Category Archives: Taxes

How to Spend Your Tax Refund This Year

I’m almost ready to file our taxes this year, and it looks like we’ll be earning a nice fat refund. It’s not always easy to know what we should do with the refund money though – do you blow it all or be responsible with it? The short answer is that you should incorporate both options, but be smart and know your limits. Here are some ideas on how to spend your tax refund this year.

Give Yourself Some Spending Money

We all know that the responsible thing to do is to save the money or to pay off debt but you also do need to be able to have some fun. You worked hard all year round, some of that refund money should go towards helping you to blow off a little steam.

Set aside a portion of the refund money to spend on anything that you want and ditch the guilt. It could be 10% or 50%, it all depends on what your financial goals are. If you are always responsible with your money, you’ve likely put off some wants so that you can hit your savings goals. You have to plan for the future but also have to live in the present. You cannot put off having fun forever.

Finance Your Dream

Perhaps you have always wanted to visit Italy or would love to take a cooking course. Using your tax refund as a means of funding your dream is really great for your soul. Think about it for a minute – 10 years from now will you regret not putting more effort into making your dreams come true? If the answer is yes, consider using your tax return accordingly.

That said, you should look at something that has some degree of importance to you – something that you ordinarily would not have been able to do. A trip to Italy, for example, can be a once in a lifetime experience. Who knows what your circumstances will be in 10 years time – you have to live in the present as well.

Improve Your Financial Future

There is something to be said for using your tax refund, or at least part of it, to help build a better financial future. Using it to shore up your emergency fund is a great way of doing this. If you’re behind on your retirement savings, get a head start on your Roth IRA for this year.

There are many good investment options out there. Take some time and do your homework and you’ll thank yourself later when you check your investment accounts.

Use It To Reduce Everyday Living Expenses

Using your refund for maintenance projects that you have been putting off can pay great dividends in the future. Take your car, for example. Having it serviced allows it to run more efficiently overall and this can save you in gas costs and repairs. You can also have an energy audit conducted in your home to identify what appliances are “gas guzzlers” in terms of power. Consider replacing appliances for ones that are more energy efficient in order to save money every single month. A one-time expense now can pay dividends down the road.

Overall, your refund should be used to improve your life – whether that means using it to have fun or using it to bolster your nest egg. Take a few minute to consider what will have the best impact on your life.

How are you spending your tax refund this year?

Creating A Tax Checklist Now Will Save You Later

Finally, tax season is upon us! I love this time of year, where I wait for my tax forms to come in, estimate my refund (or how much I’ll owe), and plan out the next year. I get a clear look at how we did the past year and can compare it to previous years to see how we stack up. I use TurboTax, and it lets me start my tax filing with partial information (which I did yesterday) and enter my tax info as I receive it.

Tax Season

As we’ve been through before, there’s no point in trying to cheat on your taxes. Eventually, you’ll be caught and will have to undergo an audit – you could pay back taxes, interest, and penalties and could even face jail time. The IRS has several checks and balances in place which makes it harder for you to pull the wool over their eyes, so it’s not even worth trying.

That being said, there are tax deduction you can and should take if you’re eligible. A good rule of thumb is to have a consultation with a tax expert at least once so that you can be made aware of what you can and can’t claim. From there, you can read up about upcoming changes, but in my experience, using tax filing software does a great job of walking you through the whole process and helping you take advantage of what’s appropriate for your situation.

Preparing For Your Tax Return

Tax season never truly ends. You should be preparing for tax season year round, and that starts with having a tax filing system. We just bought a filing system for taxes and other important documents, and it’s great to have one place to store documents that you likely won’t look at regularly, but need to know where they are. If you do go through an audit, you’ll have your tax forms in one place. And if you don’t, you’ll be all set to start filing your taxes.

The more proof you have, the more deductions you’ll be able to claim. If you have business mileage (for example, if you’re an Uber driver), you’ll need to have records of the miles you drove come spring-time so that you can claim those miles as a tax deduction.

Finally, having a filing system makes cleaning up very easy, too. You should keep most tax forms for 3 years from the date you file, so on April 15th, 2015, I will be throwing away everything related to tax year 2011. By keeping each year’s form in a different folder, I don’t have to sift through the entire pile of tax forms looking for something specific. The filing system we have now is WAY better than the old way of sticking everything tax-related into a single drawer.

