Immediate Required Action: Review your savings account interest rate and take necessary action to avoid potential deceptive, unreasonable, and obscure rules that are keeping your money from making a reasonable interest rate!
Background
When interest rates rose due to inflation, banks and credit unions quickly raised their interest rates on credit cards, mortgages and loans, but were reluctant to reward loyal customers with higher interest on their deposit balances. They simply decided to put the extra profit in their pockets or were afraid they could not afford to pay market interest on their deposits.
These deceptive and unreasonable practices are words used by the Consumer Financial Protection Bureau (CFPB) in describing one bank’s practice to avoid paying market rates to many of their loyal depositors. So which tricks are being used?
Some common practices
The mirror trick. Create a new savings account with a similar name to one that earns less than ½ of one percent of interest. But the new account gets a much higher interest rate (allegedly 14 times higher!). Then, don’t be great at telling the current account holders, so they do not realize they are being grossly underpaid for their deposits. Example: Capital One (See CFPB lawsuit) Why do this? It dramatically lowers the bank’s interest expense since they do not roll the old, low interest accounts into the new, higher interest account. But they still offer a competitive savings product to attract new money.
The CD trap. Grossly underpay those with savings deposits, especially small, local businesses. Instead, offer CDs with better interest rates. Then introduce EXTREMELY high early withdrawal penalties (compared to traditional early withdrawal penalties historically used on CDs.) Classic examples: Chase Bank and US Bank, but there are many more!
Why do this? It makes it a lot easier for the bank treasury group to forecast the bank’s net interest income spread, as their deposit interest expense is more predictable.
The trained seal mirror trick. A major national credit union took the mirror trick above, then created additional rules to ensure ONLY new money gets the better interest rate. So they only make the new, similarly named, high interest bearing account available to NEW deposits into the credit union. So, no transferring funds from another internal account to get the higher interest.PLUS, you are required to set up automatic deposits in the account each month to obtain the best interest. To get the high rate, you need to transfer your money out of the bank, then keep it somewhere else for a time, then transfer it back. In other words, you need to be trained in the tricks to get the reasonable interest rate. Just like a seal. Why do this? Banks don’t want to pay these higher interest rates on existing deposits.
What to do now
Understand the impact. If you aren’t watchful, your savings account is earning much less than 1 percent interest when you could be earning over 4 percent in a similar account EVERY DAY.
Fight inertia. What all these tricks have in common is the benefit of inertia. These practices are commonly used by cell phone companies. They give the best deal to the new guy while gently deceiving their long-term subscribers. When is the last time you looked? Well, look now!
Find the right account. Often the answer is within your bank by getting into the right account. But you may find it is at another institution. Be willing to set up the right account at the right place. Current high yield savings rates with FDIC coverage range from 3.5% to 4.8%.
Develop fluid management. With secure online transfers, it is now easier than ever to keep your money working hard for you (using high interest rates). This also includes moving excess funds in your checking account. So securely link these accounts, actively monitor them, and transfer your funds to their best use at the highest interest rate. You’ll be amazed at how much interest income you can earn!
You may receive a tax document with incorrect information. You may also discover that a tax form you’re expecting was never delivered. Here are several situations you may encounter with incorrect information and what you can do about it.
Situation: You receive a tax document with wrong personal information, such as an incorrect Social Security number. What you can do: Immediately contact the company that sent you the tax document and ask that the information be corrected. If it’s your Form W-2 with wrong information, ask your employer for a corrected W-2 (Form W-2C, Corrected Wage and Tax Statement).
Situation: You disagree with the amount of wages or income reported on a tax form. What you can do: Contact your employer and ask for a corrected W-2 (Form W-2C, Corrected Wage and Tax Statement). If you do not receive the corrected W-2, you should report the incorrect amount as noted on the W-2 to avoid an IRS correspondence audit AND then correct the amount on your tax return.
This is especially important because if the W-2 information is not corrected, you will not get Social Security credit for any missing wages you earned. If this happens to you, make sure your employee record is corrected as soon as possible.
Situation: The business that issued your tax document went out of business and you can’t locate the owner. What you can do: You are required to report all your income, whether or not you receive information forms (W-2s or 1099s) from the parties who paid you. You’ll have to reconstruct your income and income tax withholding based on your paycheck stubs or other documents.
Make sure your income is also properly reported on your account with the Social Security Administration, as your future benefits could be negatively impacted if they aren’t properly reported by your employer. According to the IRS, you should contact the IRS and a representative will record a W-2 complaint on your behalf.
Situation: You never receive a tax document that you were expecting. What you can do: If you don’t receive a Form W-2 or Form 1099-R (for retirement distributions) by the end of February, you can call the IRS at 800-829-1040 for assistance. Be sure to have your employer’s name and address, along with your name, address and Social Security number, before calling.
Situation: You receive a missing or corrected tax document after filing your return. What you can do: You may need to file an amended tax return to include the missing tax document or if the dollar amount on the corrected tax document is significantly different from what you reported on your tax return.
Remember that when you receive these informational tax forms to immediately review them for accuracy. The best way to get them corrected is early detection.
You will soon have to confront a higher tax bill if Congress doesn’t extend many credits, deductions, and lower tax rates that are set to expire at the end of this year. Here’s who should be considering ongoing tax planning sessions as this uncertainty plays out in Congress and the Executive office:
Your income will increase in 2025. Maybe you are looking to move jobs or obtain a promotion. This should trigger a planning session as marginal rates currently max out at 37% at a fairly high income, but that could all change beginning in 2026.
