We are nearing the end of tax season and if you weren’t procrastinating about getting your taxes done, you might have some extra cash on your hands. While many personal finance experts quip that receiving a tax return means that you were giving the government an interest-free loan, I don’t.
I know for many of us trying to improve our finances, receiving a lump sum of money can be a real motivator to taking care of financial business; a sizeable tax return can make the difference between making a big financial move quickly and making small steps of progress over time.
If you are getting back a little extra (between $1,000 and $3,000) from Uncle Sam this year, here are few smart moves that you can make.
1. Start a wedding fund (even if you haven’t met him yet.):
People look at me like I’m crazy when I speak about starting a wedding fund even when you are still single. But why not give the same shade to someone that says that they are starting a college fund for a toddler. Same premise. You are planning for something that you want to happen. The Law of Attraction speaks about making room for the things that you want in life by literally creating space for them to come into existence and acting like the thing that you want is already there in your life.
2. Buy your first mutual fund:
If you are afraid of stocks because you think there is too much risk in buying them or you feel that you don’t have enough money to get your foot in the game, why not consider using some or all of your tax return to buy your first mutual funds? Mutual funds can help minimize your risk by spreading your investment across numerous stocks. Then you will be able to lean in over drinks and tell all of your girlfriends how you are “building your portfolio” even if you don’t exactly know that means yet. J
3. Get your side hustle off the ground:
The only windfall that you may see on a yearly basis is your tax return. If you have been dragging your feet or looking for the start-up money for your entrepreneurial endeavor, consider Uncle Sam your first angel investor and get to building your empire.
4. Build your reserve and demolish your debt:
The money that you have coming to you from your taxes may be just what you need to create an emergency fund and eliminate some debt. If you already have $1,500 as an emergency fund, consider earmarking at least 75% of your tax refund to handling those nagging bills. On the other hand, if you don’t have any money saved for a rainy day, consider squirreling away $1,500 of your return and applying the rest to outstanding debt balances.
Connect with Kara @frugalfeminista. Learn more about The Frugal Feminista at www.thefrugalfeminista.com
Check Out This Gallery Of Tax Questions Answered:
1. Your Income Tax Cheat Sheet
Even if you decide to handle the filing of your taxes solo, it is always important to know and seek the advice of a tax advisor/accountant, who can offer valuable information and point you in the right direction for optimum returns during tax time. This includes proper deductions, organizing year-round and reducing your tax stress. You're welcome.
2. Be Mindful Of Holiday Bonuses
It's always a great feeling to have that bonus check in hand, but sometimes it may not be the optimal scenario for your tax accountant. Boosting your income by a slight margin could shift you to a higher tax bracket for the year, offsetting your bonus and then some. Consider if it's better to realize your bonus in 2013 or 2014 and inform your employer accordingly.
3. Consider Charitable Donations
Giving to charities can carry tax deductions, helping you save on your IRS payment. If you need to get in a gift during the year of 2013, you can count the donation via credit card as long as you sign up for the payment by December 31. Just be careful of fraudulent charities, which the IRS has been warning people about for years.
4. Prepare For Tax Season
If you have a few extra minutes away from work and the family, maybe you can unwind over some tax documents. While it isn't most peoples' idea of a good time, creating a tax checklist and gathering together all relevant documents for the year before next year's become scattered everywhere can be a serious time saver come April.
5. Keep Track Of Deadlines
Deadlines can creep up at any time and in any shape or form. Some deadlines for income considerations can be at the year's end, so there's certainly plenty coming up in the near future. While the official filing deadline is April 15, the work doesn't start then — and shouldn't start the day before that — so plan out your time to meet the different deadlines of various parts of the tax code.
6. Don't Forget Retirement Savings
A great way to save money on taxes is by having a properly structured retirement plan. Both 401K and Roth IRA plans carry tax implications of various shapes and sizes, and planning ahead for retirement isn't the worst thing to do, either. By balancing contributions, the savings can really add up once tax bracketing is considered.
7. Consider The Child Care Credit
The IRS published an entire post about the child care credit earlier this year, in which the agency explained exactly how to use the credit and under what circumstances it is appropriate to file for it. Since it runs year-round, there's no better time to jump on board than now, and you just might save a dollar or two. Child care credit: http://1.usa.gov/1gKgeFf
8. Lump Medical Bills
There are thresholds for which medical bills become deductible if they total a certain percentage of your gross income (10% for most people is standard; however, it varies depending on circumstances). If you can lump your medical bills into this year or the next, you may become eligible for the effective tax deduction. This could involve prescriptions, getting new eyewear, extra checkups and prepaying plans.
9. Rashida Maples, Esq.
Rashida Maples, Esq. is Founder and Managing Partner of J. Maples & Associates (www.jmaplesandassociates.com). She has practiced Entertainment, Real Estate and Small Business Law for 9 years, handling both transactional and litigation matters. Her clients include R&B Artists Bilal and Olivia, NFL Superstar Ray Lewis, Fashion Powerhouse Harlem’s Fashion Row and Hirschfeld Properties, LLC.