Tip #1- Put it in an emergency fund.
You should consider building an emergency fund because you never know when you might need some extra cash. Crazy things happen every day and you may need that money to pay one of your bills because you were short on cash that month. Or maybe your car needs a new windshield because a rock flew from a dump truck and cracked it. No matter what the case is, it is always smart to have an emergency fund.
Tip #2- Pay off debt.
It is always good to pay down debt because it’s never a good thing to accumulate debt. If it is credit card debt, then it is smart to pay that off so you are not paying for interest. Interest is one of those things that always seems to build up and is the worst part about paying back money you borrowed. Also paying off your debt can leave you stress-free and give you the energy you need to focus on different things.
Tip #3- Send it to the retirement account.
Retirement is one of those things that everybody wants, but not everybody is going to be able to afford. Today’s economy makes it seem like not many people will be able to have a retirement. With that being said, that’s a lot of years of working ahead of us. If you start saving now for retirement, then it will really adds up later for you. Every penny counts, and retirement is really nice after working for the past 60 plus years. You always want to look out for your future.
Tip #4- College funds.
If you have a child, then it is important that he/she has a college fund because college is not cheap and it will help them out when they need ten $400 books and barely have enough money to keep food in their stomachs. The more they have saved up then the more likely they will go to the school they desperately want to go to and it will help them out tremendously. Also, it gives your child a reason to want to excel with their knowledge and it will hopefully help them be successful.
Tip #5- Pay ahead on your mortgage.
This tip goes hand-in-hand with tip #2. Mortgage is a form of debt and even if you pay ahead on it a couple of times, then it will really help when it comes to the bank. Plus you will pay off your mortgage quicker and it only helps you out in the long run. It looks better to your bank as well and you will not spend 70 years paying off a $200,000 house.
Tip #6- Plan a vacation.
Go on that vacation to the Bahama’s if you would like. Nothing is wrong with seeing the world and realizing that there is much more to life than working everyday and paying bills. Not to mention vacations are good for the soul. Vacations give you time to relax and venture away from reality for a little bit. It is also good for your mental health to reward the hard work you have done and to get away from the same old.
Tip #7- Renovate your house.
If you are someone who likes to take time off but not leave your house, then renovate it a little bit. Spend the money on making that patio you really want or buy all the flowers to make that beautiful garden you envision out front to welcome your future guests. Nothing is wrong with investing in the place you live. It only makes you feel better and your home look appealing. Plus if you replace windows or upgrade to energy efficient appliances, then it will cut down on some of your bills so you end up paying less in the long run.
Tip #8- Donate it.
Last but not least, donate your money to a charity where someone will benefit from it. You can always use it as a tax deduction too. It may not seem like the best thing to do but it can make your community better and it will make you feel better knowing that you made a difference in someone else’s life.
These are just a few tips on what to with your tax refund. It is definitely smart to do something with your money rather than just spending it on not very useful things like clothes, dining out, or little things here and there. This article is designed to give you a better understanding about what to do with your refund check. Regardless of what you do with your refund check, we hope that this article has helped Money matters for the future!
The IRS can be scary to deal with especially if you end up owing them money on your tax return. The IRS has an immense authority over our financial lives and that can be nerve wrecking when you have to pay. There are many solutions other than filing for bankruptcy, if you owe the IRS money.
When owing the IRS money, the first step is to file your tax return on time. If your tax return is not filed before the deadline and you owe the IRS money, the IRS will charge you an additional 5% interest rate of the unpaid balance each month. The IRS can charge up to a 25% interest rate penalty. This makes it an undoubtedly wise decision to file your taxes on time even if you owe money. The next step would be to pay your taxes but let’s say you filed and didn’t pay your taxes; the IRS will charge you a penalty of 0.5% of the unpaid amount each month. The IRS also charges an interest rate of 3% on top of the federal short-term interest rate, which could end up being roughly a 4% interest rate they charge you on the amount of money you owe.
When your taxes go unpaid, it is equivalent to taking out a short-term loan from the IRS and sometimes it can be very expensive. If the IRS goes unpaid for too long, then they will start to take immediate action financially. Which could result in the IRS taking money from your paycheck before it even gets to you. It is also known as garnishing your wages. The IRS can also take your assets as a payment or they can put a lien on your properties. If a lien is placed on your property it can’t be sold without paying back the IRS first and it is automatically recorded on your credit report. Tax liens are one of the worst notes that can be placed on your credit report. It is less stressful to pay your taxes than it is to let your taxes go unpaid. If you don’t have the money to pay back your taxes owed to the IRS immediately, then a few options are to take out a short-term personal loan, using your credit card, or to set up a payment plan through the IRS.
Paying off your IRS debt with a short-term personal loan can be a wise decision. The interest on the loan will most likely be lower than the interest rate from the IRS plus the penalty they charge you for. If you have a better credit score, then it will help with a lower interest rate on your loan. A benefit with a personal loan is that you don’t have to worry about the IRS garnishing your wages, filing a tax lien on your property, or selling your assets. You have to make your monthly payments on your loan or else you’ll end up in a financial crisis.
