Wednesday, April 21, 2021

Finding Flow With Your Taxes

Recently, I've spent a significant amount of time preparing taxes for individuals.  So, it's certainly been on my mind, and it's an area of resistance for a lot of people.  It most certainly doesn't have to be that way.  In fact, it is even possible to find flow with your taxes.  So, here are a few thoughts about ways you might find flow in the tax arena.  Now, it's important to remember that these ideas are for educational purposes.  I am not your tax professional, and you will certainly want to discuss any tax moves you make with your own tax professional.

A Tax Professional:

I know there are a lot of DIY types out there, but there is something to be said for working with a tax professional.  Furthermore, finding someone that you like and feel comfortable talking with will make for a significantly better experience.  Not only with this person help you get the best possible result on your current tax return, but they can help offer you valuable tips.  A tax professional can evaluate your personal situation and make recommendations for you going forward. Not only can this save you money, but it can help relieve you of a lot of stress.

There's also a tremendous benefit to finding a tax professional that you like working with because you have the opportunity to grow with this person. As time goes on, our tax situations change and often become more complex.  If you have a professional in your corner that you continue to work with, they're going to fully understand your situation and how you might best get your long-term needs met.  Furthermore, if something out of the ordinary comes up during the year, you will be able to make contact right away and learn about the tax implication.  This can help save you a lot of money and stress later.  I mean, isn't some of the resistance of tax-time related directly to the unknown?  If you can anticipate what will happen, and demystify the process of your future income tax return, you can relax.

Owing Taxes:

There's a lot of resistance that comes with the idea of owning taxes.  It's stressful, right?  Everyone is afraid of coming up to the end of the year and having a huge bill.  Well, that might happen once, but it doesn't need to happen a second time because there are things that you can do to relieve yourself of that fear.  If you owed taxes the previous year, and suspect that you will again, you could make estimated quarterly tax payments.  In fact, if you do work with a professional, they can get you set up for this easily.  They'll even give you little coupons with specific dollar amounts and dates on them.  Then each quarter, you simply mail them in and save yourself a larger bill later.  

I do understand the resistance to making quarterly estimated payments though.  I've struggled with that issue myself.  One way that I simplified this for myself is by changing the withholding at my employer.  I simply divided the amount I owed the previous year by my number of paychecks throughout the year and increased the withholdings appropriately.  This result wasn't perfect, but it got me much closer to even, and I didn't have to remember quarterly payments.

Breaking Even:

I know how much people love to get a big fat tax return back at the end of the year.  If that brings you joy, I certainly don't want to detour you.  But I would like to offer you an idea.  What would you do if you had a little extra money in each paycheck? I bet you could find some really great ways to use a little more money in your budget each month.  I know I could!

If you are getting a big refund, that essentially means that all throughout the year, you're giving the government an interest-free loan.  While I'm sure they appreciated that, as I said before, you could probably find a lot of things to do with those funds.  By doing your best to plan for breaking even, you can position yourself to take advantage of your money throughout the entire year!  My partner and I try to do this because every dollar in our budget has a job to do.  In fact, my partner did such a great job of anticipating and adjusting that she owed something to the tune of $23 federal and got roughly $9 back from the state.  That's pretty close to perfect.  Now, she won't have any huge refund coming, but she's been able to save and invest more all year long and take advantage of gaining the interest herself.

Remember Your IRA:

I can't help but add this one in because it presents such an opportunity...   I hear a lot of people beat themselves up for not saving more in the past.  Your IRA represents one thing that you can do to rectify inaction in the past.  Each year, you have the ability to contribute to your IRA for the last year all the way up to the filing deadline.  Since 2020's filing deadline has been moved to May 17th, you have until then.  In order to maximize your own peace of mind, it would be really nice to get a system of regular contributions worked out, but if you haven't yet done so, you can still make up for the past (at least a little)!

When it comes to finding your flow with your taxes, it's a series of little things that really add up.  A few tiny little steps can really help ease your own mind, help you maximize your overall financial wellbeing, and establish habits going forward that are positive and flow with ease.  

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