payments throughout the year as you make income, said certified public accountant Brian Long, senior tax advisor at Wealth Enhancement in Minneapolis.

If you miss the Jan. 15 deadline, you may incur an interest-based penalty based on the current interest rate and how much you should have paid. That penalty compounds daily.

Tax withholdings, estimated payments or a combination of the two, can “help avoid a surprise tax bill at tax time,” according to the IRS.

What to know about the ‘safe harbor’ rules

One way to avoid penalties is by following the “safe harbor” rule, which means “you’re meeting that [IRS] pay-as-you-go requirement,” according to Long.

To satisfy the rule, you must pay at least 90% of your 2024 tax liability or 100% of your 2023 taxes, whichever is smaller.

The threshold increases to 110% if your 2023 adjusted gross income was $150,000 or higher, which you can find on line 11 of Form 1040 from your 2023 tax return.

However, you could still owe taxes for 2024 if you make more than expected and don’t adjust your tax payments.

“The good thing about this last quarterly payment is that most individuals should have their year-end numbers finalized,” said Sheneya Wilson, a CPA and founder of Fola Financial in New York.

How to make quarterly estimated tax payments

Personal Finance

California wildfire relief: Where to give

Published

4 hours ago

January 9, 2025

Business Finance News

Firefighters work as a brush fire burns in Pacific Palisades, California on Jan. 7, 2025.

David Swanson | AFP | Getty Images

Massive wildfires are devastating the Los Angeles area of Southern California. As of Thursday morning, at least five people were killed, more than 100,000 residents have been ordered to evacuate and nearly 2,000 homes and businesses were destroyed.

Many people around the country, and world, want to help, whether by donating money or emergency supplies. However, there are already fundraising scams trying to capitalize on the crisis.

To make sure your funds get into the right hands, third-party evaluator Charity Navigator compiled a list of highly rated nonprofits currently engaged in relief and recovery efforts in the Pacific Palisades and the surrounding areas — including support for first responders.

“We’ve vetted the organizations that are there,” said Michael Thatcher, CEO of Charity Navigator. “These are all outstanding.”

Here are some of the groups that earned high marks from the organization for providing immediate support to the victims of the wildfires and wildfire-affected communities.

How to avoid wildfire-related scams

Unfortunately, as with any high-pressure donation, there will be an increase in fraudulent behavior, said Thatcher, “and what we encourage people to do is be proactive rather than reactive to a solicitation.”

As a general rule, rather than follow a link in a text, email or on social media, go directly to a charity’s website or find a relief effort through a site such as Charity Navigator, BBB Wise Giving Alliance or CharityWatch, Thatcher said.

“There’s a safety element and a legitimacy element,” he said. “At the end of the day we want to make a difference to the people affected by this fire.”

The BBB Wise Giving Alliance also offers tips for donating to the California wildfire relief efforts.

It recommends donors check whether a charity is accredited and take extra precautions on crowdfunding sites, including reviewing how postings are screened as well what transaction fees may apply.

In addition, be wary of relief appeals that have vague descriptions or do not explain what programs your support will assist.

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Personal Finance

New Social Security increases may prompt higher tax bills, Medicare premiums

Published

23 hours ago

January 8, 2025

Business Finance News

Sdi Productions | E+ | Getty Images

Nearly 3 million individuals are poised to see their Social Security benefits increase, thanks to new changes signed into law by President Joe Biden this week. But with the higher checks could come additional tax burdens.

The Social Security Fairness Act — which passed by a bipartisan majority in both the House and Senate — ends reductions of Social Security benefits for certain individuals who also receive pension income from work in the public sector as firefighters, police officers, teachers and local, state and federal employees.

Those beneficiaries are set to see an increase to their monthly benefit checks. Because the legislation applies to benefits paid throughout 2024, they will also receive lump-sum payments to make up for that time.

The details of how those increases will be implemented are now being determined, according to the Social Security Administration.

In total, the benefit increases will cost $196 billion over a decade, according to the Congressional Budget Office. The additional outlay will move Social Security’s trust fund depletion dates six months closer. The program’s combined trust funds may pay full benefits until 2035, at which point just 83% of scheduled benefits may be payable, the program’s trustees projected last year.

