Whether you are repaid or in debt, you have a choice.
Tax time can be a time of new opportunities, especially when it comes to knowing what to do with a refund or, conversely, how to pay a bill.
When you get a refund
You’ve worked diligently with your tax advisor to file your refund, only to discover that some of the fruits of last year’s labor are coming back to you in the form of a refund. So what can you do with your reward? Here are a few possibilities:
- Start with a clean slate. Strengthen your finances by paying off your credit card or other non-tax debt.
- Cultivate. Make improvements to make your home more valuable, comfortable or energy efficient, or to support your children’s education.
- Enter. Invest in yourself (a new gym membership or art class) or in someone else (donate to a charity or support a family or person in need).
- The transplant. Use this money to use this year’s contributions to your retirement account or to replenish your emergency fund.
- Plan. Some people say that a repayment is just a loan that you give to the government without interest. Do you need to revise your assets to get out next year?
If you end up having to pay taxes, you need to decide how you want to do it. But before you sign a check or cash your invested assets, consider what immediate and long-term consequences these actions may have for you.
For example, liquidating assets in an investment portfolio to pay taxes can have new tax implications and affect long-term investment strategy. And draining your savings account can leave you vulnerable if you unexpectedly need money again.
Instead of assets that allow you to reach your long-term goals, consider liquidity and credit options that are based on the value of your assets or offer rewards, such as B. Cash back or redemption points. In this way, you have access to the money you need to pay your taxes, while your assets remain where they should be: invested.
Want to reduce your tax bill next year? Follow these tips:
- Maximum contribution. Take advantage of tax benefits for retirement and make contributions after age 50. Catch-up contributions.
- Crop Losses. Consider offsetting capital gains realised on the sale of securities against losses and a reduction in the tax payable.
- Let us advise you. Contact your financial advisor and tax expert to discuss tax planning.
The first few months of the year are a time of renewal, so use your tax refund wisely, or if you owe taxes, consider your long-term investment plan and borrowing options before uprooting your hard-earned invested capital.
You should discuss all tax matters with an expert.
Sarah Santana is a freelance columnist for The and Paso Robles Press and can be contacted by e-mail at [email protected].
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