Tax Season is Right Around the Corner — Check Out Our Tips for Planning Out Your Refund and Savings

You only file your personal tax return once a year. Depending on your situation, filing can be easy or complicated. Many people prepare and file their own returns, but the majority of consumers still seek help from a professional tax preparer. 

If you think you will need help preparing and filing your tax return in 2018, now is a great time to start making a plan. It’s also a great time to starting thinking about how you will use your refund if you’re among the 75 percent of tax filers who will receive one. 

Preparing to file

Before you file, find out what resources are available to you.

  1. You can generally get free tax preparation assistance by IRS certified volunteers at a Volunteer Income Tax Assistance (VITA) or a Tax Counseling for the Elderly (TCE) location if you meet any of these conditions:
    1. Your income is $54,000 or less
    2. You are 60 years old or older
    3. You have a disability or speak limited English
  2. This IRS locator tool will help you find a VITA or TCE site near you. 

  3. If your income is $64,000 or less, you can use a major tax preparation software product, offered through the IRS Free File Alliance, to prepare and file your return for free.
  4. If your income is more than $64,000, you can still download free tax filing forms through the IRS.
  5. If you’re a military member or military dependent, you can get free tax help from the Military VITA program.

Preparing to save

To help you follow through on a plan, identify a financial goal and make a plan to save your tax refund. Whether your goal is to set aside some money for unexpected expenses or you have a longer-term goal like saving for education or another major expense, here are three ways that planning to save can be helpful:

  1. It may help you focus on a financial priority that is important to you but that you may not have the money to pay for out of your regular income. 
  2. Once you identify a goal, it may help you to manage your other expenses and perhaps avoid overspending on things that are not priorities.
  3. If you don’t already have a savings account or another way to save, it will give you time to set it up so that when you file your return you can automatically direct the amount you want to save to that account. 

Saving at tax time can be easy and automatic. Your tax refund provides you additional income that is over and above what you receive in your paycheck, so it may provide a one-time opportunity to set some money aside. 

While you are filing your return

Through the tax filing process, the IRS helps you to direct money to up to three separate accounts and you never have to touch the funds. You can tell the IRS to send the amount you want to save to a separate account and to send the remainder of your refund to your regular checking account or other type of transaction account, such as a prepaid card.

Be aware of refund delays

Due to changes in the tax code in 2017, the IRS is required to hold any refund that includes the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) until at least February 15. The IRS normally strives to issue direct deposit refunds for electronically filed returns within 21 days of filing. If you plan on filing as soon as tax season opens, usually in mid-January, you may have to wait a little longer to receive your refund if it includes either one of these tax credits.

Tips for managing the refund delay

  1. Prioritize all your essential bills like rent and utilities. Don’t rely on your refund to pay these bills if a delay will make you late.
  2. Try to pay cash if you are buying presents for the holidays. If you use your credit card for this and are planning on making a payment with your tax refund, remember that you may have to wait longer and could incur interest and late charges on your bill if your refund does not show up in time.
  3. If you get a little extra money from another source before the holidays, consider saving some of it so you have an emergency fund to fall back on if your refund is delayed.

 Tax frauds and scams 

Tax fraud—including when someone pretends to be you to steal your refund—is becoming more and more common. The IRS is taking a number of steps to reduce tax fraud. You can find out more information on how to spot identify theft at tax time in the Taxpayer’s Guide to Identity Theft.

Other resources

If you’re a tax preparer, we also have resources you can use to encourage taxpayers to save part of their refund

If you are getting behind on bills or having problems with debt, or if you are serving clients with either of these challenges, check our latest Your Money, Your Goals resources to help address these issues.

This article by was distributed by the Personal Finance Syndication Network.