photo credit: pfala

News that most taxpayers would be receiving a check from the IRS has been pretty welcome news in households across the U.S. The hope of U.S. officials is that this rebate check will lessen some of the strain families are feeling in their pocketbooks and help them relax about their financial situations. However, rushing out to spend your economic stimulus check may not be the most financially savvy way for you to put your rebate to use. A close inspection of your financial circumstances might reveal several ways to use your check.

One viable option for your rebate might be simply to save it. Maybe your emergency fund is already scarily low and needs to be replenished. Perhaps you’ve heard rumblings of potential lay-offs at work and fear that you may need those funds in the near future. Although consumers are encouraged to spend their rebate check as quickly as they receive it, you should feel comfortable with the idea of saving your rebate if you financial situation warrants it.

Households that are already mired in consumer debt may find that paying down their debt is the best use of economic stimulus check. If you already have outstanding balances on store accounts or Visa/MasterCard, applying your rebate to those account balances may give you some breathing room in your financial plan. Perhaps if you’re able to use your rebate to catch up on payments to those debtors, you’ll be able to start planning for your financial future again.

Finally, a large, but planned, purchase is always a good use for your rebate. Some consumers may find that their rebate allows them to complete their savings plan for an upcoming purchase. Have you been scrimping and saving for a new refrigerator? Your rebate may allow you to finally make that purchase. Or perhaps your car needs new tires. If you’ve been putting off buying those tires until you could pay for them with cash, the economic stimulus package may speed that day’s arrival.

When deciding what you and your family should do with your rebate, the most important thing is to figure out how this money works into your existing financial plan. If making a large purchase or taking a vacation was already in your plans, by all means, you should use your rebate to step closer to that goal. However, if your current financial goal involves savings, you should use your rebate to further your advancement towards that goal. Just consider your economic stimulus package as a jump-start to your financial plan, and you’ll find the perfect way to use your rebate.

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Getting a copy of the Turbo Tax software couldn’t be easier. Major retailers like Office Depot or Walmart all carry the software. However, if you’d rather not deal with installing software on your computer, you can use Turbo Tax’s web-based application. Simply create an account on the Turbo Tax website and you’re ready to get started on your return.

Another great thing about Turbo Tax is the many different versions available. If you are single with a relatively simple tax return, there’s even a free version of Turbo Tax for you. Don’t worry if you’re not sure which version is right for you. You can start inputting your information with the simple version of the software. If, during your tax return preparation, your information indicates that a more complex version of the software is required, you will be notified. You can even transfer your information to the more complex version if you decide to upgrade.

Finally, the best part about Turbo Tax is that it gets its customers away from staring at tax forms and instruction booklets. Turbo Tax utilizes a friendly question and answer format that makes preparing your taxes more like conversing with a person. And, if you’re not sure what a question is getting at, there are plenty of help options to help you decide what the right answer is.

Turbo Tax seems to give taxpayers the best of both worlds when it comes to tax return preparation. At a significantly lower cost than having a professional complete your return, you can file your federal and state income taxes, file electronically, and have your tax refund (if applicable) deposited directly into your checking or savings account. The software is easy to use and understand and there’s no waiting in the tax office to visit a tax preparer. If you think you’re ready to complete your own income tax return, Turbo Tax is the way to go.

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First, promise yourself that you will keep your paperwork organized this year. Now, no one expects you to suddenly enjoy dealing with paperwork. You just need to create a system that encourages you to keep your papers sorted. Make file folders with the names of major deduction categories marked on them. Then you can simply drop your receipts and forms into the correct folder as the year goes by.

Your receipts from the pharmacy will go into the “Medical” folder. The contribution acknowledgement you get for the box of clothes you dropped off at the local thrift store will go into the “Charitable Contributions” folder. You get the idea. Don’t go crazy and try to get too detailed in your sorting. At the end of the year, just having these items sorted into categories will make your life (and your tax preparer’s life) much easier.

