Building your Financial Life The Taxman Cometh - OppLoans

Building your Financial Life The Taxman Cometh - OppLoans Building your Financial Life: The Taxman Cometh Building your Financial Life: The Taxman ComethOppLoans Monthly Budget GuideWith major changes to the tax code rolled out in 2018, many Americans are feeling even more overwhelmed than usual this tax season. From reports of smaller-than-expected refunds to significant modifications to popular deductions like home mortgage interest, sitting down to tackle your tax return can seem like a project best put off until tomorrow … or next month.If you take no other piece of advice from this guide, make it this: don’t let uncertainty around taxes prevent you from filing your tax return by April 15. (Or April 17 if you live in Maine or Massachusettsâ€"thanks Patriots Day!) If you’re feeling the pressure as Tax Day approaches, keep in mind that it is easy to file for an extensionâ€"you can file online or download, print and mail the appropriate forms from the IRS website.If you’ve already filed your tax returns and found that you owed the IRS a manageable amount or received a small refu ndâ€"congratulations! Feel free to stop reading and buy yourself some avocado toast.For the rest of us who may need additional guidance, we are taking a look at some common tax situations that can seriously impact your budget. From the best way to put your refund to work for you, to smart strategies for managing your tax bill, we’ll discuss how you can turn tax time from a source of stress into just another expense that you’ve budgeted for.Putting your refund to work for you.When you receive a tax refund it is best not to think of it as a windfall, but as a part of your annual income. After all, a windfall is found money! A tax refund is not a gift from the IRS, but repayment of a no-interest loan that you have made to the governmentâ€"in fact, it is money that has been taken directly from your paycheck (and therefore from your monthly budget) all year long.We’ll talk more about why receiving a large tax refund is less than ideal, but if you find yourself sitting on a large pi le of cash this year, here are some budget-smart ideas for putting your refund to work for you.First on your list should be these key budget priorities:Fund your emergency account.If you’ve been following our budget guide, you already know the importance of having 3-6 months of living expenses stashed away. If your safety net is underfunded, your highest priority for your tax refund should be bolstering your emergency fund.Pay off high-interest debt.Once you have topped off your rainy day fund, your next step should be tackling any high-interest debt, such as credit card debt or payday loans. If you have been stuck in a cycle of incurring debt only to pay it off when you receive your annual tax refund, now is the perfect time to adjust your W-4 so that you receive more of your money in each paycheck.Purchase peace of mind.Receiving a tax refund is a great opportunity to revisit your financial and estate planning, particularly if you have been putting it off because of cost concern s. In our budget guide for couples [link], we talked about the importance of protecting yourself, your partner, and your family against a worst-case scenario. An influx of cash like a tax refund can help you to fill in the gaps, such as consulting with an estate planning attorney to draft a will, purchasing additional life insurance, or other protections that make sense for your financial and family situation.Once you’ve met these high-priority budget obligations, you have several tax-advantaged options for using your refund:The tax advantage of retirement savings.If you are not maxing out your retirement savings, an Individual Retirement Account (IRA) can be a great choice for funding your retirement while maximizing tax benefits. To help determine what type of IRA is best for you, the IRS offers guidelines around contribution limits and tax status.Get smart about saving for college.If there are educational expenses on the horizon, for yourself, your children, or grandchildren, i nvesting in a 529 plan, a tax-advantaged savings plan for educational expenses, could be a smart use of your tax refund.Of course, saving for the long-term is not the only way to go. Using your refund to address more immediate needs can also be a smart decision:Jump start your savings.Whether you are dreaming of a down payment on a house, a new car, or a dream vacation, your tax refund can provide a great head start towards achieving some of your larger savings goals.Spend now, save later.Spending your refund is not a bad thingâ€"particularly if you funnel it into a purchase that will save you money in the long run. If you are a homeowner, that might mean energy-efficient home improvement projects like new windows or replacing an old appliance that is on its last legs.Invest in yourself.Investing in yourself means different things to different people. Perhaps your career goals include a professional certification to improve your earning potential (although it is certainly worth aski ng if your employer will chip in). Or maybe you have other goals that will improve your quality of life, such as fitness sessions with a personal trainer or finally scheduling your LASIK surgery. The ROI on you is immeasurable.Four weddings and a baby.Are you standing up in four weddings on opposite coasts this