Tax season in America is a time of great division. On one side are those who
will receive a refund and on the other are those who will owe additional taxes.
"Both sides need a plan," advises Dave Jones, president of the Association of
Independent Consumer Credit Counseling Agencies, Fairfax, Va. "Those receiving a
refund should make the most of their money and those who owe need to figure out
how they will pay."
AICCCA says consumers looking forward to a refund should resist any refund anticipation offers and sales and save at least a part of the amount received. Following are suggestions to save refunds wisely:
Tackle your debt. In particular, take a look at any credit card debt you have and work on paying off the highest interest rate cards first. The amount you will save in interest payments can be quite substantial.
Build an emergency savings cushion. High credit card debt often is the result of not having cash on hand to take care of emergency expenses, such as car repairs or appliance replacement. Use your refund to get started.
Finance your future. It never is too late to start saving for your retirement. Use this opportunity to make savings a priority, so that you pay yourself regularly and watch your savings grow.
For those consumers who must pay, AICCCA offers these tips:
Determine how much you owe. You do not have long to come up with the money, so you need to know your liability.
Go to a bare bones budget. Cut back on eating out, entertainment, and other nonessential spending. Consider selling items through a garage sale or online auction.
Look for the best terms if you must borrow. Your options are a personal loan, an IRS installment plan, or an IRS approved credit card. You also can apply for a short term payment extension online for no fee if you can pay in full within 120 days.
Filing on time is important for both sides, as is an annual W4 form review. Large refunds mean giving Uncle Sam an interest free loan every year. Decrease the amount you are withholding by increasing your deductions and earn that interest for yourself. If you consistently owe, decrease your deductions. You will bring home less money each paycheck, but it will be less painful than coming up with a large amount at tax time next year.
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