File Your Tax Return and Get Ahead Financially
- Beginning January 24, 2022, people can start filing their tax returns for the 2021 year.
- When filing your tax return, there are multiple ways you can maximize your tax refund.
- It is essential to use your tax refund appropriately and maximize your wealth using some methods listed below.
On January 24, 2022, people can begin filing their federal tax returns for the 2021 tax year. Individual income tax preparation can be tricky, and it is essential that all of the values included when filing your return are accurate. As tax filing is one of the most stressful and important times of the year, it is essential to file and maximize your tax returns. By filing your tax return early, you’ll be able to organize your finances and get ahead.
If you haven’t already, it’s a must to file any past-due tax returns like your 2020 tax returns or 2019 tax returns.
What to Include in Your Tax Return
When initially filing your tax return, it is essential to have the basic tax documentation to reflect your earned income accurately. Various documents are needed; however, the basic ones that everyone needs are personal information, such as your social security number, papers regarding your employment status, and the number of dependents under your household.
If you wish to view the full list of all the proper tax documentation needed, click on the link here.
File Your Taxes and be Aware of Identity Theft
There are two essential things to note when filing your taxes. The first thing to note is if you fail to file your taxes before the April 18, 2022 deadline, you are subject to a penalty and interest on any taxes you failed to file. Thus, if you wish not to receive a penalty/interest, file your taxes on time.
Secondly, there may be instances where someone may try to use your identity when filing taxes to try and gain access to your tax refund amount. If this does happen, continue filing your taxes and contact the IRS immediately. Explain to them that you feel someone is trying to get access to your personal information and your tax refund, so they can expedite the process and help you get your tax return quicker.
Recommended Read: Protect Your Personal Information From Scammers
How to Maximize Your Tax Refund
There are a couple of techniques that you can use to increase the amount deposited into your bank account. Below are a few ways you can legally maximize your tax refund.
Claim the Recovery Rebate Credit
The Recovery Rebate Credit is when the IRS deducts any stimulus amounts outstanding from your tax return to reduce the amount owed or increase the amount refunded. If you missed a stimulus payment or did not receive the full amount, this applies to you when filing your tax return, which allows you to retain more money.
Furthermore, if you conceived a child in 2021, you are eligible for another stimulus check.
Claim all Dependents
Another way to maximize your tax refund is by claiming all of your dependents. The more dependents you have, the more money you are entitled to when tax returns are prepared. One of the most common dependents is having a child. You can claim the child tax credit for each dependent child that lives under your household, which vastly increases your tax return amount.
Take Advantage of Your Tax Returns
Contribute to Your Emergency Fund
One of the most important financial online accounts you need is an emergency fund, as it helps you pay for unexpected expenses. An emergency fund is at least three months’ worth of expenses set aside in case of any financial surprises like a medical emergency, job loss, or car repair. Thus, use a portion of the tax refund amount to either start or contribute to your emergency fund account.
Saving your money for a potential emergency will lessen the financial anxiety that most people will likely experience when they do not have enough money to cover major expenses.
Save for Retirement
Furthermore, another critical thing to do is to use a portion of your tax refund to save for retirement. One key issue some people make is that they start saving for retirement too late, resulting in insufficient money to live on during retirement. Thus, setting money aside for retirement through an IRA account or investing in the stock market will allow it to accrue compound interest and eventually lead to living a comfortable life during retirement.
Image Credit: insta_photos / Shutterstock.com
The 50/30/20 Budget Rule
Lastly, having a budgeting plan in place will aid you in achieving your financial goals and becoming financially stable. Thus, one budgeting method proven to be successful is the 50/30/20 budget rule.
This budgeting plan states to put 50%, or half of your income, or in this case, your tax refund amount, towards living expenses, rent, utilities, and groceries. Furthermore, another 30% should be spent on items you want. These items may include shopping trips, monthly subscriptions, and eating out. Lastly, the remaining 20% would be used for financial goals, such as a new laptop, car, or house.
Image Credit: Ariya J / Shutterstock.com
It is important to note that whatever portion of your disposable income is not needed, it is a good idea to invest it as it could be worth much more in the long run when you may need it.
As the tax return process could become complicated, by following the steps above, you maximize the chances of your process going smoothly and ensure that you will use the money returned to improve your financial status.
Main Image Credit: Antonio Guillem / Shutterstock.com