So you survived filing your taxes. Congratulations! Most of us do not enjoy the process but it is an important part of managing your personal and business finances.
Filing taxes is just the first part of the equation - following up with a thoughtful plan to use your refund or pay what is owed to the IRS is the next step. It is also important to take the time to plan and prepare for next year’s taxes.
If You Got a Refund
It is important to make a plan for what to do with your tax refund before the funds post to your account. Spending it without planning first is a recipe for regret.
Make a plan for your refund that aligns with your financial goals so that the money doesn’t burn a hole in your pocket. If you haven’t given any thought to your financial goals or if you aren’t quite sure where your personal finances stand, take the Financial Wellness Assessment. (Financial Wellness Assessment (teachbanzai.com)
Great uses for your tax refund include:
paying down debt
saving for a high-cost need (think new HVAC system or car repairs)
After filing your taxes, the next step is to make a payment plan. This doesn’t need to be overwhelming as there are many options available to you if you cannot pay the full amount right away.
If you can’t pay immediately, it is possible to request an extension. The IRS grants short-term extensions of up to 120 days to pay the full balance. They do charge a .5% penalty for each month there is an unpaid balance, but the extra time may be well worth it.
The IRS also offers installment agreements where a monthly payment over several months is set up. This is a popular but high-cost option as the IRS charges a setup fee, penalty fees for late payments, and interest. For more information, go to the IRS website. (Payment Plans Installment Agreements | Internal Revenue Service (irs.gov)
Another option is to consider taking out a personal loan. It is worth comparing the fees and interest rate on an IRS installment agreement with the rates of a personal loan with Chesapeake Bank. For more information and to apply for a loan, contact your local branch.
Plan for Next Year
Regardless of if you received a refund or owed taxes for 2021 you should plan ahead for the 2022 tax season.
Set aside all of your tax documents from this year in a safe place in case you need to refer to them. A simple file folder will work well to keep your sources of income forms (W-2, 1099s etc.), Information on your stimulus payments, and deduction information (like receipts) together and organized.
If you will owe taxes again next year, now is the perfect time to start setting aside funds to pay. Setting a savings goal to meet each quarter will ensure you are saving enough while staying on track. Visit your Chesapeake Bank branch to open a savings account and set up automatic transfers into the account for your taxes.
While tax season isn’t everyone’s favorite time of year, it is important to follow through after you file to make the most of your return and to take advantage of all of your payment options if you owe the IRS. Planning for taxes with your financial goals in mind will provide you with peace of mind and the confidence to conquer taxes again next year.
