As we near the end of January, it’s about time to start thinking about our taxes. Hopefully you’ve got a good filing system set up so all your receipts, reports, and forms are in order and easy to find. This is my second year of being a real adult so to speak and actually having all that good stuff in order.
But First, How I Saved over $3,000 Last Year
Before I get into what I want to talk about today, I’d like to bring up TaxAct, as in the website. No, this isn’t an affiliate sale or a sponsored post- I receive absolutely no compensation for this, I’m just very passionate about this! Last year at tax time, my husband I took all of our information to H+R Block…. and the lady said that not only did we owe a great sum of money federally and locally in taxes, but we also owed her an additional $300 fee for her filing them. To add insult to injury, the lady claimed that even if we went elsewhere, we’d still owe the same amount of money. I didn’t believe her, and we walked out. She said she’d keep our information in the system for when we decided we couldn’t do any better.
I went home and was so discouraged, but I started reading about how to file my own taxes anyways. That’s when I came across Tax Act. With Tax Act, I was able to itemize deductions, like per diem for my husband who is a truck driver / owner operator, as well as our charitable donations (which we had receipts for of course). There were a few sections I was uncertain of, but TaxAct had a handy little guide to the side of every question that very plainly stated laws, what a deduction can be, and what it can’t be. It was hilariously easy, and I truly believe I could have handed all my information to a 5th Grader and he’d fly through it just as easy as I did. Within about two hours I was finished, and best of all, it only cost me $70. If you don’t itemize any deductions, it’s actually free to use. By the time I was finished, we had over $2,000 as a federal tax check, and about $60 from the local government, and those numbers were AFTER getting a big fine for not having health insurance for two people (I’ll probably write a post on why we opted out later, so watch for that here). So to sum this up, don’t be afraid to take your taxes into your own hands, especially when free and super easy to use websites like TaxAct exist.
Money Sums and Our Responsibility are Apparently Indirectly Proportionate
With all that out of the way, let’s talk about what you’d do if you won the lottery, and that lottery had a $100,000,000 jackpot after taxes, and that you get it as a lump sum instead of payments. What would you do with it?
Let me guess, this is what you’d do:
- Pay off all your debt
- Pay off all your family’s debt
- Invest / Save for Someone’s College
- Travel / Upgrade your Home or Car
- Donate to Charity
- Use the remaining money on ‘fun stuff’ (a new purse, a new laptop, trips to restaurants, etc)
Okay now, what if I handed you $1,000? What would you do with that money? Would you pay off debt? Invest? Travel? Do some upgrades? Donate? Or would you spend it all on smaller items, like that purse, that laptop, or those restaurants? I can almost guarantee that the majority of us would start at #6 and probably not go past that. I’m not trying to shame you, I’ve made the same dumb mistake before too, but let’s just think about that for a minute.
I understand that for many, $1,000 won’t completely cover your debts, but isn’t that all the more reason to apply that money there?
I understand that $1,000 isn’t a big drop in the investment bucket, but as Benjamin Franklin said, “Compound Interest is the 8th Wonder of the World”.
You Need a Plan for the Little Windfalls Too
Each and every one of us has a plan for what to do with lottery money, something that we’ll probably NEVER possess. So why don’t we have plans for those smaller lumps of money that DO occasionally come our way? Today I’d like to encourage you to make a plan for that.
Good Ways to Use your Tax Check
If you need a little nudge to get you thinking about what you should be using your refund for, here are some ideas to get you started, these are in no particular order at all.
- Pay down debt. Whether its $50 you borrowed from Uncle Tom, your mortgage, your credit card, or money owed on your car, pay off, or at least pay down, your debt.
- Pay bills in advance. Your utility bills can definitely be paid months (or even years) in advance. Other bills such as debts (like car payments or mortgage payments) may or may not take payment in advance, but they’re certainly worth giving a call to.
- Stick that money in your savings account (and don’t take it out). Some people say you need a minimum of $1,000 in savings for emergencies, others claim $5,000., while others say you need a minimum of 6 months worth of living expenses in savings.
- Buy gas cards. Now your fuel is prepaid for at least part of the year.
- Buy gift cards. Use them for Christmas gifts this year.
- Put that money down on a secured credit card and start building your credit if you haven’t already.
- Invest. Do your research and find a way to start investing, be it index funds, peer to peer lending, the stock market, real estate, rental properties, a start up, or even in yourself. I wrote about this in my book that is currently for sale on Amazon for $0.99!
- Donate to Charity!
- Spend it on something you need, such as windshield wipers, a new block heater, home AC unit repairs, dental work, etc.
- Refinance your home and use the money to cover the closing costs.
- Start that business you’ve always dreamed about.
- Shop in bulk, buy non-perishable necessary items in bulk, such as toilet paper, or long lasting food such as pasta or canned goods.
- Renovate your home in such a way that it improves its value, which also improving functionality and aesthetics.
- How would you spend $100,000,000? What about $1,000?
- Do you file your own taxes, or go somewhere? Did you have better luck with H+R Block than I did?
- How do you think a tax refund is best spent?
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