Saving Money & Budgeting: Taxes

I just finished filing our taxes. (Yay!) I've used Turbo Tax the last few years, and have paid about $40 to e-file. This year I used H&R Block Tax Cut through Military OneSource, and it didn't cost me anything. If you're military, and you do have to be military to access Military OneSource, take advantage of the opportunity to e-file for free!

That's great, but there's also the refund to consider. I know everyone says to reduce your withholdings so you aren't paying Uncle Sam to hold onto your money for you. I would like to do this, but you need a steady income for that to work out.

This year we're getting a sizeable return, but it's mostly because of EIC and such. Making very little money this year made us eligible for a lot more credits. Our goal for this coming year will be to have a much smaller refund, but we'll be in a different tax bracket, so it will probably take some trial and error to get just the right amount withheld so we get a small refund or owe just a tiny bit. Our money is better put to use paying off debt and sitting in our savings account earning interest for us.

When I filed, I requested a direct deposit that will take about 10 days (though I think it took less last year) to appear in our bank account. You could also opt to have a check sent via snail mail and that'll take 4-6 weeks, I think. Another option, one that I don't recommend, is to get a refund anticipation loan from the company that prepares your income tax return for you. Basically they give you the money that day or the next, and in return you sign paperwork that gives your refund directly to that company. It sounds like a great deal- you get your money right away- but it is a loan and the interest rates are quite high. As a result, you lose a chunk of money. These days, with e-filing and direct deposits, returns are received so quickly. Why pay someone else for the privilege of getting your money a week and a half quicker?

Our refund is already earmarked: we'll be using it to pay for the move, the deposit and first month's rent on a house, and our train trip to join Mr S.

If we didn't have all these moving-related expenses, and already had a steady income (so the money didn't need to be set aside to pay bills), we would be using our refund to fund our $1000 emergency fund (Dave Ramsey's Step 1) and to quickly get a chunk of debt payed down (Step 2).

If we had our debts completely paid off, we'd be putting the money into savings (Steps 3-7). Though I hope that by the time we have our debts paid off we'll have our withholdings figured out so we're not getting a huge refund.

Something not to do: using a loan to get your refund as quickly as possible, then using the money to buy a wii instead of setting it aside for bills because you don't have a job and a regular income. Yeah, I know some people who did that....