Taxes and Stress…’Tis the Season
Money is a major cause of stress, and taxes are a further exacerbation of an already challenging topic. Unlike most other money related topics, taxes have a hard deadline- which is right around the corner- so it can’t be ignored- unless you want to pay serious consequences.
How can you alleviate this most anxious time of year?
1) Plan- most people don’t do a lot of planning around their finances, largely because historically the cost of financial planning and advice put it out of reach for most people. Now, because of the affordability that technology provides, it is possible to receive tailored and fiduciary financial advice. For most people, taxes are their largest outflow of funds, so understanding your overall financial plan as well as how taxes fit into that, is key. Pefin is not a tax advisor, but will help you to estimate your tax burden at both the federal and state level, which can materially alleviate stress- by being prepared!
2) Although for most people taxes are one of the least interesting topics, spending a little bit of time to be informed can go a long way in making the process easier. Here are a few things to know about this year, so you aren’t caught off guard:
a) The deadline this year is April 17th — because April 15th is a Sunday and April 16th is a holiday in Washington DC.
b) If your adjusted gross income is less than $66,000 you may be able to file for free (with assistance from one of the tax-prep companies that are part of the Free File Alliance) on the IRS website — check here to see if you are eligible
c) If you aren’t eligible for Free Filing under the IRS program, you may still be able to file for free by just filling out the forms yourself. This works great if you have a simple financial situation but may not be advisable if the 1040EZ form doesn’t work for you. Some tax prep firms may also file your return for you for free as long as you don’t itemize, i.e. have kids, a mortgage, student loans, or other deductible expenses.
d) There are changes this year to deduction amounts — there is a ton of info on the IRS website which you can find here
e) You can sign up to get your refund direct deposited into your bank account to receive the funds more quickly.
f) There are a lot of scammers out there so beware of any emails suggesting they can help you with your taxes or returns or who are pretending to be the IRS. The IRS website is www.irs.gov so if you get anything that ends in .com, .net or .org- or anything else, beware!!
g) Don’t forget that state tax returns are also due!!
h) If you are getting a substantial refund, you may have gotten your withholdings wrong- and you may want to change that for next year. It feels good to get a big check from the government- but remember that is YOUR money that they have had all year, when you could have possibly had it sooner.
i) What if you can’t afford to pay what you owe the IRS? The answer is NOT to avoid filing your taxes. That is a crime and it will be way worse for you than filing. Really. The IRS does offer a way to defer payment- it isn’t immediate but it is possible. You have to apply for the ability to do this — but you can try here.
j) You may get audited. It is a bit like roulette- even if you did nothing wrong your number just may come up. Before you cut any corners or think that you are going to be clever in fudging some numbers think again. Be squeaky clean in your filing- you will be so glad you did!
k) Do you even need to file taxes? Probably you do, but there are exceptions. Generally speaking if you made less than $6,200 per year you don’t have to — but there are nuances even there so you may want to check. And also the only way to get a refund is to file, so don’t forget that!!
3) Think ahead: When you are thinking about how to invest in the future, taking your tax situation into account ahead of time can earn big dividends in the future. Understanding whether you are properly maximizing your 401k, vs the advantages of putting money in a taxable investment account, for instance, is worth taking some time to explore. Pefin can help with that as well as many other aspects of the tax implications of financial decisions, including putting together a tax optimized draw down schedule of assets in retirement.
As with most money related topics, an ounce of prevention is worth a pound of cure. Be prepared, have a plan, and for your own peace of mind don’t wait until the last minute. Good luck and happy tax filing!
