While tax season may never be considered the most wonderful time of the year, it can be the perfect time to take inventory of our financial lives and start new habits that can be beneficial year round.
Here are 3 tips that can help you improve your tax filing process and personal finances at the same time!
1. Be Organized. If your financial documents aren’t in order, how can your financial life be? To take advantage of every tax deduction possible and potentially get a refund for your troubles, you’ll need to have all pertinent information on hand.
One way to get organized is to create folders for keeping track of your important tax documents all year round. An “Income” folder might include income statements like W2s if you’re an employee and 1099s if you’re a contract worker or freelancer. A “Deductions” folder would hold proof of deductions like childcare expenses, mortgage interest statements, business travel receipts or even work-related education expenses. Check out the Internal Revenue Service’s Itemized Deductions site for a complete list of eligible deductions. Lastly, a “Charitable Contributions” folder can help you keep track of any tax write-offs you may have if you gave your cash, property or stocks to a qualified organization. With organized files, you’ll have everything you need when it comes time to do taxes.
2. Be Alert. If you want to capitalize on tax credits that can reduce your tax liability or boost your refund, it’s important to stay aware of what scenarios can keep more of your hard-earned money in your wallet.
For example, the Earned Income Tax Credit is one to look out for that can be worth $6,269 for people who earned less than $47,955 in 2016 from wages as an employee or net earnings as a self-employed person. But, 1 in 5 Americans who are eligible miss out on it every year. If you’ve had a change in your income, addition to your family or are dealing with a disability in your household, you may now qualify for the EITC even though you haven’t in past years, but it’s up to you to stay alert and ask about any credits you may be eligible for.
3. Be Strategic. You may know that filing electronically can speed up your tax refund by about 10 days on average, according to the IRS. But did you know that if you sign up for direct deposit of your refund, you can actually split the funds into up to three different checking and/or savings accounts? This means, before you even know the amount of your refund or get any money in your hands, you can take time to determine different strategic options for each of those accounts. You could designate one to beef up savings and use the funds from another to zap down some credit card debt.
But what if you’re not getting a refund? If you end up owing money, there’s still opportunity to be strategic about it. Instead of paying everything at once when you may not be in a position to, consider setting up a monthly installment plan with the IRS to help you keep within a manageable monthly budget while taking care of those taxes owed.
Doing your taxes is inevitable. But keeping up on your finances and important paperwork throughout the year can help you get through tax season and beyond with a little more ease and confidence.
This material is meant to educate and not to provide tax, or investment advice. PNC Bank does not provide tax advice. If you need tax advice, please seek a professional tax consultant.