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6 ways to make the most of your tax refund
You’ve finally received your tax refund! While it’s exciting to have some extra cash, it can be tempting to spend it on whatever, whenever—after all, it does seem like free money. However, it’s crucial you use your refund wisely, rather than spending it on frivolous things. Here are some ways you can make the most of your tax refund:
Pay off existing debt
It sounds obvious, but if you have student loan or credit card debt, use your refund to help pay it off. It might not sound fun, but putting money towards paying your debt gets you closer to financial freedom. Interest rates can snowball and make payments seem overwhelming, so any amount you put forward helps. Start by paying off debts with the highest interest, and then trickle down from there. Later on, once you’ve finally eliminated your debt, you’ll be thankful you were responsible and used that refund.
Save it for emergencies
Again, another obvious choice—save your refund! According to CNBC, 30% of households have less than $1,000 saved. That isn’t nearly enough to cover your costs if you were to have an emergency like your car breaking down or any unexpected medical bills. Ideally, you should have three to six months’ worth of living expenses saved. Open a savings account if you don’t have one already, and save your refund. Even if you can’t put away that much, use a portion of your refund—just a little is better than none.
Start home improvements
Have you been dying to give your home some much-needed improvements but had to put your funds elsewhere? Well, now that you have your tax refund, you can start your home renovation plans now! There are dozens of projects you can do for under $1,000—from painting to landscaping, those little improvements can all help your home drastically. Not only will it make you happier, but it will also add value to your home.
Use towards big purchases
Does your child need braces, or are you looking to buy a new car? Maybe even a home? Your tax refund is perfect for offsetting those costs. Use it to save for a down payment on a car or house. Every little bit helps when it comes to these purchases, so make your refund count where it should. Open a high-yield savings account, like a money market savings account, so you can earn the most from your money.
Donate to charity
Earn some good karma—donate part of your refund to charity. It feels nice to give back to the community, and using part of your refund to help your favorite organization is the perfect way to do so. Be sure to save your receipts, too, so you can write off the donation on your taxes next year.
Lastly, if you’ve done all of these things, help yourself! We all need self-care sometimes. Go on the trip of your dreams, or simply treat yourself to a new wardrobe—either way, don’t forget about making sure the most important thing is taken care of: you!
How to file taxes for first timers
It’s tax season, which means now is the time to start thinking about how and when you’re going to file your taxes, so you can secure that refund. According to a TaxAct poll, more than a third of millennials rely on their parents to prepare their taxes. However, doing your taxes without your parents’ help has its advantages—you can better understand your finances, and you’ll know how to file your taxes in the future. Are mom and dad making you bite the bullet and file taxes on your own this year? Not sure where to start? Here are the steps you should take to file your taxes for the first time.
Determine your filing status
The first, and most critical step, is to determine your filing status. Your status defines your filing requirements, deductions, eligibility for credits, and your correct tax. It’s based on your age, marital status, and other factors.
Determining your filing status is vital because it impacts how much you owe the Internal Revenue Service (IRS) or how much of a refund the IRS owes you. If you’re unsure of your status, the IRS has a tool that can help you.
Gather necessary paperwork
You can’t file your taxes unless you have the proper paperwork. You need personal information, like a valid Social Security number, income and receipts, meaning any Social Security benefits or Unemployment Compensation, if applicable, as well as receipts from royalties, partnerships, or trusts.
Also, you need a W-2 form (or forms, if you had multiple employers) and a 1099 form, if eligible—for example, if you had any freelancing opportunities or side gigs. If you’re a college student, you might need a 1098-T form, which should be provided by your school. It includes information you’ll report to claim education credits, like tuition, scholarships or grants, and other related expenses. There are dozens of forms you potentially need, so here is a list of the most commonly used forms.
Decide how you want to prepare
You can prepare your taxes using online software or on your own. There are copious benefits to using online software—it’s very affordable, user-friendly, and fast. When you use online software, you can finish your taxes in as little as 30 minutes. Each software also has various tiers you can pick from based on your necessities and price levels.
Preparing taxes on your own can be beneficial, too. You save money, you can file anytime, and you gain a better comprehension of your finances. However, it leaves room for more error, so be patient and be thorough.
If you earn less than $69,000 per year, you’re eligible for Free File, which enables you to use popular tax software for free. Simply use the Free File Online Lookup Tool at irs.gov, and the eligible programs are listed.
From there, you have two filing choices. You can file electronically, known as e-Filing, or by paper. e-Filing is fast, reliable, and has a faster processing time, allowing you to receive your refund promptly.
Paper filing has its advantages, too. There are fewer security risks because you aren’t entering personal information online, meaning you can avoid the possibility of identity theft. It’s also simple—all you do is fill out a form. However, paper filing has a longer processing time—it could take up to six weeks to receive your refund.
Select a standard deduction or itemized deduction
Deductions are expenses incurred throughout the year that can be applied to your taxes. They lower your taxable income and vary by federal and state level. There are two categories: standard and itemized.
Standard deductions are the most prevalent. The amount varies each year and is based on filing characteristics. Standard deductions are the most popular because the amount is already set, so there is no need to calculate anything.