You were an itemized deductions taxpayer. A number of taxpayers may begin itemizing deductions again in 2026 if the rules expire as they are currently scheduled to. This means planning your expenses in light of this impending roll back of rules will take some thought. This is especially true if you have high state income and real estate taxes.
You have a large estate. The current estate exemption ($13.99 million in 2025 for single taxpayers, $27.98 million for married) drops back to $5 million in 2026. While this reset amount will be adjusted for inflation going forward, gifting money or other assets can help reduce the size of your taxable estate while taking advantage of this historically high exemption amount.
You have investments. Review your investments to be as tax efficient as possible. Municipal bonds and tax-deferred plans like 401(k)s and IRAs may also become more attractive after 2025. Also consider tax-loss harvesting strategies to offset future gains. Another idea: if your tax rate will be lower in 2025 compared to 2026, consider selling appreciated assets in 2025 at a lower tax rate, then immediately purchase the asset again. Remember that wash sales rules only apply to losses, not gains!
You have pass-through business income. If you are a small business owner, assess how the loss of the Qualified Business Income deduction will affect your tax liability. Review whether you should change your entity type to minimize the loss of this deduction.
By starting to plan now, you can be ready for whatever tax environment you’ll be navigating in 2025.
To ensure your tax return is filed quickly and without error, double-check this list of commonly-overlooked items. These little pesks are among the commonly missed items reported as hold ups to filing individual tax returns:
Missing forms. Using last year’s tax return as a checklist, double check that all your W-2s and 1099s are received and applied to your tax return. Missing items here will be caught by the IRS mismatch program, creating an unwanted correspondence audit. If you are missing a form, contact the company responsible for issuing them as soon as possible.
Dependent information. If you added a new dependent in 2024, provide the name, Social Security number and birth date to have them added to your tax return. If you have a dependent that shares custody with someone else, discuss the plan for who is going to claim this person. Your tax return cannot be filed if there is a conflict in this area.
Cost basis information. If you sold any assets (typically investments or real estate), you need to know how much it cost you to determine your taxable capital gain or loss. Check your investment statements to ensure that your broker includes the required information and that you believe it is accurate. Sometimes it’s difficult to find this information on the Form 1099-B summary, but it might be listed later in the statement details.
Schedule K-1s. As an owner of a partnership or S corporation, you will need to receive a Form K-1 that reports your share of the profit or loss from the business activity. When you receive your K-1, pay special attention to box 17 (code V) for S corporations and box 20 (code Z) for partnerships. This is where information is included for the Qualified Business Income Deduction.
Digital asset transactions. If you are buying or selling cryptocurrency or other digital assets, provide details to support the cost basis and sales price of each transaction.
Forms or documents with no explanation. If you receive a tax form, but have no explanation for the form, questions will arise. For instance, if you receive a retirement account distribution form, it may be deemed income. If it is part of a qualified rollover, no tax is due. An explanation is required to file your information correctly.
Missing signatures. Both you and your spouse need to review and sign the e-file approval forms before the tax return can be filed. The sooner you review and approve your tax return, the sooner it can be filed.
By knowing these commonly missed pieces of information, hopefully your tax filing experience will be a smooth one.
With the changes happening in Washington D.C., there is now some uncertainty about what tax policies we may see in 2025 and beyond. During this time of uncertainty, it is challenging to create a workable tax plan. But not to fear. There are several things that we DO know about tax changes to start 2025. Here are the key highlights as they are currently known.
What we DO know
Tax brackets and rates. The seven tax rates remain unchanged while the income subject to each rate got a slight bump. After a 5.4 percent increase in 2024, there’s an additional 2.8 percent increase in income subject to each tax rate in 2025. This means more of your income will be subject to a lower tax rate.
Higher retirement plan limits. The amount you can contribute to a 401(k) in 2025 is $23,500, up from $23,000 in 2024. The 401(k) catch-up contribution limit in 2025 stays at $7,500 if you’re age 50 to 59, and age 64+. New in 2025, if you are ages 60 to 63, the catch-up contribution limit increases to $11,250. The annual contribution threshold for IRAs remains at $7,000, as does the IRA catch-up contribution limit of $1,000.
New cryptocurrency reporting rules. New reporting rules in effect as of January 1, 2025 means you’ll need to be more vigilant with tracking your cryptocurrency transactions and complying with the IRS’s digital asset rules. Brokers of digital assets, including cryptocurrency exchanges, custodial services, and certain payment processors, must report sales and exchanges of digital assets to the IRS starting in 2025. Your digital asset transactions will be summarized annually on a new Form 1099-DA. This new reporting of digital asset transactions will be similar to existing reporting for traditional securities such as stocks and bonds.
Changes on the horizon
The 1099-K reporting threshold. If you use third party payment processors like Venmo or sell tickets on apps like SeatGeek, you’re more likely to receive a tax form of your activity that will also be sent to the IRS. The limit requiring your activity to be reported was $5,000 in 2024. In 2025, this threshold is scheduled to be lowered to $2,500, and further lowered in 2026 to $600.
Uncertainty over TCJA provisions. There has been discussion about extending and/or making permanent many of the provisions contained in the Tax Cuts and Jobs Act (TCJA) of 2017. Most of the provisions are scheduled to expire at the end of 2025, so we will pay attention to any legislation forthcoming that could change any of this tax landscape.
Proposed decrease in corporate tax rates. There is also discussion about lowering the corporate tax rate from its current level of 21%, in addition to lowering the effective corporate tax rate from 21% to 15% for domestic manufacturers.
Stay tuned for continuing updates of any tax changes as events unfold in 2025.
