Tax-time saving tips

Saving while filing your tax return is easy and can be automatic. It can also help you be prepared for financial emergencies and begin to plan for the future. If you’re feeling like you just can’t get ahead, saving at tax time may help you get started.  

According to a 2016 report from the Federal Reserve Bank, 46% of consumers indicated that they either could not pay for an emergency expense of $400, or would need to borrow or sell something to do so. You can take advantage of tax time to prepare yourself for unexpected expenses, or plan ahead for the future.

There are three great reasons why tax time may be one of the best times of the year to plan for saving:

1. Setting some money aside in a separate account can help ready you to deal with unexpected expenses. It’s also a great way to start meeting some of your longer term financial goals, like saving for retirement.
2. If you’re getting a refund, it may be the single biggest lump sum you will receive all year. This is especially true if you have paid in more taxes than you owe, and if you are eligible for refundable tax benefits such as the Earned Income Tax Credit.
3. Saving while filing your return can be an easy and automatic solution. Filing your return electronically and using direct deposit will help you get your refund into savings quickly and safely.

Here are some tips to start saving with your tax refund:

• Plan in advance to save some part of your tax refund. It’s likely that you already have plans for what to do with your refund – many people do. But if you plan to save part of your refund, maybe 25 percent, it could help you down the road when an emergency occurs, or you need a little extra cash to meet a financial goal.
• Use a separate account for savings. There are many options to choose from, including a regular savings account with a bank or credit union, an IRA for retirement, a savings bond, or a savings wallet on a prepaid card. Review your options and choose the most convenient way to set aside your savings. Then, set it up in advance so you’re ready to use it during tax time.
• Automatically deposit some of your refund into a separate account when you file your return. If you’re receiving a refund, use IRS Form 8888 to opt for “split payment,” getting the IRS to put the part you need right away into your checking account and the rest into a separate account designated for savings. Don’t forget to take your savings account information with you if you visit a tax preparer or free tax preparation site.

There are a number of easy steps you can take to make sure you get every dollar you’re eligible for from your tax refund, including the following:

• If your income is $54,000 or less, if you are 60 years old or older, if you have a disability or speak limited English, or if you’re a current or previous member of the military, you should be able to get free tax preparation assistance at a Volunteer Income Tax Assistance (VITA) location near you. This locator tool will help you find one.  
• If your income is $64,000 or less, you can use the IRS’s Free File online return prep system. If your income is more than $64,000, you can still download free tax filing forms through the IRS.

Be aware of potential tax fraud and scams: Tax-related identity theft – where someone uses your stolen Social Security number to file a tax return and claim a fraudulent refund – is becoming more and more common. The IRS is taking a number of steps to reduce identity theft, including this free Taxpayer’s Guide to Identity Theft.   

Adapted from this piece by the Consumer Financial Protection Bureau.

FOR MORE INSIGHT

On saving at tax time
How to owe nothing on your federal tax return (Investopedia)
Free tax return preparation for qualifying taxpayers (Internal Revenue Service)
Free file: Do your federal taxes for free (Internal Revenue Service)
Earned Income Tax Credit questions and answers (Internal Revenue Service)
Free File Fillable Forms (Internal Revenue Service)

The content on missionmoney.org provides general information and does not constitute legal, tax, accounting, financial, or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information; do not endorse any third-party companies, products, or services described here; and take no liability for your use of this information.