summer? Expecting a babyâ€"and expecting to dramatically increase your spending on diapers and daycare in a few months? Even if you’ve been setting money aside for these big expenses, it seems like something unpredictable always pops up. If you have a major event on the horizon, it may be worthwhile to stash your refund cash in a separate account you can tap into when you’re at the bachelor party and you discover that there’s a tiger in the bathroom.Give generously.When you find yourself in possession of a large amount of cash, dedicating it to causes that matter not only feels great but provides a wonderful way to make an impact at an organization that is meaningful to you.10 percent for fun.As they say on Parks and Recreation, treat yourself! This is money you have been setting aside all year, so if you dedicate 90 percent of your tax refund towards something budget-savvy, don’t feel guilty about spending a small portion on something fun.But what if I owe money?First and foremost, do not let uncertainty around your tax liability prevent you from filing your taxes. The IRS can levy penalties for both failing to file a tax return and failing to pay taxes by the April 15 deadline, as well as interest on the balance you owe and a monthly late payment penalty. Avoid incurring unnecessary fees and be sure to file your return or request an extension no later than April 15.If you do find yourself facing an unexpectedly high tax bill, you can take concrete steps to lessen the financial impact:If you can afford to pay some amount towards your tax debt, it is wise to do that at the time you file, to minimize interest and penalties. If you have paid as mu ch as you can and still owe additional money, your best option going forward may be to set up a long-term or short-term payment plan. Those who qualify can quickly set up a monthly payment agreement for up to 72 months using the Online Payment Agreement  form. You will be charged a setup fee, but this can be waived if you meet the requirements for a low-income waiver. Additionally, if paying your taxes would severely limit your ability to support yourself and your family, you may qualify for the IRS hardship program. To help you understand the ins and outs of specific payment plans, the IRS has a helpful FAQ page for your reference. Once you have reached a payment plan agreement, be sure to update your monthly budget to reflect this new ongoing expense.The one thing you should absolutely not do is ignore your tax bill. Beyond charging interest and penalties, the IRS has the ability to collect outstanding tax debts by seizing assets including wages, social security benefits, and futu re tax refunds. To learn more about what to do if your tax bill is higher than you can afford, check out the OppLoans Financial Sense blog for more advice from tax experts.Tax planning to maximize your monthly budget.What exactly is wrong with getting a tax refund? Many people think of their refund as an annual ‘bonus’. However, receiving a refund is not like winning the lotteryâ€"it is your own money that you have been lending to the government, interest-free, throughout the year.However, the topic of tax refunds can be a sensitive one. A recent personal finance column in the Washington Post took a look at some of the underlying reasons people prefer to overpay and receive a refund. Even for taxpayers who are aware that withholding more money than necessary goes against the conventional advice of tax experts, some cite the peace of mind of knowing that they won’t face a large tax bill; others, the benefits of saving money somewhere where they can’t readily access it. If you ’ve come to rely on your yearly tax refund to tackle some of your larger financial goals, it can be hard to break the habit.This time of year, when taxes are top of mind, is the perfect time to revisit your withholding. If you found yourself receiving a large refund or owing a significant amount of money on your taxes, or if you experienced a life event this year such as changing jobs or the birth of a child, it may be time to make adjustments and provide your employer with an updated W-4.While you are completing your tax forms and have your relevant tax documents on hand, take advantage of one of several helpful online calculators to update your withholding. The IRS Withholding Calculator is one such tool; the Intuit TurboTax W-4 Withholding Calculator offers a comprehensive guide that allows you to factor in retirement savings, education expenses, and other details that impact your specific tax scenario. Once you have calculated the correct number of allowances, you can also fin e-tune your refund or the amount you expect to owe by withholding a specific dollar amount each pay period.If you have been following our monthly budget guide, you know that having an accurate picture of your finances is critically important. When you sat down to make your initial monthly budget, you gathered as much information as you could about your income and expenses, and taxes are a huge piece of that puzzle. There is no better time to make sure that you are making every dollar work for youâ€"whether that means meeting your tax obligations throughout the year, or reclaiming your refund for your ongoing budget goals. Do you have a question about budgeting? Let us know! You can find us  on  Facebook  and  Twitter.Visit OppLoans on  YouTube  |  Facebook  |  Twitter  |  LinkedIN  |  Instagram