Just as sure as winter rolls in and the weather becomes a little more frigid, tax time joins us once again! Every year, like clockwork, we collect our paperwork, receipts, and applicable forms and begin the process of filing our taxes. And, with this annual civic duty, also comes the decision about how we are going to save or spend our returns. In fact, tax season can be an exciting time for anyone looking to improve their current financial situation and grow their savings. To help with this, I’ve compiled a few tips for you to consider before embracing the 2017 tax season with open arms!
Consider your free tax prep options when deciding where to file! Because this is a great time of year to jump-start your savings, paying someone to prepare your taxes should be a last resort. If your tax return is going to be complicated, which is sometimes unavoidable, it’s still important to consider all of your options when deciding how you plan on filing. Make the decision about whether you’ll file in person or online, and check out the following filing options that are free:
Use Free File on IRS.gov – This free software walks you through a Q&A format to help prepare your return and claim every credit and deduction for which you may be eligible.
Try the Free File Fillable Forms – If you’re comfortable preparing your own returns, this option is for you! It allows you to file electronically using online versions of IRS paper forms.
Visit a free tax preparation site – If your total household income is less than $54,000 a year, you can seek free tax prep at one of thousands of Volunteer Income Tax Assistance (VITA), Military Volunteer Income Tax Assistance (M-VITA), and Tax Counseling for the Elderly (TCE) sites. To locate the nearest site, you can search online or call the IRS at 800-906-9887.
It is also important to note that a new tax law will delay refunds that claim the EITC or the Additional Child Tax Credit (ACTC) until February 15. Learn more here.
Make a plan to use your refund to pay down some debt! So many people plan to save their tax refund, but it’s important to consider that paying down high interest debt is actually a form of saving. In fact, a survey completed by the National Foundation for Credit Counseling suggests that for many Americans, the debt we have is actually a barrier to growing our personal savings. Because of this, it could be very beneficial to use at least a portion of your refund/EITC to pay off some of your higher interest debt to save money on interest in the long run – your savings will thank you.
Start an emergency fund! It is believed that an emergency fund(PDF) is most valuable when it contains at least six months worth of income so that it may be used if you find yourself in a tough financial spot. The Association for Financial Counseling and Planning Education (AFCPE) believes an emergency fund should be a low risk account that is highly liquid (a savings account is a great example) so that you can access it easily in the event of an emergency.
Consider contributing to your retirement! This is the perfect opportunity to either add to or open an IRA or myRA! Tax time is a great time to consider this form of saving, as there are likely some valuable tax incentives for doing so. If this interests you, consider discussing your options with a financial advisor to ensure you’ve taken advantage of the benefits available to you! In fact, studies suggest that years spent in retirement have steadily increased over the years, creating more of a need to focus on investing in our financial future. Why not start now?