Using your credit card to pay back your tax to the IRS can reward you by helping you earn rewards such as cash back or travel bonuses if you use a rewards credit card. The downside to using a credit card is paying the processing fee and if you don’t pay the balance on the date it’s due then you will end up paying an interest rate that can be higher than a personal loan interest rate. The processing fee can range from 1.87% to 2.25%. Paying with a credit card will raise your debt utilization ratio, it is what your credit card balance is compared to your overall credit card limits, which is a crucial part of your credit score.
The third solution is to acquire a payment plan through the IRS. The IRS offers qualifying taxpayers up to 120 extra days to pay the full amount owed. You can request for an installment plan and make monthly payments to the IRS. If you choose to request an installment plan, you will have to pay a fee of $43. If the tax you owe will make you unable to meet your basic living expenses, then you may qualify for a delayed payment. All of the payment plans the IRS offers, subject to fees and interest.
Owing the IRS money is stressful and tough to handle but you have options that can make it easier to handle. Make sure you have a secure plan that fits your financial needs so you don’t suffer from severe consequences from the IRS.
Taxes can be a bit stressful because they require a lot of personal information that can seem daunting to gather in a short amount of time. Getting yourself prepared will alleviate stress and make you confident about filing your taxes correctly. A happy IRS always ensures you that you will get your tax refund. If you plan on having an accountant do your taxes then you will want to include your social security number is in the same folder as your other paperwork that you give to the accountant and always double check your tax form to make sure your social security number is correct. If a Social Security number for any person listed on your tax return is missing or incorrect then you may not get your refund back or the IRS could delay the process. If you have a spouse and you are filing jointly, then make sure you also include their social security number as well. An accountant files many peoples taxes so a mistake isn’t uncommon to happen. If you have dependents, don’t forget their ID numbers and if your dependents don’t have their number then contact the Social Security Administration immediately. If you plan on filing for the child care credit then you will also need to include the tax identification number of the business that takes care of any children while you are at work.
Since you do get taxed on the money you make each year, you’ll be getting a form W-2 from your boss showing how much was earned, any taxes that were withheld and how much is taxable. If you have more than one job then you should get a form W-2 from each employer. If you’re an independent contractor then the company you worked for will send you a 1099-MISC form showing your gross earnings you made. Being self-employed can be a bit more tricky because you have to document all the receipts, mileage put on your car for business-related commutes, the equipment and supplies bought for your business, and the utility bills paid to keep your business going.
You should always check with your bank or credit union to see if the interest earned on your savings account is taxable. If it is, then you should get the statement from your account holder and get a 1099-INT form. The interest earnings are typically documented on that form. But if you have any connection to a stock or mutual fund then you should get the 1099-DIV form. You will need this form for any stock, mutual fund, or money market account. If you use a broker, then the reports on the proceeds from the brokers transactions will be sent to you on a 1099-B form. Hang on to your year-end financial statements so you can compare them to the final tax documents.
If you have a house or homes you are currently paying mortgage for then the tax on them is tax-deductible. Your lender will send you a 1098 form with the amount that is deductible. If you made an extra mortgage payment at the end of last year then make sure that the added interest payment is included in the amount that your lender has counted for. If you own a vacation home, the interest on that mortgage will be on a separate 1098 form and it will only count as a deductible. Mortgage interest is not limited to your primary residence so make sure you have all the correct forms if you have multiple mortgages. Also do not forget the interest you paid on a home equity loan. You can also claim real estate taxes as a tax deduction. Your lender will include the escrow amount on the 1098 form. Any state or local income taxes you paid can count as a deductible, so be sure to check your W-2 form for the amount and make sure you deduct those too. If you don’t own a house then you may still be able to deduct a personal property tax. Be sure to check if the state or county you currently live in charges a personal property tax. This tax is most often on an autos, so if you are paying that make sure the tax collecting agency sends you a statement showing how much you paid so you can put it on your Schedule A.
Another good way to get rewarded during tax time is if you give cash to a qualified charity. If you donated $250 or more, you will need to get a note from the group that has acknowledged your gift. If the donation was smaller then you do not need a formal receipt but you will need either a canceled check, bank or credit card statement just in case the IRS has any questions. If you drop off any clothes or items to a local salvation army or collection center, you will need a receipt. But if the items are damaged or not in good condition then the IRS can deny the deductions that deem “minimal monetary value”. Which means that you can not donate trash and write it off. If you volunteer at a local facility you can deduct 14 cents per mile when you drove to help the group. You will need to document the mileage used on a calendar with the days you worked.
Knowing all of this information will help you be prepared. Keeping track of all your documents through out the year and having all of your tax-related documents organized and easily accessible will help you realize immediately if you are missing anything or if you need to make a correction on your tax forms. Also it makes filing your taxes much easier and relieves you of the stress. Which saves you time and money.
We are not financial advisors and therefor are not giving any financial advise. Before implementing any of the tips on this website, please consult with a financial planner to ensure it makes sense for your individual financial situation.