The other important step in planning for your 2008 tax return is to pick your tax preparer’s brain. Often, at the end of your tax preparation appointment, your tax professional will ask you if you have any questions. Don’t be shy; this is your chance to get advice for anything that you think might come up during the next year.

Get your tax preparer’s input on things that you should be doing. He’ll tell you to do things like getting that receipt from the thrift store or keeping track of your business mileage. His suggestions will guide you in the categories you’ll want to use in your new filing system. Remember that it’s always better to save something that you think might be important to your tax return and find out that you didn’t need it than to wish you had kept something that you threw out.

While you’re asking your tax preparer questions, be sure to tell him about any big changes you foresee in your life over the next year. If you’re getting married in 2008, he’ll be able to tell you if you need to adjust your income tax withholding. If you and your spouse are thinking about starting a family, your preparer will be able to give you an idea about how that will affect your tax situation. This is your opportunity to plan ahead a little.

Bear in mind that no tip is going to make you enjoy filing your income taxes. However, these two suggestions can help you avoid that feeling of dread you’ve come to associate with tax season. Your tax preparer will thank you, too.

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If you’re fortunate to be getting a tax refund this year, you’ve probably already experienced a couple of emotions. First, there was the joy that came with finding out that, not only do you not have a tax bill this spring, but also that you are getting money back. What a relief that revelation was!

Now that the initial joy has passed, however, you may find yourself fretting about what to do with this windfall. Should you spend it quickly? Should you save it all? There are lots of good uses for your tax refund.

1. Jump-start your mission to pay off all of your debt. Sometimes, the size of your debt can be so intimidating that you’re too discouraged to start working on your debt. But if you use your windfall to pay off a large chunk of your debt, you can get yourself motivated to continue with your plan to reduce your debt.

2. Start planning for your retirement. Using all or part of your income tax refund to open a retirement account, either an IRA or Roth IRA, can have a double benefit. Aside from planning for your financial security after you stop working, a contribution to an IRA can have a large tax benefit on your next income tax return.

3. Open a college savings account for your children. The cost of a college education continues to grow each year making a college degree seem out of reach to many people. Opening a savings account early can help you and your children begin planning for their post-high school days. Be sure to check out the tax-sheltered 529 savings plans to see if they will benefit you.

4. Make an improvement to your house. Since your home is the asset that you probably use most, you can never go wrong by investing in it. Whether your home needs a new roof, your carpet needs replacing, or you’d just like to spruce up the outside of your house, a completed home improvement project will always bring a smile to your face when you come.

5. Treat your family to something you can’t normally afford. Not every use for your income tax return has to be centered around a monetary theme. Although you may be trying to avoid increasing your debt, using your tax return to fund something frivolous like a vacation, may be just the thing you need to help you stay committed to your strict budget. For a few days your family can enjoy themselves without worrying about expenses and enjoy being together.

The best uses for income tax returns are usually large ticket items that you might not be able to pay for on your regular salary. You can pay off debts, create new assets, or do something nice for your family. Most importantly, though, just make sure that when your income tax check is gone you have something to show for it.

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There have been quite a few articles lately by financial types who advocate the “responsible” things to do with one’s tax refund. Everything from paying down debt, opening an IRA, or even starting an emergency fund is advised.

A recent article released poll data regarding the use of tax refunds:

In a USA Today-Gallup Poll, 62 percent of those questioned said they plan to save their tax refunds or use them to pay off major bills.

Principal Financial Group found 84 percent of those polled said the same, as did 72 percent of people questioned in a TransUnion poll.

But do people really do what they answer to in polls? Retail spending does see a rise in the months of March, April, and May, due to the spending of tax refunds so apparently some people are opting to spend that money!

