Tax Time Is Here Again (April 2013)
April brings both the joy of warmer weather and blooming flowers and the pain of the IRS tax deadline. For those receiving refunds this may be happy time and the forms were filed long ago. For those facing a payment or simply avoiding filling out the tax forms, April 15th is an ominous day. The good news is that there are ways to make it less painful.
For those dreading filling out paper tax forms or paying a fee to have someone else do their taxes the IRS provides free online filing for many taxpayers with an adjusted gross income of $57,000 or less through the freefile program. For a list of companies providing this service and additional details go to http://apps.irs.gov/app/freeFile/. A few of these programs also offer free electronic filing of Kentucky state taxes as well. To view a list of companies participating in Kentucky’s freefile program along with qualifications go to http://revenue.ky.gov/FFAOffers.htm. For those that do not want or are unable to use the software available there is also free tax assistance available at various locations that can be found by dialing 211 in the central Kentucky area.
Those facing a payment to the IRS can reduce this amount next year by adjusting the number of W-4 exemptions claimed. The IRS provides a very good online calculator that can help determine exactly what exemptions need to be claimed to eliminate the payment on next year’s taxes. The most recent pay stub for all jobs held will be needed to use this calculator. This calculator is located at http://www.irs.gov/Individuals/IRS-Withholding-Calculator.
For those receiving refunds: WOOHOO! An income tax refund can be a big boost to a tight budget or a fast way to fund a major purchase. The danger is that without a plan, that extra money can disappear before it is realized. Taking a vacation, buying that new TV, or taking a shopping spree can all be acceptable things to do provided it fits in a spending plan. If bills are late, the car needs maintenance, or there is no emergency fund those things need to be made a priority. Everyone needs to have at least $1,000 in savings for those unexpected expenses with an eventual goal of having an emergency fund with 3-6 months of expenses.
For those living paycheck to paycheck it may be wise to increase the number of deductions on their W-4 so that more money is coming in on every paycheck. The first step is to understand what money is coming in and where it is going. Creating a spending plan can help reduce the fear and stress of living paycheck to paycheck. Remember, a budget is simply the process of you telling your money what to do rather than wondering where it went. If an increase of exemptions is needed, the IRS calculator at http://www.irs.gov/Individuals/IRS-Withholding-Calculator is an excellent tool to make this adjustment as well. University Of Kentucky employees can adjust their W-4 withholdings at any time through myUK or by submitting a paper W-4 form to the payroll office. The W-4 can be printed at http://www.irs.gov/pub/irs-pdf/fw4.pdf.
While specific investment and tax advice cannot be given, free counseling is available to all employees to help set up a spending plan, get out of debt, or answer other financial questions. Contact Michael Pelfrey to get started.