It's Tax Season! Now What?

by Ande Frazier

Financial Frequency. myCash

March 20, 2020 .2 min read

With the deadline to file your taxes just around the corner, now is a great time to evaluate your financial situation. Especially if you are getting a tax refund. 

While it may be exciting to get that refund check back from the IRS, recognize that you essentially let the government have use of your money throughout the year. Let’s look at some ways you can shift that refund to give you more protection, savings, and growth.

Consider adjusting your withholdings

When you get a refund, it means you overpaid your taxes. By changing your withholdings, you can get more money back in your paycheck.  This can be used to increase protection like disability income insurance, convert your temporary (term) insurance to more permanent coverage or increase liability coverage on your car or homeowners’ policies.  Increasing protection helps you be less exposed and vulnerable.

Maximize your HSA contribution

An HSA account is a tax-advantaged health savings account. HSA funds can be used to pay for qualified medical expenses at any time without federal tax liability or penalty. With this account, the money that you save rolls over every year and accumulates if not spent. 

This money can be spent on deductibles, long term care coverage, and more. It’s not just for immediate health care, it can be used for future healthcare costs as you get older.

Save the additional money

If you are not saving 6 months’ worth of living expenses, you should use the extra money you receive in your paycheck to build liquidity, contribute to retirement or build wealth.  Make this automatic so you don’t get used to spending the extra money.

Sit down with a professional

This is the perfect time to sit down with an adviser and make sure you are taking advantage of all the tax breaks you are entitled to receive. You may also find that as things in your life change, so should your tax and financial plans change.

A change in your family situation like divorce, death, kids growing up, taking care of elderly parents all can have an impact on your tax situation. Many people don’t realize the impact a change in their tax status can have. Going from married filing jointly to single, for example, can mean an increase in what you owe the IRS.  Don’t get caught off guard. The more knowledgeable you are, the more opportunity you have to be prepared.