Practical Uses for your Tax Refund

Upon receiving their tax return money, many individuals make the mistake of using these funds for frivolous purposes such as shopping sprees. While that new home gym or closet full of clothing might be fun to acquire, there are better ways that you can put these funds to use. Here are a few ways in which you can put your tax refund to the best possible use.

 

Pay Down Debt

One of the best gifts you can give yourself is to reduce or even eliminate the amount of consumer debt you carry. Use your tax refund to fully repay one or more of your consumer debts. Not only will this help ease your budget each month; over time, you’ll also save a significant amount of money in interest charges over time. 

When only making minimum payments on a credit card, you could end up paying three to four times more for that item you simply had to have a few months ago. As such, it’s strongly recommended to get these repaid as quickly as possible – and your tax refund can provide the ideal opportunity to do so. 

 

Establish an Emergency Fund

It’s strongly recommended that you have an emergency fund available that includes anywhere between three and six months’ worth of expenses such as rent or mortgage payments, utilities, groceries and transport costs. This will go a long way in helping to alleviate any stress in the event of being unexpectedly laid off or not being able to work due to illness or injury. 

These funds can also come in handy if vehicle repairs or emergency home repairs are needed. Using your tax refund to set up an emergency fund will go a long way in providing you with peace of mind in times like these. 

 

Start Saving for Retirement

If you haven’t got a savings plan in place for your retirement, now is the time to get started – regardless of how young you may be. The sooner you start saving for this item of your life, the less you’ll need to set aside each month, as you grow older. 

Your tax refund can be used to set up an IRA or a 401(k) savings plan, which will go a long way towards ensuring a financially sound retirement

 

Consider Furthering your Career

Another way you can put your tax refund to good use is to invest in training courses that will help further your career over time. 

A few options in this regard can include enrolling in a master’s degree program or even to cover the cost of costly tests you may need to write in order to obtain a certification for the work you’re already doing. If you have children though, these funds could even be used to save towards their future educational needs. 

When receiving your tax refund, it can be tempting to spend it all at once. However, your budget will thank you over the long term if you choose to save a large portion, while treating yourself to something small instead. 

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Why you should Use a Certified Financial Planner (CFP)

When starting to save and invest money, many individuals think that it will be too expensive to hire an accredited and experienced financial planner. However, it has been proven time and time again that you could be losing a lot of money over time by trying to manage investments yourself. Below are a few reasons why you should enlist the services of a certified financial planner when working with your money.

 

They Possess or are Working Towards the Relevant Qualifications

All certified financial planners (CFP) have to be in possession of a four-year Bachelor’s Degree or be in the process of obtaining one from a relevantly accredited educational institution. Although it’s not necessary to have completed their Bachelor’s Degree when taking the CFP examination, they will have to earn it within a maximum of five years of passing it.

It is also essential for a CFP to complete a minimum of five college-level courses offered by institutions that are suitably approved by the CPF Board. Coursework will involve subjects including tax planning, general principles of financial planning, risk management, estate planning and financial plan development.

 

They will help you Make Informed Decisions

If an individual’s financial knowledge is sketchy, it can be too easy for them to make rash decisions regarding their finances and investments – especially where crypto currencies are concerned. Too many people have become caught up in the hype surrounding these currencies and as a result, have lost thousands of dollars. However, when working with a CFP, he or she will be able to help you navigate the financial waters and make the best investment decisions possible over time. 

 

They can help Reduce your Tax Burden

One of the main roles of a CFP is to help you understand your financial portfolio in the simplest and most tax-effective manner possible. This includes dealing with aspects such as regular income tax, donations tax, business-related taxes, retirement taxes and all other forms of tax that could apply to your financial situation. Knowing how to have the tax laws work in your favor could help you reduce your IRS bill in this regard by hundreds or even thousands of dollars per year. 

 

They will Provide you with Valuable Information

A CFP will be in the ideal position to provide you with many hints, tips and strategies that can help increase the size of your nest egg substantially over time. A larger investment will provide you with a level of peace of mind that will not be able to be obtained in any other way. 

Before agreeing to work with a CFP, it’s essential to ask if they are suitably accredited and certified. This will ensure that you are dealing with a professional that has your best financial interests at heart. If you are interested in learning more about hiring the right certified financial planner to work with you, get in touch with our team right away. We will be more than willing to help you achieve your financial goals. 

