CPA Jamie Block of the New York State Society of CPAs discussed some effective ways to use your income tax return Monday on News 8 at Sunrise.
Block said avoid the temptation of spending your return on a vacation if you are carrying debt. “The most important thing to do is to pay off those high interest debts, such as credit cards,” she said.
If your credit situation is in check, Block said it’s good thing to prepare a rainy day fund. “If you haven’t done so already, it’s a really good idea to have an emergency fund,” she said. “Now, the industry standard is about three to six months. This is money that you’re going to use if you’re laid off, and you need to bridge that gap until you find a new job. So, if you think it will take longer to find a job, you might want it to be even larger. And this money is not used for emergency vacations. It’s really for things like a major car repair, a leaky roof, and also for layoffs.”
As much as it’s nice to get a big chunk of money, Block recommended setting up your withholdings to avoid a large tax return. She said that’s not the way to go. “In my opinion, it’s really not, because the government gets to use that money during the year, when you could be,” Block argued. “So, what you can do is talk to your payroll department, and fill out a W-4 for the federal withholding, or an IT-2104 for a New York State withholding to have less taken out of your paycheck. That way you get the money yourself. Now, it’s also a very good idea to put that away into a savings account so that you don’t spend it immediately, if you’re trying to save up for those vacations.”
Block recommended e-filing your tax return for a speedier refund, and also clarified what to do if you owe the government money. “The nice thing about owing money is that you don’t actually have to pay until the due date of the return, so you can file your return in January, and not pay it until April,” she said.
Block noted if you’re uncertain about any aspect of your tax return, consult a trusted CPA. For more information, visit the New York State Society of CPAs website, click here.