Friday, April 29, 2016

The 9 Best Ways to Use Your Tax Refund

Taxpayers get happy when they receive their tax refund. Many have big plans to use it wisely but once they receive the money they quickly forget about those plans and spend it leaving them  worse off than they were before received the refund.

A tax refund is the amount of money you over pay in taxes in each year.  A tax refund is just another way to help the government make money.  The money each taxpayer pays during the year is put into a high interest bearing account and the government keeps the interest.  The money given in a tax refund is small compared to the money earned each year from the millions of taxpayers in America.

There are only a few instances when you should overpay: if you are trying to pay down debt or want to pay off your mortgage or car loan off faster or if you know you will owe taxes.  If you work hard all year long why do you make yourself wait to get back money you earned?  Get your money upfront by adjusting your tax withholdings.  Consult a tax professional to make sure don’t end up owning money at the end of the year.

If you are struggling to pay bills or need to get out of debt your tax refund can be a lifesaver. But, it is up to you to determine how to spend it.  The government does not bail out individuals and if you don’t come from a wealthy family, you are the only one you can depend on so make wise choices with your money because no one knows what the future holds.  It is easier to stay in debt, swipe that debit or credit card and stuck our head in the sand.  It takes courage to look at your situation and make a decision to do better.

I was $19,000 in credit card debt after graduating college and only making $21,000 a year. It was the hardest 4 years of my life but I learned valuable lessons that no bankruptcy lawyer, credit counselor or financial advisor could teach me.  I learned the hard way and those lessons were never forgotten.  Remember what your grandparents said and save for a rainy day. Here are 9 steps to use your tax refund wisely.

  1. Get current. If you are behind on any bills, use the money to catch up.  Make sure you get car payment, mortgage current and utility bills.
  2. Pay down debt.  Pay off judgments, liens, collection accounts and payday loans first, next pay down other outstanding debt starting with the smallest bill.
  3. Create an emergency fund.  Open a high interest savings account to cover your monthly bills and expenses for 9-12 months.
  4. Invest. If you don’t have a retirement account with your employer sign up tomorrow.  You can also start you own individual retirement if your employer does not offer one or as an additional investment.
  5. Pay extra. Pay extra towards high interest or high balance accounts such as car, mortgage or credit cards to pay the balances down faster.
  6. Donate. Make a tax deductible donation which you can write off on your taxes next year.
  7. Repairs. Fix urgent home or car repairs. 
  8. College education. If you haven't already done so start saving for your children's college education and open a 529 plan or comparable college savings plan.
  9. Purchase a home. Now is a great time to buy a home because interest rates are low.  Use the money to put towards down payment and closing costs for a modest size home that you can make affordable payments.

Monday, April 25, 2016

9 Unknown Services You Can Deduct on Your Taxes

 Tips for Taxes

Are you leaving missing out on money on your taxes? The IRS provides hundreds of deductions that taxpayers can claim but many taxpayers are not aware of them. No one has the time or wants to read all of the tax forms and instructions to find out what they are. A good resource to find hidden tax deductions is the book, Lower Your Taxes by Sandy Botkin.

There are tons of hidden tax deductions that can be claimed. One hidden tax deduction that taxpayers can claim is free services. Here are nine ways to deduct free services and other expenses on your taxes.

  1. Free Services. If you provide free services to a charity, you may have to claim the income for the value of the job as if you were paid even though you didn’t. For example if you are a speaker and provide a seminar to a charity and would normally be paid $1,000, you may have to report $1,000 on your taxes. Talk to an accountant to or contact the IRS tax help line to get specific tax information about the services provided. The services must benefit the public.
  2. Volunteer Work. If you volunteer, your time and services to help a charity you can deduct on your taxes, costs for hosting a party or fundraiser for an organization, supplies purchases that are required to perform volunteer work, cost of a uniform or clothing required to perform volunteer work, telephone expenses, and travel expenses such as parking, tools, gas, miles traveled, etc. Keep receipts of all expenses.
  3. Pro Bono. Pro bono is when you donate your time and services for free or at cost. If you donate time and services for an event but ask for payment to cover traveling expenses - the time and services are considered donated and can be deducted. However, the services must benefit the public.
  4. Food. You can deduct food and tips as long as you have the receipts as proof of payment.
  5. Entertainment. You can deduct entertainment expenses except for alcoholic beverages.
  6. Expenses. You can deduct “ordinary” and “necessary” expenses associated with or necessary for your job especially for a trade. Ordinary expenses are common expenses for your trade or profession. Necessary expenses are those that are helpful for you to perform your job and apply to full-time or self-employed employees.
  7. Travel Expenses. Some travel expenses can be deducted if they were incurred to benefit a charity. Travel expenses that can be deducted include hotel costs, rental car and airline tickets.
  8. Business Meetings. If you attend conferences or business meetings for your job, you can deduct travel expenses including the cost to drive to the event if you are not reimbursed by your job.
  9. Car Mileage. If you use your car for your job or business and use it for that reason only, you can deduct the entire operation costs. If your car is used for your job and business, you can only deduct the cost for business use. You can deduct mileage usage using one of two methods: the standard mileage rate or the actual expense method.

The deductions are only allowed if you itemize your deductions. Visit the website for more information.

Thursday, April 21, 2016

8 Ways to Use your Tax Refund

 Tax Refund Ahead

If you haven’t filed yet, what are waiting for? It’s that time again - time to get your tax refund. We all could use some extra money. Unfortunately, for many Americans in this economy getting a tax refund means it will be spent as soon as it is received. If you are struggling to pay bills or need to get out of debt your tax refund can be a lifesaver.

Taxpayers have been conditioned to believe that it is great to get a tax refund when we file taxes. The best way to get your tax refund is to increase your tax withholdings and get your money back during the year. Pay yourself instead of paying the IRS. Getting a tax refund gives the government free money, which is put into a high interest account. The government keeps the interest and gives the money back to you during tax season.

If you are not very disciplined and don’t manage your money wisely avoid getting a tax refund and adjust your tax withholdings during the year. In some cases, getting a tax refund can cause taxpayers to be worse off than they were before they got the refund because they spend the money frivolously and go deeper into debt. Do not make that mistake. Use your tax refund wisely and improve your financial situation. Here are eight ways to apply your tax refund.

  1. Create an emergency fund. Create a savings account to cover bills for 9-12 months.
  2. Pay down debt. Pay collection accounts, judgments, liens, and any other late accounts, then pay down credit card balances to 20% or less of the credit limit, then pay any other debts.
  3. Invest. Start a retirement account. If you don’t have a retirement account with your employer sign up immediately. You can also start you own individual retirement account (IRA) in addition to your employer account.
  4. Give. Make a tax deductible donation which you can write off on your taxes next year.
  5. Save. Save for your children's college education. If you haven't already done so start saving for your children's college education. College tuition increases at 3 times the rate of inflation. 
  6. Wealth. Purchase a home. Now is a great time to buy a home. Use your tax refund to put towards down payment and closing costs.
  7. Increase job skills. Take a class or go back to school to enhance your skills at work. This can increase your chances of staying employed or help you find a job.
  8. Repairs. If your home needs major repairs use your tax refund to fix them.