How to pay less in taxes!

Tax season. A time when filers scramble around to collect various tax documents, like Form W2, 1099s, and any tax- deductible receipts they can get their hands on.

While it may be a bit too late to make many tax saving changes now, there is still one trick you may be able to pull out of the hat...a deductible contribution to a Traditional IRA. Most think the contribution must be made before they hit the send button on their return. That is not the case-

You can actually use your refund as your contribution. Just make sure to have the funds deposited into a qualified account by the filing deadline (April 18th for 2022).

A bit confused still. Let's break it down...

Don't Double Dip Your Deductions

It’s not news that many items can be used as deductions on your tax return. From Traditional IRA contributions, to donations you make to a charity, you can lower the amount of taxes you may owe by claiming a few of these.

Deducting Professional Fees

One area that often gets overlooked are the fees you pay for professional services. Did you know you can (possibly) claim the fees you pay your tax preparer and financial advisor as deductions?

How To Cheat (on your taxes) And Get Away With It

With tax filing season upon us, most of us are looking for ways to either reduce the taxes we’ll owe, or increase the refund we’ll receive.

One way to do this is to make a contribution to a Traditional IRA.

Contributing To An IRA

Making a contribution to a Traditional IRA is an excellent way to accomplish two goals. First, as long as your income and situation permits, you can claim a deduction for the contribution. The deduction ultimately reduces your adjusted gross income (AGI). This in turn lowers the amount you’ll be responsible to pay taxes on.

How Your Fund Raiser Could End Up Lowering Your Funds

Online sites meant to help can actually hurt

(Also published on The Penny Hoarder) 

My community pulled together recently to help a young father battling cancer for the second time. A local cupcakery held a fundraiser in his honor and donated $1 to his family for each cupcake sold on a particular day. The store was packed, the lines were long, and the cupcakes sold out quickly -- well, at least the triple-chocolate cheesecake ones did.

When it comes to raising money for a cause, what used to be as simple as putting out a donation jar has been made even easier -- you can ask people to donate right from their smartphones through crowdfunding sites like GoFundMe, GiveForward and YouCaring.

But does that help actually hurt you when it comes to tax time? As the recipient, do you need to claim the funds you raise through a crowdfunding campaign as income, or is that money considered a gift?

How patiently waiting for your tax refund is better than eating expired meat

A while back I wrote in my blog about watching a few episodes of Extreme Cheapskates (don’t judge…). I also made clear to point out that I could undeniably, one hundred percent, without a doubt guarantee:

• You would not see me at the park picking unknown weeds for a salad;
• I would opt for Quilted Northern toilet paper in my bathrooms rather than cutting up old pieces of cloth, which I would later launder ;
• I would not ask other diners at restaurants if they were finished with their meals, and if I could have their leftovers; nor
• Would I boil a goat’s head for dinner simply because I could snag it for $1.17

I like saving a buck just as much as the next gal, but I have to draw the line somewhere, and that somewhere happens to be right in front of eating goat eyeballs. Let’s face it, the episodes were amusing. Do I think the stories may have been slightly exaggerated for our viewing entertainment? Probably so. Does it really matter all that much? Nope. The lesson I walked away with was the same: patience, in many capacities of life, can be beneficial. In these Cheapskate’s cases, they didn't mind things taking a little extra time as long as it saved a few pennies. So why do we?

Getting a loan on your money

This is particularly true when is comes to tax refunds. The average refund in 2014 was $3,116. Of those receiving refunds, one in ten taxpayers opted for a refund anticipation type loan. And of that ten percentile, half were low income wage earners. Why are the numbers so high for this particular group of individuals? Sadly, they are the ones who typically need the funds the fastest, and usually don’t have a bank account for a direct deposit.

Using a less expensive, do-it-yourself electronic service like TurboTax gives you the option to have your refund either mailed or direct deposited into your bank account. With a check usually taking anywhere from four to six weeks, most of us choose the direct deposit method. This may well decrease the wait time to around two weeks. However, without an account to deposit these funds into, you’re at the mercy of the good ole boys at the postal service.

Paying to speed things up

Most of the larger tax preparation services offer some type of an accelerated refund product, most commonly in the form of a prepaid card. They sweeten the deal by allowing their fees to be deducted from the refund directly so the customer is not on the hook for any up-front, out-of-pocket expenses. Simply sign on the dotted line, and in a no time at all you’ll be on your way to shopping bliss.

The price of impatience

So how much does this impatience cost the taxpayer in the long run? Well first you need to understand what the service they’re offering really is: it’s a loan. A pretty big one at that! Last year Americans paid $1.4 billion in interest for these tax refund loans. Just in case you missed it, that’s billion with a “B”. But let’s not stop there. Add another $500 million in application and processing fees, and jump that number up to almost $2 billion spent on, well, time. Two to four weeks of time to be precise. I guess Benjamin Franklin was right; “Time is money”.

Other options

Walmart is offering an alternative to the refund anticipation loan called Direct2Cash. Participating partners may offer the service, which costs up to $7, at the time of filing, and the provider may opt to not charge a fee at all. Once the customer completes the filing process, they receive a confirmation code via email. They can take that confirmation code to the Walmart Money Center or customer service desk, show proof of identity, and collect cold hard cash on the spot.

What are the benefits of this service versus the traditional paper check, or prepaid card?

• No check to get lost in the mail
• No check cashing fee (a 2% fee on a $3,116 refund is $62.32)
• Issuing of an actual paper check could result in an addition fee; often $20 more
• Prepaid cards can charge fees to access your funds (H&R Block Emerald Card charges a $2.50 per ATM transaction, and a $.95 per online/mobile bill pay transaction). In addition, the ATM owner may also charge a fee.

So what are the downsides to this too good to be true service? Well, for one they limit the amount of the refund to $7,500. However, if your refund is anywhere near that amount you’re giving the government an interest free loan…and we need to talk. Next, if you've filed a joint return both parties will need to be present to collect the funds. Fair enough. Also, I’m sure the participating tax preparation partner will have fees for their services. After all, we can’t expect them to work for free. But since this isn't an refund anticipation loan, you won’t be side-swiped by those fees. Oh, and the confirmation code does have an expiration date, but since you are already paying extra to expedite things this shouldn't be a problem. Right?

Plan for next year

You can always save yourself all of this trouble, and lots of money, by simply waiting for a paper check. Once you receive it you can use it to open a savings account so next year you won’t be in such a rush to get the money you need.

Your tax return is not an annual bonus. It's not "free money" that is worth losing a percentage of just to get a portion of it faster. It's your money that you overpaid the government throughout the year. As long as so many people treat it as that way, these fees will continue to chip away at YOUR hard earned dollars.

How important do you think it is that we stop thinking of a tax return as an annual bonus? Give your opinion in the comment section below.

Disclaimer: In case I haven't made it clear...consult a tax specialist. I'm not one. I don't hold myself out to be one. Don't sue me~ 

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"Image courtesy of ddpavumba, published on 01 August 2013 Stock Image - image ID: 100188090  FreeDigitalPhotos.net"

A pig, a lizard, and a magical gun walk into a bar...

We've all seen the commercials... The flying pig, the dancing lizard, and Flo with her magical gun that allows you to name your price for insurance. But can these marketing products really claim as much savings in your budget as they have space in your memory? Maybe. Let's break it down and see...

In a perfect world, all insurance companies would offer the exact same coverage for the exact same super cheap rate to everyone. But we don't live in a perfect world. Accidents happen. Some people drive faster than the posted limit. Others need to attend a few sessions of road-rageaholics. So the only way to get the best rate is to shop around a bit.