By: Dr. Daniel B. Prescott, Jr., Special NDG Contributor
This is the second of a two-part series on getting people prepared for the 2017 tax season, the deadline of which is Tuesday, April 18. The filing date is usually April 15, but because that date falls on a weekend this year, the government extended the deadline into the next week. Our goal with this two-part series is to give consumers helpful advice on how to file their annual tax returns and where to turn for assistance, if needed.
In part two, we’re going to cover some tax preparation do’s and don’ts. In addition, we’re offering some advice on what you should do if you happen to get money back in the form of a tax refund.
For the many consumers who do receive a tax refund, you should try to avoid any “rapid refund” options unless there is a pending or critical need for cash flow. Common forms include the refund anticipation check (RAC) or refund anticipation loan (RAL), typically offered to those who are unbanked or underbanked. There are upfront costs and several different types of fees included with these offerings which, in turn, could considerably reduce your refund amount. If you can wait the standard amount of time for your money, you’ll get it in full from the IRS.
If it doesn’t appear that you will be able to file your tax return by Tuesday, April 18, you can file for an extension. The deadline for completing your taxes after officially filing for an extension is October 16. Consumers can either fill out a free online form or mail in a completed IRS Form 4868.
If you are expecting a tax refund in 2017 or you do receive one, you should know at the time you finish and sign your return. Often times, this is a bit of a windfall that we didn’t expect. While it’s tempting to begin thinking of ways you can spend this unpredicted discretionary income, we’re going to offer a few pointers for that money you may not have initially considered. Assuming you are fortunate enough to be getting money back on your taxes, here are some ideas you should be considering:
Set Up an Emergency Fund
If you or your family have not established an emergency fund, you should consider this a valuable opportunity to do so. Sometimes tax refunds can run into the hundreds, even thousands of dollars—quite a bit of money at one time. But what will you do if you spend all the money and a real emergency comes up? A recent study showed that two out of three Americans can’t afford a $500 emergency in their monthly budget. If you can do it, set $1,000 aside as an emergency fund. Many financial experts believe you should eventually save enough to carry you for three to six months, if need be.
Knock Down Some Debt
If you’re able to establish a small emergency fund, you should also consider making progress on any debt payments—specifically high-interest debt. According to the Consumer Finance Protection Bureau, only one-third of Americans can pay their credit card balances off at the end of the month. If you’re able to make more than the minimum payment required, you’re making progress.
Start a Savings Program
Most people believe they don’t have enough money left over at the end of the month to save properly. Without a change in long-term behavior, this will always be the case. If you establish a true household budget and stick with it, you will be able to set money aside. The amount isn’t important; it’s the behavior. Transformance, the nonprofit where I serve as the interim CEO, has an initiative for those who qualify called the A.I.M. program. The A.I.M. Program, with assistance from the United Way of Metropolitan Dallas and Resource One Credit Union, establishes individual development accounts with matching fund deposits up to $25 each month. While that may not sound like much, the amount saved becomes $600 after a year in the program. Applicants must qualify for this assistance program and details can be found here.
I’ll leave you with this thought…a tax refund is sometimes an unexpected and wonderful occurrence. You may feel like you just won the lottery. But that’s still your hard-earned money, and you worked for it. Why not make it work for you this time around? Transformance is always available to answer your questions and assist you, either through our website or by calling 1-800-249-2227.
Dr. Daniel B. Prescott, Jr. is the interim CEO of Dallas-based Transformance Inc., a fully integrated financial services capability nonprofit. He can be reached at email@example.com.