058: Five Tips for Taking the Stress Out of Tax Time
As if we needed something else to stress about, the reality is that cops pay taxes too. With extra jobs, special equipment, divorces, and other unique considerations for those of us serving, we need all the help and advice we can get. In this episode, Jonathan shares five tips from a CPA that could help reduce the stress of tax time for you and your family. Who knows...you might even save money in the learning process.
1. Start Early...as in Right Now
By January 31st you should have mostly all of the necessary documents for filing your taxes. To avoid the pressures of the deadline, begin as soon as possible. With a little less than a month remaining, don't wait to file.
What most people don’t understand is that even if you file for an extension, you still have to pay any taxes by the deadline (normally April 15th, but April 18th this year). You get a delay in filing taxes, not in paying. Don’t pay by the deadline and you end up with penalties and fees. Better still, if you are expecting a refund go ahead and file so that you can get that money now.
A word about refunds. Tax refunds are not a good thing. Except in cases where welfare is built into the tax system (which is a discussion for another day), you should plan to receive no refund. The money you receive is excess money that you paid the government over the course of the year. In other words, you loaned the government your money for a 0% return on investment. Adjust your W4 so that you only pay what you are anticipated to owe. Keep your money and decide what happens with it.
2. Get Organized, and Stay With It
Spend some time this year developing a system that works to get and keep you organized. Develop a folder for medical receipts and expenses, paycheck stubs, work related expenses, childcare payments, and so on. During the year, go ahead and file any paperwork where it belongs. Keep everything in one place, and make use of a template or organizer that can be followed. If you have a lengthy tax return or a significant amount of documents, set a date on your calendar every quarter to spend a few hours keeping things in order. Also, there are many great software programs available that can assist in making the process smoother.
3. Consult a Professional to Ensure Maximum Savings
If there’s one place a person may be inclined to cut corners, taxes are that place. My Dad firmly believes the biblical mandate that we should “Render unto Caesar what is Caesar’s” (Matthew 22:21). But he also believes that we should leverage every possible benefit the IRS allows in saving money.
As officers, we are specialists in what we do. We know applicable laws and how to maneuver within the criminal justice system. Likewise, accountants are specialists in their field. The expense of consulting a professional may be well worth the savings received. There are many nuances and changes to the tax code that they understand.
Did you know that childcare expenses such as daycare or preschool could result in tax savings? Did you know that any tools and supplies that are required by the employer and used for work can be used as deductions (See Form 1040 Schedule A)? These supplies include ammunition, gun cleaners, weapons, flashlights, boots, and uniforms that are not suitable for ordinary wear. Union dues and dry cleaning expenses also count. If you are required to travel in your personal vehicle to a training class or other event (normal commute excluded), you can receive a mileage rate.
The list goes on and on. Take advantage of every deduction possible.
4. Become More Disciplined Through Financial Training
Tax time reveals a great deal about our spending, saving, and investing habits. We are often reminded how tight money is, or find out just how much a budget could really help. There are many training courses available such as Dave Ramsey's Financial Peace University that help us learn how to be more responsible with our finances. These training classes are offered to individuals or small groups, in churches, and even online.
My wife and I have been through several courses, and even on a cop's salary with several "speed bumps" along the way, we are nearly debt free. With the proper coaching, the principles are simple, but they aren't easy. They don't require complex steps, but it isn't easy to become more disciplined and change habits.
If you are desperate every year to receive your tax refund just so you can have a little breathing room or pay off the Christmas credit cards, that may be an indicator that you need to make some changes. Perhaps things are just that tight, but most of us can do much better. Get help now, and see if tax time doesn’t become less stressful.
Listen to Episode 048: Change Your Mindset and Stop Living Paycheck to Paycheck
5. Use a Tax Organizer Worksheet
Every year in January my Dad sends his clients a reminder to begin tax preparations. With that letter, he always includes a tax organizer. It includes a list of items needing consideration. This list of itemized deductions includes things like medical expenses (Rx, doctors visits, medical supplies), real estate taxes, home mortgage interest, taxes on large purchases such as a new vehicle or home remodeling, energy savings for certain home windows or hybrid vehicles, charitable contributions, educational expenses (college or technical school tuition and fees), student loan interest, alimony paid or received, investments and retirement, and more.
Several years ago, I typed a list of items that I included in our tax return. Each year, I begin with that document to make sure everything from the previous year is covered. Then, I review his organizer to see if there are any new applicable deductions. Having this organizer takes the guess-work and thinking out of much of the process. There’s no use in reinventing the wheel every year. Occasionally there are major changes in our financial situation, but for most of us the process will be very similar to the previous year.
You can find tax organizers online, and your tax professional should be able to provide you with a resource to get you organized.
Finances can be a key area of stress for anyone and any marriage, but especially for those serving in law enforcement. What have you found to be useful in reducing the stress of tax time?
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