Most people tend to wait until it’s time to pay their taxes. This is understandable, especially considering that April 15th seems a long way off when you’re not even thinking about it. However, if you are going to be getting a refund, your tax refund could be put to good use now and save you money in the future.
What should you do with any extra cash? Let’s take a look at four effective ways to use your tax refund now.
1. Pay Off Debt
Paying off debt can be an effective way of saving money in the long run. If you have money saved in savings or checking account, you can transfer these funds directly in order to pay down your debt. If you don’t have enough for your entire balance, use some of your tax return to pay down your highest interest rate accounts first. This will save you the most money in interest charges over time and allow you to pay off the debt faster.
2. Investing
If paying off debt isn’t currently one of your top priorities, consider investing some of that extra money into a Roth IRA or traditional IRA depending on how much time you have before retirement. Both accounts offer tax free growth which can help ensure that your money has time to grow before being taxed upon
Tax season can be a stressful time of year. You put off preparing your return until the last minute, and then are on the lookout for ways to keep more of your hard-earned money.
The Internal Revenue Service offers some options for reducing your tax liability without much effort on your part. There are four basic ways you can save money on your taxes:
1. Itemized deductions. Instead of taking the standard deduction, which is subtracted from taxable income, itemizing is tallying up all eligible deductions to determine a lower taxable amount.
Tally up all the moving expenses you’ve paid in the last year, as well as charitable donations and interest paid on home mortgages (up to $1 million), medical expenses, property taxes and state income taxes. Travel expenses such as those incurred when attending business meetings or conventions also count as deductions if they exceeded $50 per trip or 10 percent of adjusted gross income; if neither applies, they’re not deductible.
2. Payroll tax deduction: If you’re self-employed, you have the option to pay yourself a salary or take what’s called an “employer’s” portion of payroll taxes out of each paycheck that goes toward funding Social Security and Medicare. The added benefit here is that this reduces both your
It’s nearly tax time and many of us are wondering how we are going to be able to cover the cost of paying this year’s taxes. While it is inevitable that taxes must be paid, there are ways you can reduce the amount you will owe.
Tapping into your home equity is one way to reduce your tax burden. If you have equity in your home and don’t need to live in it, consider selling your home and moving into a smaller place. This could help you avoid paying taxes on the equity that is built up in your home.
It is also important to make sure all of your forms get filed on time so that you don’t have any late fees added onto your tax bill. It is possible to file for an extension, but this only gives you more time to file, not more time to pay.
If you have property such as stocks and bonds, it may be beneficial for you to sell them now so that you can use the money towards paying your taxes. You will have already paid taxes on the income these investments generated, so selling them now will give you a chance to recoup some of those losses with tax savings of up to 15 percent.
Finally, if you have investments that have lost value, consider contributing them to charity
The IRS has a number of ways to collect on debts that you may have incurred. Tax debt is almost always the last on the list, but it is there. And because it is not a criminal matter, the collections will be handled by a non-profit organization which makes money by charging you fees for handling the account.
I really didn’t have a clue what I was doing. But I did manage to get out the door with my car payment and insurance all paid for three months, and I also managed to pay off some small bills that were pending.
Telling this to my friends, they all said, “Just put it on your credit card.” Well, I had enough sense not to do that. If you continue to live beyond your means and just charge everything you can’t afford to buy, then in the end, you’ll be left with nothing. So I just paid cash for everything and put away some extra money for a rainy day.
We’re all going to have certain things in our lives that we want to do that might appear impossible at the time. But if we plan ahead and save up extra money now, it will soften the blow of those inevitable times when something comes along that we can’t afford or just don’t have the money set aside for.
You can’t deduct the cost of leisure activities, such as hobbies or sports that you do for fun. You can only deduct the expenses related to your job. If you spend money on music lessons, you can’t deduct the cost of the lessons. However, if you are self-employed and use part of your home as an office, you may be able to deduct part of the expenses you incur in setting up your home office on Schedule C. According to IRS Publication 587, home-based businesses are those in which most business activities take place in a dwelling. If your home business is not a qualified home business, it will still be deductible on Schedule C, but only as a regular business expense.
If you use part of your home for work-related purposes and also use it for personal purposes, then you need to figure out how much of your total expenses relate to the personal use of your home. You can then deduct a prorated amount from your gross income.
The IRS has identified three types of deductions that taxpayers frequently claim on their taxes but that are not allowed: deductions for personal living or family expenses; deductions for job expenses that exceed standard amounts set by the government; and deductions for travel and entertainment beyond what is considered reasonable or customary in the
1. Consider a deduction for a bed in your home office
Maybe you use your home as a base of operations for your business and sometimes work there at night or on weekends. If you sleep in your home office, you might be able to take the deduction for the part of your house that is used as an office. In this case, an easy way to calculate this deduction is to measure the size of your bedroom and deduct that percentage of your mortgage, taxes, and insurance costs. Unfortunately, the IRS didn’t allow this deduction in 2013 tax returns, but it may be reinstated next year.
For example, if your mortgage payment was $800 per month and one-third of this amount was designated toward interest (mortgage payments are typically amortized over 30 years), then $200 would have been for the part of the house being used as an office. You could deduct $200 from your mortgage payment on Line 11 of Schedule A.