The Most Important Forms

When you file, you take all your information and out comes a Form 1040, which is what you file with the IRS. What goes into these forms? Let’s start with the two most common forms you may receive.

If you have a full-time job, you will likely receive a W-2 from your employer. This lists your wages, the amount of federal, state, social security, and medicare taxes withheld, along with some other important information.

If you are a contractor, you will likely receive a 1099 form, which contains much of the same information (in this case, you probably don’t have any tax withheld and will have to send the government your share of taxes manually).

These forms are sent directly to the IRS by the employer, and they will send you a copy to help file your taxes. Since these are the most important forms, make sure that there are no mistakes. If there have been any errors made,  report to your H.R. department immediately so that they can send you an amended form.

The reason that this is so important is that the IRS has sophisticated systems that compare what you have entered as income, etc. against what your employer has entered. If they don’t match, your return will probably be flagged and you will be required to explain the discrepancies. Don’t count on your last pay stub matching up perfectly to your W-2 or you could run into problems later when you file.

The Addendums

Okay, now we look at the addendums. Consider your Form 1040 as a summary of your overall tax situation.

You now need to have a look at the various addendums that you may need to submit in addition to the primary form. These range from Schedule A – Itemized Deductions through to Schedule 8812 – Child Tax Credit. A complete list of these supplementary forms can be seen by going through to the IRS website.

Prepare for Tax Season Now

If you don’t have one, create a filing system now. The key to getting your tax return right is simply to ensure that any information that you enter is completely correct and that you are able to produce evidence to back up any claims and deductions you’ve made. By having all your information in one place, you won’t lose an important piece of paper that could be the difference between a fat refund and owing taxes when you file.

Are You Scared To File Your Own Taxes?

Since it’s tax season, I’ve been asking my friends how they file their taxes. For the most part, the people I know are 3-5 years out of college, are either in graduate school or working (as is the spouse), and don’t have complicated tax situations. Few own condos or have a lot of investments, and those who work get W2s or 1099s as the situation dictates.

Since most have very basic tax situations, I expected everyone to use some sort of online service. It’s cheap, easy, and they’ll get you the refund owed (or calculate how much you owe). There’s not much room to take additional deductions, and when you’re taking the standard deduction (as most of us are), there’s not much room for an accountant to find any extra money.

My Friends Don’t Know How To File Taxes

I was stunned to find out that most were planning on finding an accountant to do their taxes for them or using their parent’s accountant. Maybe it was the stigma of taxes being complicated and time-consuming, or maybe that’s just how their parents did it, but for some reason, I barely found anyone who used TurboTax or another online service.

As I dug deeper into the reasoning, most had never even really considered doing their taxes thermselves. I got a bunch of blank stares, not all had reasons for using an accountant vs. doing it themselves, and they had no idea what the costs of doing it themselves would be. For the most part, my friends are in touch in reality, but this time I was really surprised that they didn’t bother to even investigate.

When your tax situation is simple, there isn’t a lot of room for an accountant to get you additional tax breaks you don’t know about. With TurboTax, they ask you about relevant questions about income, tax deductions (above and below the line), and how your family situation has changed. When life is simple, I am a huge proponent of doing it yourself.

You Learn A Lot By Filing Taxes Yourself

By filing your taxes yourself, you find out a bit more about the system and what you can do in the future to get a bigger refund, and what things you think you should do but don’t have any effect (I was surprised in my first year out of college that the amount I contributed to charity had no effect on my tax refund. I always assumed I would get a deduction for it, but charitable contributions can only be deducted if you itemize, which most people who recently graduated college don’t do).

I tried to convince my friends to do it themselves and got a few to actual try out TurboTax, which I use and am familiar with. Others had already committed, but were surprised that it was so cheap and easy to do.

My experience filing online the past 4 years has been very positive. Answer some questions, enter in my forms (and more recently, they can pull your investment forms straight from your brokerage account), and voila, my tax refund is sitting there in the corner of the screen.

Try Doing Your Own Taxes This Year

If you have never considered trying to do your taxes yourself, give it a shot. If you hate it, you can still hire an accountant. But if your tax situation is fairly simple, try doing it yourself. Whether you hire an accountant or not, you’ll still need the same information and to have all your forms, so you’re not really saving much time going with an accountant. The biggest difference will be cost!

Do you do your own taxes or pay someone to fill in the information for you? At what point did you start/stop filing your taxes yourself?