Financial Resource Center

Money Management

Financial Fitness Challenge, March--Organize and File Your Taxes

by Susan Tiffany, CCUFC / March 1st, 2007

Unless you've already pulled together tax records and filed your return, March is the month to get cracking on taxes. That's your Financial Fitness Challenge this month. And looking forward--now is also the time to set up a Tax Tickler file for 2008. This can be an accordion file or a box you keep in a handy location. Put into it any document relating to your taxes, for example, receipts validating credits for energy improvements, receipts for deductible charitable contributions if you itemize, 1099 forms from various sources, and this year's tax forms. Your experience will guide you about what to include. The point is to make tax time a year from now as smooth as possible by collecting what you need all year long. Now, if you didn't have a 2007 Tax Tickler file, start digging around for the documents you need.

Tax time opportunities

Many sources can help you file taxes and alert you to deductions and credits. We want to encourage you to think of tax time not just as an annual chore but as an opportunity to review some habits. Are you getting a refund? It feels good to get money back--the average refund is more than $2,000.

Please answer two questions:

  1. Do you have credit card bills?
  2. Do you have an emergency fund to tide you over for a few months if you become unemployed?
Sorry to be a buzz kill here, but if you answer "yes" to the first question and "no" to the second one, getting a tax refund is not such a good deal. The refund is money you could have used all last year to pay off bills and to beef up your emergency fund. The good news about your refund is that you can use it right now to address those issues. So, tempting as it is to treat yourself when that check comes in from Uncle Sam, use it to relieve some financial stress instead.

Dust off your W-4

Your next task in this month's challenge--if you're getting a refund--is to visit your employer's payroll or human resources department and change your W-4 form, which establishes how much your employer withholds for taxes each paycheck. Use this calculator and the tax form you just completed to answer its questions, and see how adjusting your withholding affects your take-home pay. You could see a few hundred dollars more each month by increasing your allowances. Now it won't help much if that extra money just slips through your fingers. So take one more step, and set up direct deposit of that newfound cash to your credit union emergency fund account, every payday. Trust us--a full rainy day fund feels a lot better than a once-a-year tax refund.

Look again at beneficiaries

And while you're in the payroll office, follow up on another task that's often overlooked--review and update your beneficiary forms. Your pension, 401(k), and employer-sponsored life insurance plans may have been sitting unexamined since you first became employed. Have you gotten married or had a child since then? Become divorced? You see why we say tax time is an opportunity to review more than taxes. Remember, too, to fill out payable-on-death forms for your credit union accounts. Upon your death, the money from those accounts immediately goes to the person or persons you named on those accounts, bypassing probate. Probate proceedings can drag on for months, and the process can eat away 5% or more of an estate's value. AARP says that residents of most states can fill out a similar transfer-on-death document for stocks, bonds, and mutual funds that aren't in retirement accounts.

Did you see it coming?

Uh-oh. Here comes the Fickle Finger of Financial Fate. Just when you were all set to use that tax refund to pay off credit card bills, you bite down on a peppercorn in your salad and break a tooth. Not the kind of dental work you can postpone. What are your financial options? Tell us, and other readers--on the message board. Susan Tiffany
ST P.S. Another key action for March--do you have unclaimed flex benefits from 2007 expenses? Make sure you claim them before the clock runs out on March 31.
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