Financial Stability Blog Series: Top Five Tips for Tax Season Part 2

Our Financial Stability blog series continues with part two of the Top Five Tips for Tax Season. In the first blog of this two-parter, we discussed the value of being organized and understanding that taxes are not savings. This time, we’ll take a look at how to seek financial advice and more. Read on to glean the remaining three tips from Jeff Sheets, Vice-President of Financial Coaching with the Community Services League!

 Tip #3- Seek Credible Tax Advice

Among the various topics that the general public likes to avoid, personal finances may sit high on the list. Discussing your assets, yearly salary, or even credit score with those who are not immediate friends or family can be a touchy discussion. Having that conversation with transparency, though, can ease the process of filing your taxes long before the season approaches.

“People hate to talk about finances,” Sheets said. “I say this to my staff, ‘If you get somebody to tell you about their tax debt, tax problems, or financial situation, you’ve basically unlocked a key into somebody’s life. That opens a door to everything else because it’s probably the number one thing that people will not talk about.”

The reality is that everyone is not knowledgeable about the specifics regarding  filing taxes, so it can be helpful to accept help from experts. It can be good to admit that you need assistance.

“A lot of times I feel like people think they’re being judged and that they’re not doing a good job,” Sheets said. “I think we all have an expectation that everybody else does well, but I don't. We have to get away from that because everybody has some struggle financially, I don’t care who you are. Sometimes, we need to go to people and ask them ‘What’s the best solution for my problem so that I can solve it and not have to worry about it again?’”

Sheets says you want to ensure that the people and places you go to with financial questions and tax forms can impart reliable advice. The Community Services League, among  other nonprofit organizations, have experts whose job is to provide financial guidance without judgment. The organization’s advisors seek to help people move forward and become more comfortable with their financial situation, such as Sheets, who has worked in financial counseling for nearly six years

Not all advice is good advice though, so examine those that you ask for help.

“Friends and relatives probably are not the best people to go to,” Sheets said. “Unless they are somebody who has a category in financial management or is involved in taxes and works with them. The one thing I love about the VITA program, specifically, is that we are free. We save people a ton of money, because if you went to a normal tax preparer it might cost you two, three, or four hundred dollars. If you go through VITA and we do your taxes, you just saved that amount of money that you’re going to have back in your pocket. It’s a win-win for consumers if they fall under the guidelines for VITA.”

Tip #4- Use Your Tax Refund, if any, Positively

Another perspective to financial planning is having the discipline to use extra funds the right way. It is not wrong to build a savings account and stow away funds in a safe place, but it is possible to allow extra money to “work for you.” In this instance, extra money gained from a tax refund can be put towards one of your long-term goals, such as buying a new car.

“If you are getting a refund, do something positive with it,” Sheets said. “Make sure that you’re not just putting it into a savings account and dwindling it down. Use it for goals. If you have a mass amount of money, let’s say $2,000, let’s take 50% of it and put it in an account to go towards an expense, like buying a new house.”

The absence of a huge refund check does not indicate that you’ve lost an opportunity to make a profit. You’ve simply done your duty as a taxpayer once you have filed for the year. This can be within 100 to 200 dollars for a reimbursement from the IRS.

Sheets said, “I’ve always tried to tell people that the best thing to do is break even. That means you have access to all your funds throughout the year. You really don’t want to have a lot of money coming to you at tax time but if you do, then there may be things that you want to do with it. My goal every year is just to break even.”

Tip #5- Do Not Fear the IRS

The IRS, for decades, has been viewed as both a structured service to collect federal taxes or a   portion of the U.S. government that audits citizens at random to later take their assets and finances. No matter what side of this spectrum you fall on, Sheets says that “it’s long since gone that they're trying to levy, and the main thing is staying in contact with them if you cannot pay the amount that’s due, just like with any creditor.”

According to the Statista Research Program, about 59.9 percent of U.S. households paid income tax in 2022. The remaining 40.1 percent of households paid no individual income tax. In that same year, about 47.1 percent of U.S. households with an income between 40,000 and 50,000 U.S. dollars paid no individual income taxes. Of that 40.1 percent, the effects of not paying taxes at all or simply choosing not to file can result in consequences.

“Whenever you don’t file, there’s a cost that the IRS assesses based on the number of years that you don’t file,” Sheets explained. “If you’re going to get money back, then why didn’t you file? If it’s because you know you’re going to owe, we want to make sure that we’re staying current and that’s where the IRS would be more likely to come after you – if they find that you haven't been filing for years and years.”

All five tax tips – from this blog and the previous one –  are not in any order of importance, but to be used as needed, prior to the busiest time of the tax season. File your taxes, as this fulfills your obligation as a U.S citizen and will help you in the long run. Your newly acquired skills may further advance your financial planning and annual budget.