It may be foolish to even consider writing a post about taxes in an election year (and amidst the 1,875th Republican primary debate…) but if there are only two things that you can count on in life, it’s death and…you know.
Ah, tax season. That time of year where you realize that the rich really do get richer and the poor help pay for it. Or for some, that time of year where you can finally pay down some debt or upgrade your television or just feel flush for a couple days. I’ve done taxes in good years (2011 wasn’t so bad, really) and in bad years (2010, you horrid little bugger) and a few in between, so I thought I would share a few tips for the un/under-employed to help you make the most of your money.
- Keep track of everything: Ideally, you’ve been holding on to all your receipts (yeah, right…) but if not, go back through your monthly bank statements and highlight expenses that might be deductible, specifically expenses related to job-seeking, education, donations, medical expenses, and even a move, if it’s for a job. I set up a GMail label for any expense I think I might deduct, so it’s easy to go back at tax time.
- Government aid is almost always taxed: If you received unemployment benefits or compensation, you will need to report that and pay taxes on it, unless you read my post on unemployment and had the taxes taken out in advance (a lifesaver!) However, programs like WIC or TANF or other food assistance generally are not taxed. Be sure to ask a professional or check online before filing to make sure you’re paying no more than you have to!
- No need to report wages from Bank of Mom/Dad/Grandparents/Sugar Daddy: Unless you are receiving Romney-levels of assistance, you don’t have to report gifts! Even if the gifts are at a taxable level, it is the responsibility of the giver to pay any required federal taxes. Unless you were given a gift that produces interest (stocks, bonds, funds, trusts, etc.), you have no obligation to the government. You’d be surprised, but I have friends who have included monthly parental money under wages – don’t be that guy!
- File your taxes every year: Times is rough, y’all. I get it. But for most people out there, you’re either missing out of money you could have in your pocket OR you’re setting yourself up for even greater debt down the road by not filing. If you do owe the government, ’tis better to file and set up a monthly payment plan than it is to ignore it. Trust me, it will not go away.
- Doing your taxes shouldn’t cost you an arm and leg: E-filing is so easy and inexpensive (often free on the federal level based on your income.) Unless you have a very complicated return or unusual financial situation, you can file yourself – or get a friend to help you! Take advantage of reputable sites such as TurboTax, H&R Block, etc. that will process your return quickly and get you your refund. Save time by setting up direct deposit and don’t be tricked into money-sucking options like refund debit cards (watch for hidden fees!), filing fees taken from your refund ($29.95 additional cost if you don’t pay upfront), or opening additional accounts you don’t need.
- Refunds are not bonus money: I know that tax refunds often feel like a year-end bonus – but they’re not. It’s just your money that the government has been holding on to. If you notice over the course of a year or two that you are getting significant refunds (without any major credits or unusual circumstances), you may consider having less tax withheld from your paycheck each period. Instead of a $2,500 “bonus” in April, you could be getting an extra $200 a month! It’s much easier to maintain a budget, pay down debt, boost your savings, and generally try to be a responsible adult if you’re maximizing your take home pay.
Anything that I’ve forgotten? Anyone have a crazy tax story? Or do we all just have Taxman stuck in our head now?