This article is courtesy of our partners at LSS Financial Counseling. You can read this article, and more, over on their Sense & Centsibility blog.
The new year brings up thoughts of resolutions like eating better, paying off debt, exercising, and more. But the new year also brings with it tax season…again. Don’t wait until April 14th to work on your taxes; be proactive this year.
Find a drawer, folder, or manila envelope to gather all of your tax documents, such as W-2s. I get most of mine electronically now so I create an electronic folder and keep them there. Use the method that works best for you to keep everything together.
Determine How You Will File
Are you going to file online, do you have a tax professional, or can you get free tax preparation help? Figure out your method for filing. Be cautious of anyone charging high fees, especially if you don’t have a complicated tax situation. If not, check out free or relatively cheap and safe online options. If your household earned less than $66,000, you are eligible to file taxes for free via MyFreeTaxes.com.
Plan for Your Refund
If you get a tax refund, be strategic with it by prioritizing your needs. If you’re behind on any bills, get caught up on those first. Do you have an emergency fund? If not, use half of your refund (or as much as you can afford) to establish savings. If you already have savings, put 1/4 in savings and deposit half (or more) into retirement savings. You can never have enough money set aside for the future.
Make Saving Automatic
The IRS gives you the option of depositing your refund in up to 3 different accounts. A great way to ensure you save that money is to set up an automatic deposit into a separate savings account.
Be Prepared for Possible Refund Delays
This year, the IRS is required to hold any refund that includes the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) until at least February 15th. So keep in mind you may have to wait a little longer for your refund if it includes either one of those tax credits.
Think Ahead About Repayment
If you know or think you will need to pay in for taxes, start setting aside money now. That will help you be more prepared to pay in. Also, you can check into IRS repayment plans or your state’s department of revenue if you owe on state taxes.
Beware of Scams
There are a lot scammers out there that prey on people, especially during tax season. The IRS will never call you and ask for your personal information. Tax fraud is also a concern…for more info check out the Taxpayer’s Guide to Identity Theft.
Author Elaina Johannessen is a Program Director with LSS Financial Counseling.
*IF YOU NEED ADDITIONAL HELP, SEEK ADVICE FROM A REPUTABLE ACCOUNTANT / TAX PROFESSIONAL.