Itemized deductions are expenses allowed by the IRS that reduce your taxable income. When you itemize on your tax return, you can select from several deductions rather than taking a flat-dollar amount. You can deduct on medical expenses, property taxes, or charitable contributions—just to name a few.
If you’re having difficulty deciding if you want a standard or itemized deduction, you’ll need to do some math. Add up your expenses you wish to itemize. If the value of the expenses you can deduct is more than the standard deduction, then you should itemize. Itemized deductions take more time to prepare, but they could potentially save you money in the long-run. However, you must have proof of your expenses—it’s imperative to keep records and save receipts.
Other important tips
So, now that you have the basics down, it’s essential to keep a few things in mind. First, file only one tax return, no matter how many jobs you’ve held in the last year. Also, be sure your parents aren’t claiming you as a dependent—if you’ve been claimed twice, it could result in an audit by the IRS, meaning they’ll need to verify you’re reporting information correctly and not committing tax fraud.
Lastly, and most importantly, give yourself enough time. When you scramble at the last minute, you could make potential errors that you otherwise would’ve caught. It’s best to start prepping at least two months before the tax deadline of April 15th, 2020.
So, go ahead and start filing—that deadline will be here before you know it. Plus, the sooner you get started, the sooner you can score that refund.
Tax Refund Touchdowns
So, you got a tax refund – now what? While you might have morphed into a human version of the “money-mouth face” emoji (🤑), fight the urge to treat yourself. Unless you’re debt free and have a nice chunk of change in your savings and retirement accounts, getting financially fit should be your priority over splurging on big-ticket items.
Here are five ways to use your refund responsibly:
Tackle your debt. If you’re carrying high-interest debt, paying it off should be your top priority. Paying interest sucks, and if you’re carrying a large balance on a credit card but only making the minimum payment each month, you may never feel like you’re getting ahead. Use your tax refund to pay off any debt you have. If your refund doesn’t cover everything, it’s time to figure out a debt-payoff plan.
Save it. More than half of Americans don’t have enough in savings to cover a $1,000 emergency, according to Bankrate. If you’re just starting out, money might be a little tight, making it even harder to build up your savings. Think about tossing your tax refund into your savings account so you’re better prepared for life’s little surprises. If your emergency fund already has enough money to cover at least 3–6 months of expenses, consider setting up another savings account for a specific goal, such as a travel fund or a down payment for a new car.
Donate it. Helping others gives us the warm-and-fuzzies, so why not use your refund for good? When your budget is tight, it can be hard to find extra money throughout the year, so donating the cash from your refund is a perfect opportunity to make a difference. Plus, your charitable donation could be tax-deductible next year.
Spend it (on something you need). The keyword here is need. If you’ve been putting off car repairs or minor medical or dental procedures, your tax refund could help you cover these larger, but necessary, expenses.
Spend it (on something you want). Okay, okay…I know I cautioned against splurging, but if you’ve stuck to your budget, saved, and stayed out of debt all year, you’ve earned the right to buy yourself something nice. Just don’t get carried away, of course!
I didn’t get a huge refund. Did I do something wrong? Nope, not at all! Your tax refund isn’t free money; it’s money you overpaid to the government over the course of the year. If you owe money on your taxes, it means you didn’t pay enough out of each check. Take the time to periodically check your withholding and adjust if necessary (the IRS has a handy calculator on their website that can help you out). Paying attention to your withholding is important for two reasons: 1) if you don’t pay enough from each paycheck over the year, you could face an unexpected bill when you file your taxes, and 2) if you normally get a large refund, you can opt to have less withheld up front—your paychecks will be a little higher, giving you more flexibility each month.
How will the new tax bill affect your bottom line in 2019
Monday, April 15, 2019, is tax day for most of the United States. Fun fact, though, if you live in Maine or Massachusetts, it’s April 17th. That’s because Patriot’s Day is a legal holiday in those states and apparently, you can’t do your taxes and celebrate at the same time.
Logically, the deadline should be moved to Tuesday, April 16th, but to complicate things further, that’s Emancipation Day in Washington, D.C., so the federal government won’t be there to accept them. Voila! Two extra days.
The Tax Cuts and Jobs Act (TCJA)
It seems that each year, there are more changes to the tax code and keeping on top of them can be quite the challenge. If you remember, President Trump signed the Tax Cuts and Jobs Act into law in December 2017. For the most part, the bill didn’t affect individual income taxes until the 2018 tax year, which brings us to today.
The good news about the new plan is that, among other things, it was designed to simplify the tax system. How it will affect your individual return depends on your income, the deductions you take and your filing status. Here’s what you need to know:
Originally, the proposed new tax plan called for a reduction in the number of tax brackets. The final number of brackets remained at seven, but the rates were changed. The new tax brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. They’re important because they affect the amount of income you receive during the tax year and help calculate the amount of your annual tax bill.
The standard tax deduction for all filers was nearly doubled under the new tax plan, but they’ve also eliminated the personal exemption. For single or married taxpayers who are filing separately, the 2018 standard deduction is now $12,000. If you’re filing a joint return, it’s $24,000 and heads of household qualify for an $18,000 deduction.
