Financial Stability Blog Series: Top Five Tips for Tax Season Part 1

2.07.2023 — LISC StoriesFinancial Stability

As a law-abiding U.S. citizen, you are required to file and pay federal taxes. The time of year that is known by many as “tax season” can be dreaded by some people, but what causes this sense of uneasiness? Could it be communicating with the Internal Revenue Service (IRS), adding and subtracting endless numbers, or simply talking about your finances with a stranger? No matter the reason for discomfort, filing your taxes does not have to be a chore at the beginning of the new year.

Our latest blog in our ongoing Financial Stability series, is a two-parter. We have some solutions in this two-part blog to help ease tax season.

Jeff Sheets, Vice-President of Financial Coaching with the Community Services League, says taxpayers get off on the wrong foot by not getting prepared before the tax season arrives.

“Sometimes we can hurt ourselves financially by not being prepared,” Sheets said. “On the other hand, if you get two-to-three thousand dollars from the IRS, you could have used that throughout the year, and used it in a positive way. You might have been able to generate more interest and have a better financial picture, rather than just letting the government have it for several months.”

The tax season began on January 23 and is expected to end on April 18. Before time gets away from you, here are the first two tax tips from Sheets to keep in mind:

Tip #1- Be Organized

Avoid multiple trips back-and-forth by collecting and organizing your tax prep documents beforehand. This includes W-2 forms and tax schedules about interest. If you own a business or are self-employed, calculate your business expenses ahead of time to prevent the stress that can come from last minute calculations.

“I notice a lot of times that people come and are not prepared. We have to say, ‘Well you don’t have this, you don’t have that’ and we need to send you off to go back and get all those things before you can process your return,” Sheets said.

The long-taught lesson that organization is key should not fall to the wayside when tax season arrives. You need to have easy access to all your financial documents prior to getting your taxes filed. Asking your tax preparer which documents and quantitative totals you need to come prepared with will not only save their time, but yours as well.

Sheets says, “Childcare expenses are typically the kind that people don’t have readily available.”

Tip #2- Understand that Taxes are not Savings!

There’s nothing like having an extra lump sum of cash stashed away for unexpected emergencies. But to depend on a tax refund check from the government is like having a “financial cushion” that ends up hurting those who see taxes as savings rather than ultimately helping their financial status.

“Some people view it as their savings, and they use it to pay off things,” Sheets said. “What I’ve seen is that sometimes people take their tax money out and they can’t pay bills during the year. Then, during tax season, they take all that money and pay off all the bills that they should have been paying during the year. In a weird way, they hurt their credit reporting because these bills might be reported in their credit history.”

Although this may sound like a preemptive measure to settle all debts after receiving a refund, the negative credit history created during the time that none of your debts were settled surmounts the large refund check and the monthly tax deductions that occurred. If you find yourself in this situation, you should scale that deduction back and use the adjusted refund you receive to stay ahead of debts that may arise.

Now that you know it’s good to have a better understanding of what your tax forms mean and what your current financial situation is, who are the best people to seek advice from? Find out what a credible tax advisor is and how to move forward with a tax reimbursement in the last three tips for tax season in the second part of this two-part blog series! Stay tuned.