I went on an internet quest to find folks talking about how they have spent their tax refunds and found some really interesting items. Granted, I did find quite a few people paying down debt or putting the money into a savings account, but others spent freely without regard to what the “experts” are recommending. Here are some things I found people spending their refunds on:

Accessories like expensive purses seem to be a hot purchase as well as spending on vacations.

One couple is putting their tax refund into EmigrantDirect.com savings account for use later on this year to purchase a vehicle.

Some of the frugal crowd are paying down credit card debt, increasing their savings, and buying a new computer monitor.

A wife says her husband is buying her a new laptop computer.

Remodeling the home and saving for wedding expenses are how some people here are choosing to spend their refunds.

New camera gear is top priority here as well as new flooring for the kitchen, paying off a student loan, taking a Disney vacation, and buying a travel trailer!

A new bike for commuting to work will use up all of one gal’s refund.

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Here is a summary of the steps we took to prepare our return.

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1.  Purchased Turbo Tax and installed it on computer. 

2.  Transferred information from last year’s Turbo Tax progam through the import feature. 

3.  Entered 2006 information including W-2, interest income, dividend income, and 1099 income. 

4.  Developed a spreadsheet for the itemized expenses.  After this was completed, deductions (mortage interest, property taxes, sales taxes, charitable giving,) were entered into Turbo Tax. 

5.  Tax credits were entered according to Turbo Tax.

6.  Final review through Turbo Tax (this is an entirely automated process). 

We choose E-File for submitting our return.  However, we print a copy of the return out and then I review it.  I check all the numbers for accuracy and ensure we have the required backup documentation.  After we have verified the return, we then utilize the Turbo Tax program to make the E-File. 

We will be receiving a tax refund this year and are utilizing the direct deposit feature.  Our file containing all the supporting documentation will be stored for future use. 

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Plus FHCF Assessment - $3.49

In the notes section of the bill, it states that “your policy has increased 1% due to the Florida Hurricane Catastrophe Fund Assessment.”

After a little bit of research, come to find out that in June 2006 the Florida State Board of Regulation (who oversees the FHCF) directed the Office of Insurance Regulation to levy an emergency assessment on all property and casualty business in the State of Florida.  This assessment is applied to all policies issued or renewed after January 1, 2007.   This assessment was deemed necessary because the Florida Hurricane Catastrophe Fund was depleted of nearly all of the $6 billion in reserves it had built up from 1993 following the 2004 and 2005 hurricane seasons. 

If you’ve been keeping up with my posts about the homeowner insurance problem, then you’ll know that we are also paying an assessment to subsidize Citizen’s Property Insurance (the state run insurer of last resort).  Looks like there is going to be a lot more of these assessments coming, especially after the bill that Governor Crist signed last week.

 

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1.  Start a filing system for keeping all your receipts and other tax related documents.  This doesn’t have to be fancy, but it does need to be organized.  Use file labels to separate documents which keeps them easier to find when you are actually preparing your taxes.  What do you need to keep?  Charitable donation receipts, property tax receipts, stock purchases and sales documents, home equity loan information, paperwork from the purchase or sale of a home, and medical receipts to name a few. 

2.  Make the decision to give to charities.  Your donation can be in monetary form or in physical items.  This is a great way to help others while getting rid of the stuff that you have not used in years.  Do not forget to get a receipt for tax purposes and put it in the appropriate file that you made in item #1.

3.  Start an IRA or invest more in your 401k.  Begin investing for your future retirement and take advantage of not being taxed on that income. 

4. If you have children consider starting a 529 college plan for your child’s future education.  You can deduct up to $4000 for joint filers.  See Clark Howard’s web site for tips on 529 college plans.

5.  Review your W2 now and periodically throughout the year to make sure you are having withdrawn the correct amount of tax.  Remember you do not want too much taken out because you are giving the government an interest free loan on your money.  However, if you take out too little, you could be hit with a huge amount of tax that you would owe at tax time.  Turbo Tax has a good feature for helping you determine what is the correct amount to take out each pay period.

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