Child tax credits
Under the new plan, the child tax credit (CTC) was raised from $1,000 to $2,000 per child under the age of 17, and the qualifying taxpayer income limit for the tax credit was raised to $200,000 (or $400,000 for joint filers). It’s also introduced a new $500 deduction for non-child dependents.
Another beneficial change is that if the CTC reduces your tax liability to zero, you’re now eligible to receive a refund for the credit up to $1,400. The adoption credit remains the same and is worth up to $13,750 per child.
For the tax year 2018 (and retroactive to 2017), you can deduct qualifying medical expenses that exceed 7.5% of your adjusted gross income (AGI). But, beginning January 1, 2019, you may only deduct the amount of the total unreimbursed allowable medical care expenses that exceed 10% of your AGI. Also, beginning in 2019, individuals who choose to go without healthcare coverage will not be subject to any tax penalties.
Mortgage interest deductions
Homeowners can still deduct their mortgage interest payments, but for 2018 and beyond, the new limit was reduced to $750,000 from $1 million. If you’re married and filing separately, the deductible mortgage interest limit is $375,000. Also, the interest deduction on home-equity loans has been eliminated.
In previous tax years, taxpayers were able to deduct state and local income and property and general sales tax payments on their federal tax returns. As a result of the new tax law, your total state and local tax (SALT) deductions are now capped at $10,000.
Other deductions that are going away
Aside from the changes we mentioned above, here are some other deductions will be no longer apply to your 2018 tax filing:
- Casualty and theft losses (except those attributable to a federally declared disaster)
- Other miscellaneous deductions previously subject to the 2% AGI cap
- Tax preparation expenses
- Unreimbursed employee expenses
- Moving expenses
- Alimony payments
- Certain school donations
When President Trump signed the tax reform bill into law, it made major revisions to the tax code. In fact, the bill represents the most significant tax changes in more than 30 years. For the comprehensive list of changes, click here.
Tax time! Here’s a run-down of everything you need to do before the big date
Tax day can be a dreaded date on the calendar for a lot Americans. Heck, even the post office feels sorry for us. Why else are they willing to keep their doors open late just to help postmark our tax return in time?
To make your tax day easier, we’ve compiled a list of things you need to or can do before the IRS’s red-letter day:
Two Extra Days
This year, tax day is April 17, 2018. Think of it as a gift from the IRS. Because April 15th is a Sunday, and D.C celebrates Emancipation Day on April 16th, you earn two additional days of interest on the money you set aside for your tax bill and 48 hours to dig through your receipts looking for another deduction.
Fund your retirement account
There’s not much you can do after December 31 that will affect your 2017 taxes, but every bit counts. If you have a Roth or Traditional IRA and haven’t maxed out your contribution, do it by April 17, and you can potentially lower your tax bill. It’s the last day to make a contribution for 2017, regardless of whether it’s tax deductible or not. If you’ve filed for an extension and have a Keogh or SEP IRA, you’ll have until October 15, 2018, but it’s smarter to start your tax-free compounding sooner than later.
Do you know the documents you’ll need to complete your tax return? Don’t leave it to the last minute or you may run out of time. Collect all of your W-2s,1099s, and any mortgage statements. These should have arrived in your mailbox by January 31, 2018. Gather receipts for tax-deductible expenses, bank and brokerage statements, rental property income information, social security numbers for dependents, and any other documents you need for your return. There’s nothing worse than being “in the zone” and having to stop to look for another piece of paper. Plan ahead and avoid the frustration.
Use the right tax form
Yes, most tax forms can be found at the library or post office, but why make a trip if you don’t have to. Go straight to the online source: the Internal Revenue Service. The site can also link you to a list of government websites where you’ll be able to find your state forms, too.
Need more time?
If you don’t think you’ll be able to file your taxes by April 17, be sure to file Form 4868 for an extension. You’ll get an additional six months to finish, which will bring you to October 15, 2018. It’ll give you more time for the paperwork, but it won’t delay any tax payment, however. You’ll have to reasonably estimate your tax liability and include payment when you file your request. Don’t let that deter you, though. If you file late without having filed for an extension and you wind up owing the IRS, you’ll also be hit with a late-filing penalty AND a late-payment penalty!
The IRS processes electronic transfer more quickly than paper, so if you expect a refund, file electronically. You’ll likely get it three to six weeks sooner. Request a direct deposit to your bank account and it’ll be even faster–and it’s guaranteed not to get lost in the mail!
If you owe the IRS, you can still file electronically and then wait until the deadline to send payment. Include a check with Form 1040-V, or pay via direct debit or with a credit card. Know, though, that a credit card will include an additional service charge that can be as high at 2.5 percent. On the other hand, a direct debit should allow you to delay the transaction until the filing deadline.
Ask for help
If you’ve had a life-changing event in 2017 or your taxes are more of an overwhelming task than you’d like to tackle, consider a professional preparer. You’ll still need to collect your documents and answer some questions, but a professional may help alleviate some of the headache and offer you more confidence. Don’t wait, though. They’re under the same filing deadline as everyone else and there are only 24 hours in a day!