Happy New Year! With the start of 2016, it’s also time to get your tax stuff together. I know lots of people like to procrastinate with their taxes, but I personally prefer to get it all done by early February. This way I beat the rush of people who file right before the deadline in April and I figure if the government runs out of money like it did that one year and issues IOUs, I’m more likely to get my money first before they run out.
Everyone who cares about their fiscal health should have a basic knowledge of how taxes work and how much they pay. If you don’t feel like reading a taxes for dummies type of book, I highly recommend playing around with Turbo Tax. Its a relatively quick, easy and free way to learn about how taxes work. Basically you input all your information through Turbo Tax like you plan on filing but you don’t. The process of going through all this actually teaches you a lot of taxes. Make sure you click on the blue clickable words to read and learn. Input different numbers to see how it affects your return. I like how Turbo Tax explains it all to you in a simple manner.
Not sure Turbo Tax is the cheapest way to do taxes, but its cheaper than using a tax pro (which we currently use). Why do we use a tax pro then? Because he also gives us some financial advice and sometimes is able to capture additional savings we might miss on our own and probably just
I see Turbo Tax has become ridiculously easy and kind of cutesy too. Look at these cute icons. They also ask you cute questions like how do you feel about doing taxes today? If you haven’t received your current W-2, use last years for practice. The hour or so you end up spending on doing this will teach you a lot about how taxes work. Also if you do decide to file with Turbo Tax then you already did most of the work!
Some final points, start by gathering all your tax documents and receipts. Hopefully you’ve been saving them in a folder or box over the year and/or can download + print quickly from websites. When you’re going through Turbo Tax it’ll probably also prompt you to find more forms. If you haven’t been doing this, make it a goal for 2016. Easiest way I suggest, make a folder labeled Taxes 2016 and put all your papers/receipts related to your taxes in there. Done!
If you receive too large of a refund, then you’re giving Uncle Sam a free loan. How nice of you. Adjust your with holding appropriately. This applies if you end up owing taxes too. Contrary to what you may think, the goal is to end up with little to no refund and of course you don’t want to owe any taxes.
If you do end up with a significant return, don’t blow it all on some shopping spree or expensive dinner. Use it to either pay down high interest debt or invest – some options are Roth IRA (max $5500 for 2016 – front door or back door), taxable accounts or your children’s 529. There’s something here for everyone.
#financegoals2016: Learn about how taxes work. Am I using the hashtag thing right??