PHOENIX (3TV/CBS5) -- Kelsa Dickey is a financial coach here in the Valley and she says tax preparation during this time of year can cause a lot of mix emotions. To complicate things, she says, this tax year is more complex than previous years. “This year is definitely a unique year because it's the first time everyone is filing under the new tax laws that took effect last year and no one really knows what to expect,” Dickey told 3 On Your Side.
With that said, her first suggestion is to meet with an accountant to learn about some of this year's tax changes and how they affect you and your wallet.
Next, if you're expecting a tax refund, have a realistic plan of what to do with the money you're getting back. Dickey recommends using something called the 90/10 rule for any tax refund. So 90 percent of it, you make financial progress with and the other 10 percent you get to enjoy,” she said. “Or, it can be your fluff money. It might actually keep you encouraged to making that financial progress if you know that not all of it has to go to something more serious.”
Also, Dickey says if you're getting a large refund, consider changing your what you withhold on your paycheck. That way, your paycheck will be bigger every pay period. Just make sure not to spend the extra money. It's easy if you divert that money away from your main checking account where you pay bills and other expenses,” she said. “Really try to automate some sort of system where it’s completely separate.”
Before paying off debt, consider any upcoming expenses that might be looming in the future. For instance, car or home repairs, or potential medical expenses. Those are things you need to be prepared for. “Otherwise, if you take all of your refund and pay down debt with it and then those things pop up, and you don't have the money for them, you will end up putting those expenses right back on a credit card and that can be very emotionally damaging.”
And what happens if you owe money? Dickey says don't panic. Simply change the withholding amount on your paycheck and contact the IRS to get on a payment plan. "Of all the debts you could have, the IRS is probably the least favorable of all of them,” she said. ‘It is not going away.”
And finally, Dickey says it's never a good idea to rely on that tax refund because you might have a rude awakening. “If you are always holding your breath waiting for that refund, or feeling like that's the time you're going to make financial progress, and sometimes you can’t. It's one time of year and we don't always have control over it, especially when tax laws change.
And remember, be very cautious about any companies promising they can reduce you IRS debt. Dickey says tax laws are applied evenly to everyone and there’s no secret way of lowering you tax debt.
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