I hope your federal and state income tax returns have already been filed ahead of Monday's deadline, and that they weren't too painful.
Even for those who use tax preparation software or pay for the services of a tax preparer, it's never any fun — all those records and forms, not to mention the uncertainty this year following all the changes in the federal tax law that took effect near the end of 2017.
I know some folks got big surprises this time, either owing unexpected amounts to the IRS or getting refunds smaller (or larger) than expected from Uncle Sam.
If you've finished with your returns, you might not want to even think about them until next year. But that would be a mistake. Now, while the details are fresh, is the time to take a few steps to improve your personal finances and make the next tax season as stress-free as possible.
- Now that you know how the changes in tax law affected your tax liability or refund, it's time to check your paycheck withholding, if you work for wages. See what's coming out of your paycheck for state and federal taxes, and adjust if needed so that there should be no big surprises a year from now.
- Did you get a large refund? That's a great opportunity to start or add to an emergency savings fund. Having a cushion of cash set aside can make an unexpected car repair, medical bill or temporary job loss less of a crisis. Over time, try to build up savings equal to several months of your income. And then save more.
- Were you counting on a federal refund to catch up on bills? Paying off credit cards or overdue bills is a good use of funds, but running up debt and counting on a tax refund is a bad habit. This would be a good time to review your budget, and figure out how to spend less than you earn.
- If you have children who were under age 17 on Dec. 31, you got a larger tax break than before — a $2,000 credit for each child, unless your earnings were higher than the newly raised cap ($350,000 for a married couple filing a joint return). As you plan ahead, remember that each child who reaches age 18 this year adds $2,000 to the tax you will owe the government, due to the loss of that credit.
- If you have children in college and have been claiming the up-to-$2,500 American Opportunity Tax Credit, that's another big one that you can only claim for the years you qualify. So, if your college student is graduating this year, congratulations, but remember your tax bill will get larger.
- Did you learn some new things about the tax code, while preparing your taxes? Such as there being zero tax on the profit from selling a stock, if you owned it for more than a year and your income was no more than $38,600 (or $77,200 if married filing jointly)? Knowing the rules can help, financially.
Finally, don't forget record-keeping. We all know we need to do it, but sometime things just pile up, and then there's a box full of receipts and statements to sort through come March or April. Consider the things that made preparing your taxes more challenging and create a plan for 2020. You'll be glad you did next spring.