As the tax season rolls around there are some important things to keep in mind. Last yearâ€™s average federal tax refund was approximately $3,000. Thatâ€™s a lot of money, so itâ€™s important to have a game plan for what to do with it. Itâ€™s all too easy to spend a refund on various fun things or odds and ends, so it is wise to have a plan for prioritizing where the refund money ought to go. Some practical goals might include knocking down some debt and building up savings.
Having a little fun with some of your refund money is certainly fine, but itâ€™s easy to overdo it which is why having a simple list prioritizing where your money should go is important to create. It doesnâ€™t have to be anything elaborate or fancy â€“ a simple index card or large sticky note will work fine. In fact, keeping it simple will increase your chances of success, rather than getting bogged down into something unnecessarily complex and extensive.
Those who receive a tax refund should save their money by avoiding those expensive Refund Anticipation Loans (RALs) or similar loans unless itâ€™s a true, absolute financial emergency. RALs cost quite a bit of money to get the tax refund only a week or just days sooner than normal. The cost could be well over $100, and could mean the difference of one or two weeks of extra groceries for a family.
People who receive a large tax refund but who struggle each month just to get by, living paycheck-to-paycheck, should strongly consider revising their W4 form with their employer to take home more money each month and breathe a little easier. An extra $250 a month could be more helpful than an extra $3,000 once a year.
To get free tax preparation and find out about possible tax credits and deductions, consumers can take advantage of IRS sponsored free programs. The Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs are free for qualified people. VITA services are for those with annual incomes of $52,000 or less. To find a VITA site, search www.IRS.gov, keyword VITA, or call the IRS at 1-800-906-9887. TCE programs specialize in questions about pensions and retirement unique to seniors and are free to seniors age 60 and older. TCE is operated by AARP and other community organizations. To find an AARP Tax-Aide site, visit www.AARP.org or call 1-888-227-7669
Mark Foster is Director of Education with Credit Counseling of Arkansas (CCOA). CCOA is a member of the National Foundation for Credit Counseling. Contact CCOA at 800.889.4916, or visit CCOA online atÂ www.CCOAcares.com.
Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.