How Social Security benefits may change

About 2.1 million beneficiaries — those who were affected by the Windfall Elimination Provision, or WEP — may see $360 more in monthly benefits on average, according to CBO estimates as of December 2025. The WEP, which has now been eliminated, reduced Social Security benefits for workers who also had pension or disability benefits from jobs where they did not pay Social Security payroll taxes.

Additionally, about 380,000 spouses would see average benefit increases of $700 and 390,000 surviving spouses would see an average of $1,190 more, according to CBO’s estimates for December 2025.

Those beneficiaries were affected by the now-defunct Government Pension Offset, or GPO, which reduced Social Security benefits for spouses, widows and widowers who also receive their own pensions from public sector work.

The elimination of the provisions in many ways simplifies retirement income planning for affected beneficiaries, financial advisors say.

“For the people who are affected by this, you’re looking at a pretty significant increase, in many cases, of what their retirement income is going to be,” said Michael Daley, director of marketing at HealthView Services. “It’s good news for them.”

For financial planners and their clients, the challenge now is gauging how much of a benefit increase to expect and when to expect it, said Joe Elsasser, founder and president of Covisum, a Social Security claiming software company.

The extra income may also present some complications when it comes to affected beneficiaries’ taxes and Medicare premiums, experts say.

Beneficiaries could see higher taxes on benefits

Social Security beneficiaries may have their benefits taxed if their income falls over certain thresholds, experts say.

The additional money may also push some affected beneficiaries into higher tax brackets, according to HealthView Services.

Notably, President-elect Donald Trump has said he wants to nix taxes on Social Security benefit income, though it remains to be seen whether that change will be put into effect. However, per current rules, up to 85% of Social Security benefit income may be taxed.

The income thresholds upon which those levies are based are not adjusted annually for inflation. Consequently, more beneficiaries are subject to those taxes on benefits over time, including middle class households, Daley said.

Those levies are determined based on a formula called combined income — the sum of adjusted gross income, nontaxable interest and half of Social Security benefits.

Maximizing your Social Security benefits

Individuals pay taxes on up to 50% of their benefits if their combined income is between $25,000 and $34,000, or for married couples with between $32,000 and $44,000.

Individuals may pay taxes on up to 85% of their benefits if their combined income is more than $34,000; or for married couples with more than $44,000.

“Because Social Security benefits are taxed differently than everything else, people are going to really want to pay attention to their other sources of income,” Elsasser said of the anticipated benefit increases and lump sum payments.

For example, if a retiree has both a taxable account and traditional individual retirement account, they may want to prioritize withdrawals from the taxable account because only the gains would be taxed rather than the entire withdrawal, Elsasser explained. In the event the lump-sum payment of retroactive Social Security benefits is not distributed, they may take an IRA withdrawal later in the year.

Beneficiaries may see higher Medicare costs

Additional benefit income for individuals affected by the Social Security Fairness Act may also result in higher income-based surcharges for Medicare Parts B and D.

Medicare beneficiaries with higher incomes must pay what’s known as income-related monthly adjustment amounts, or IRMAAs, for their Part B and Part D premiums.

“If you get a lump sum but you’re not paying attention to your other incomes, you could unwittingly be pushed into higher Medicare premiums two years down the road,” Elsasser said.

That will mostly be a concern for people who are on the cusp of the income thresholds, he said.

In 2025, Medicare Part B beneficiaries who file individual tax returns with $106,000 or less in modified adjusted gross income — or married couples who file jointly with $212,000 or less — pay a standard monthly premium of $185 per month.

Beneficiaries above those income thresholds pay higher Part B premium payments, based on an IRMAA. This year’s rates are based on income on tax returns filed in 2023.

In 2025, Part D beneficiaries over the $106,000 threshold for individuals and $212,000 for married couples are also subject to income-related monthly adjustment amounts in addition to their plan premiums. Those monthly premiums are also based on yearly income reported on tax filings for 2023. In 2025, the national base Part D premium is $36.78.

Steps to take now

Beneficiaries who are affected by the Social Security Fairness Act should consider consulting with a financial advisor to assess the implications of the change on their personal financial circumstances, said Ron Mastrogiovanni, chairman and CEO of HealthView Services.

Additionally, it would help to sit down with a certified public accountant when filing their taxes to plan for 2025, he said.

The Social Security Administration also plans to provide more guidance on the new law as more details become available.

For now, the agency recommends verifying that direct deposit and mailing address it has on file is still accurate. To update that information, the Social Security recommends changing it online or calling or visiting a Social Security office in person.