This past year has been unprecedented, and it is no surprise that this tax season has been the same way. We are sitting down with TaxAct president, Curtis Campbell to discuss some of the issues facing Americans this tax season and how to navigate into 2021 with positive financial advice.
Why is this tax season one of the most unprecedented seasons we have seen?
We are indeed facing one of the most complex tax seasons in our country’s history. So many Americans faced unique circumstances in 2020 that will have an immense impact on their tax filing that they may have never encountered before. Many are dealing with reporting unemployment income for the first time, and for the first time we have had not one but three stimulus payments. The IRS recognized that taxpayers are still navigating these complexities and have extended the federal filing deadline to May 17, 2021 and to June 15, 2021 for individuals in Texas, Oklahoma and Louisiana. With this extra time, taxpayers will have more space, flexibility and confidence to file their taxes.
Although the deadline has been extended, some taxpayers shouldn’t put off filing their taxes. If you expect to receive a refund for 2020 and want to receive it as soon as possible, we highly encourage you to not wait to file your return.
Do you have advice for those struggling financially from the pandemic to get back on their feet again?
When it comes to finances, a majority of Americans (54%) say they are still struggling financially from the pandemic, and that number jumps to 65% for Black Americans. This has been an unprecedented year where we’ve experienced high unemployment and financial hardship due to the effects of the pandemic.
One tip would be to use your stimulus check wisely. The relief money could go towards paying off bills that are due immediately so that you avoid paying late penalties. This also goes a long way for your credit score which is dinged anytime you do not pay a bill on time.
Another suggestion is to use the money from stimulus checks or your tax refund to pay down any debt that continues to grow with interest. The best place to start is with the debt that has the highest interest rates.
For many, tax refunds are like a second Christmas, but is this the right mindset to have with your taxes?
A majority of people would agree, there is nothing like getting a refund at the end of filing your taxes, but from a smart financial standpoint this isn’t the best way to approach your taxes. The financially savvy would say, “why would you give the government an interest free loan?” Instead of banking on a large refund at the end of the year, look for opportunities to keep more of your money throughout the year and put that money in an account that earns interest and makes you money over the year. One way to do this may be withholding the minimum from your taxes. This will likely lower your refund at the end of the year, but it allows you to keep more of your money throughout the year instead of ‘loaning it to the government’. This is a better way to think of your taxes and what a tax refund may mean to you. Be careful though: if you withhold too little you could face an underpayment penalty.
For those that are focusing on just getting by month to month, what advice do you have to change this cycle and start planning for the future?
According to our research 64% of Americans say they are still prioritizing short-term financial needs, such as month-to-month expenses, since the start of the pandemic. For many just getting by is all they are able to do given the circumstances of this last year.
A lot of people aren’t thinking of the future of their money, and as hard as it may be, it’s something that would really benefit you in the long run. You want to compound your money so that it is growing over time. When you can, take a portion of your stimulus money and tax refund or set aside 10% of your paycheck and invest that money. In the long run this could lead to a significant financial benefit for you in the future.
What are your thoughts on savings and what advice would you give to shift the mindset of young people today?
There are many apps available today to help people keep track of their spend and understand which categories they are spending the most money on. This realization is important. For example, after tracking your spending you realize you’ve spent $300 on food delivery. After realizing how much was spent in food delivery, you could start making lifestyle changes like picking up your food yourself or start cooking at home. This then allows you to shift money from that expense into investments such as stocks, which would grow your money over time.
It’s important to organize your finances while you are young, focusing on saving and smart investing. The earlier you get started, the more likely you are paying the price alone – before starting a family and pulling from your pool of money. Capitalize on this time and make smart financial decisions – this will help you reap the financial benefits when you are older.
Information provided in this article is general in nature and may not apply to your circumstance.