By Alicia Kellebrew
Tax season is once again upon us, and this time of year I get many questions surrounding tax preparation, what to do with tax refunds, and what to do if a tax refund doesn’t show up as expected. So here’s a bit of insight into the wonderful world of taxes – thankfully it only comes around once a year!
Should I do my taxes myself or hire someone?
This really depends on your comfort level. For someone like me whose taxes are one line away from a 1040EZ, doing my taxes isn’t that complex. I go to the IRS website and select “free file.” From here it will ask you questions and direct you to what free file software you may be eligible to use. Have all your tax documents handy, and a printer to print a copy of your tax return for your records.
When hiring someone, ask around to see who others recommend, or do your own shopping to find the best rate. Keep in mind the more complex the return, the higher the price, and that may eat up your refund.
The Volunteer Income Tax Assistance (VITA) is a partnership between the IRS and other organizations to provide free income tax return preparation for low- to moderate-income taxpayers who can’t prepare their own taxes. You can find participating locations near you here. Certain income restrictions apply, and they may not be able to assist with certain tax forms/situations.
What should I do with my tax refund when I get it?
Some people view a tax refund as “free money,” meaning they can spend it on something fun. Really, it is money that you worked hard to earn. Receiving a refund means you overpaid for taxes and the government has been using your money all year for free. While it is nice to see it in a lump sum, you could have put it to better use had it been available to you earlier.
The best thing you can do with a tax refund is to come up with a plan. Where will the money go? Good uses are to build up or start an emergency savings fund, debt reduction, beefing up retirement accounts, and/or getting caught up on bills. Without a plan the money has a tendency to disappear quickly and not necessarily be used to reach your financial goals.
I was anticipating a large tax refund but it never arrived. What could be the cause?
First, make sure your taxes did get filed by checking with your tax professional and/or reviewing your records for confirmation emails. Many of the free online tax software programs include features that email and/or text when your returns are processed and accepted.
If your tax filing did go through, double check that you don’t owe money on a government debt. If you have student loans that are in default, or owe back taxes or any other government debts, the IRS may capture your refund, as they have the “right of offset.” This means they can keep your refund to apply toward any outstanding federal debt.
The best way to prevent this is to make sure that you are current on taxes, student loans and other government debts. Also consider changing your tax withholding allowances to a higher amount, so that you get more money in each paycheck and a smaller refund. You can find the “Personal Allowances Worksheet” at https://www.irs.gov/pub/irs-pdf/fw4.pdf. This can be changed with your employer at any point by filling out a new W-4. Remember, though, that if you increase your allowances to the point that not enough is withheld, you could end up owing money come tax time.
If you need help developing a plan for your tax refund, set up an appointment with a financial counselor at The Village by calling 1-800-450-4019.