Whether this time of year means a tax bill or a nice tax return in your pocket, it’s a time to be thoughtful about these sums of money. Many people spend their tax return too quickly or fret over where to find the money to pay their taxes. We have tips for both situations.
If You’re Receiving a Return...
1) Pay Your Tax-related Expenses
Even filing your taxes costs money. Use your tax return to pay your accountant or replace the cost of your tax software. If you’re getting a federal return but owe in state taxes, or vice versa, turn around and pay one with the other.
2) Add it to Savings
It is recommended to have 2-3 months’ worth of income stashed away in a Savings account. This is highly recommended so that emergency situations—like car repairs, medical bills, or family members in need—can be addressed without affecting your week-to-week cash flow. So if your savings isn’t quite healthy enough, or you need to open a Savings account, use your return to do so. First Choice Credit Union has savings account options to fit your specific needs, so contact us to get started.
3) Pay off Credit Card Balances
Which of your outstanding balances have the highest interest rate? Interest paid is money out the door which doesn’t pay down the principle balance you owe. Get serious about paying down the debt with the highest rate, and buy yourself some breathing room by putting your tax return toward outstanding balances.
4) Put it in Retirement or Education Savings Accounts
These are the Savings accounts we often overlook because they’re useful so far in the future. We are creatures of the present, and saving for a moment 10, 15, or 20 years down the road is not exciting, even if it is a huge ticket item. Between college tuition and retirement, the average couple will need well over $1 million. Sound daunting? Speak with one of our representatives about our Education or Retirement Savings options to make a plan for your future.
If You Owe Taxes...
If you’re one of the 20% of taxpayers who won’t get a refund, but an “amount due,” don’t panic. Depending on the amount you owe and your available monies, you’ll find a way. But by all means, do not put it off or ignore it for a few months. IRS charges failure-to-file and failure-to-pay penalties if you are beyond the deadline, and these accrue month over month. So how do you approach this new bill in a smart way?
1) Save From Now until April 15th
If you’ve discovered your tax bill in February, you still have two months to save up that amount before the April due date. Whether you stay in, eat in, skip Valentine’s gifts, or put off paying for something else, see if you can use this time to prepare for your tax payment.
2) Pull from Emergency Funds
Remember #2 above? This is one of those situations that could pull from a robust savings fund without affecting your day-to-day. Here’s to savings!
3) Enter into an Installment Agreement with the IRS
If you owe less than $50,000 and haven’t set up an installment agreement in 5 years, you could fill out a monthly payment request online. You can request a specific monthly payment, which is preferable to putting your tax payment on a credit card with a high interest rate.
4) Ask for Extended Time
If extraordinary circumstances keep you from being able to pay your taxes on time, you may be able to prove you need an extension. Using the same payment agreement application, you may be able to buy yourself some time.
First Choice Credit Union can help you with any financial services, whether you’re celebrating a refund or glaring at a tax bill. Good Luck this tax season!
No comments:
Post a Comment