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Smart Ways to Use your Tax Return

When your tax return comes in, it is always tempting to spend the entire thing on a shopping spree. As fun as a new wardrobe or sports equipment sound, there are much smarter ways to use your tax return. When you plan to spend the money wisely, you can avoid making financial mistakes that you will regret up until next tax season.

Emergency Fund

Financial experts recommend that everyone keep an emergency fund that includes anywhere from three to twelve months of living expenses including mortgage payments, groceries and utilities. This acts as a safety net to help with costs associated with emergencies like job loss, layoffs, sudden injuries or illness. Emergency funds can also be useful for sudden house repairs following a natural disaster, car repairs and other unexpected expenses. An emergency fund can help lighten the load when you are living paycheck to paycheck, enabling you to finally get ahead and stop stressing over money so much.

Debt Reduction

Give yourself a clean slate with your tax return and either eliminate or greatly reduce your debt. Select the bills that you have with the highest interest to pay off first in order to save more money in the long run. Credit cards can cost up to three times as much as the original amount you spent when you only make the minimum payment each month. Financial advisors point out that when you pay the minimum, you end up paying off a single meal for decades, so knock those out of the way as soon as possible. Next, pay off the debts that are accumulating on your credit score to help repair your credit.

Save for Retirement

If you do not already have a retirement plan, now is the time to start setting money aside to live on during your senior years. By allocating money during each pay period for your retirement nest egg and combining it in an interest earning savings account with your tax returns each year, you can ensure a comfortable life for yourself after you finish working. Use an IRA to manage your money much like a 401(k) but with better personal control of your savings. If your employer does offer a retirement plan, be sure to include that into your savings plans.

Career Training

Investing in your education is a great way to use your tax return. It is a lasting investment that can help further your career, interests and even confidence as a person. Some options include taking continuing education credits, taking a course that will advance your current position, enrolling in a master’s degree program or even entering college for the first time. You can also finally take costly tests needed to achieve your certification, pay for a tutor to help you complete a class that has given you trouble in the past or start a fund to help pay for your child’s future college expenses.

When you must spend something from your tax return after living frugally for a lengthy time, consider using the majority on something you need and spending a small amount on something special, like an outfit or a nice meal. You will still spend your money wisely without feeling as if you were unable to splurge a bit at the same time.

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How to Start Prepping for Your 2016 Taxes Now

If tax time always seems to stress you out with its piles of paperwork, endless streams of receipts, and new laws regarding healthcare, you are not alone. According to information from the IRS, there are a few things you can do now to make the 2016 tax season a smoother one.

#1 – Report Major Life Events to Your Employer

Each time you start a new job, your employer asks you to fill out a form called a W-4. On the W-4, you list yourself and any other dependents you have so that your employer knows how much to deduct from your paycheck for various income taxes. If you have gotten married or divorced, or if you have had a new baby or had a child move off to college, making these changes now can save you some time come tax season. In fact, the IRS says that you should change your W-4 as soon as possible after these events in order to minimize your potential tax liabilities.

#2 – Keep Information Up to Date in the Health Insurance Marketplace

When you purchase and pay for your health insurance through the Marketplace, part of those payments may be subsidized in order to make your coverage more affordable. The amount of subsidy you receive is determined by your income and the number of dependents you have. What’s more, if you fail to report any changes in income, you may actually end up repaying the government for subsidy overpayment in 2016. Be sure to keep your Marketplace information up to date at all times.

#3 – Find a Qualified Preparer (and Make an Appointment)

Procrastinating will not make tax season go away, unfortunately, but finding a qualified preparer can certainly make things simpler for you. Many preparers guarantee their work and will help you through an audit, if necessary. Some promise to reimburse you for anything you end up paying to the IRS due to a mistake on their part, and a few will review your tax returns from previous years to look for mistakes that could net you a little extra on your next refund. Make sure that your preparer offers you audit assistance and a guarantee at the very least, and schedule your appointment as soon as you have your W-2s in hand.

#4 – Know When to Itemize Your Deductions

Deciding to stick to standardized deductions on your tax refund offers simplicity, for sure. However, contrary to popular belief, standardizing your deductions does not grant you immunity to audits, and itemizing your deductions is not a red flag for the IRS to pull your return for audit. It is almost always best to itemize if you run a business, and itemizing can also save you some money if you’ve purchased a house or even had a baby during 2015.

Tax season does not have to be dreadful in 2016. With a little preparation and the right tax professional, things will flow smoothly and your mountain of paperwork will soon be behind you.

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