The holiday season is well underway and tax season won’t be far behind. We’re focused on helping our Members save money and maximize earnings. So, we compiled a list of resources that may be helpful as you prepare to file your taxes. Some of these are unique to Arizona while others apply to the broader United States population. We’re not offering tax advice, but we do want to share some links that we think might be useful.
Arizona Charitable Tax Credit
How could we not start with the Arizona Tax Credit? It’s an incredible opportunity that many Arizona residents can take advantage of. Here’s how it works: “The state of Arizona offers its taxpayers the opportunity to make contributions to schools and non-profit organizations that reduce the amount of tax owed to the state or increase the amount of the taxpayer’s refund, dollar-for-dollar. There are three main communities tax credit donations serve, and donors can contribute to any or all of them” (azcredits.org).
Maximize your deductions
In addition to the Arizona Charitable Tax Credit, there are certain donations you can make that may reduce your taxable income. Investopedia explains it this way:
“Charitable donations of goods and money to qualified organizations can be deducted on your income taxes, lowering your taxable income. Monetary donations can be deducted up to 50% of your taxable income and non-cash donations up to 30%. If you don’t have a lot of cash, there are still many opportunities to donate and [potentially] save money on taxes at the same time.” (Full article here.)
Limit your tax refund amount
Some people think of their tax return as a surprise bonus to start the new year. But is that really an accurate picture of what the return is? When you think about the terms – tax refund or tax return – you see that this check is not truly a “bonus.” It’s actually the government giving your own money back to you.
How does this happen?
One major reason many Americans receive a tax return is that their W-4 does not match their actual withholding status. The Washington Post columnist Michelle Singletary explains it well (“Why you should love that tax refund less”):
“As a wage earner, you’re required to pay federal income tax by having it withheld from your pay throughout the year. This is your tax ‘withholding,’ which is based on the number of allowances you claim on your W-4. You’re in an ‘overwithholding’ situation if too much tax is withheld, resulting in a refund when you file your tax return.”
How can you fix it?
Since the reason you might receive a tax refund is because too much is being withheld from your paycheck, experts recommend reducing your withholdings to decrease your return. NerdWallet recently published an article explaining how to fill out the W-4 form (here). On a related note, NerdWallet also shared a list of 12 ways that you might cut your tax bill (here).
If you do get a big tax refund, what should you do with it?
Some people head to the mall or their favorite online retailer. Others go on vacation and others pay down debt. What is the most beneficial way to use your tax return, should you get one? Experts hold a variety of opinions, and while we’re not telling you what to do with your money, we will recommend that you consider doing something that complements your financial situation and plans.
Here are some resources you might explore:
- AmericaSaves.org: Saving at Tax Time article
- TheBalance.com: 8 Smart Ways to Invest Your Tax Refund article
- TurboTax.Intuit.com: Library of Investments and Tax Tips
Some suggestions from The Balance include:
- Meet the match on your workplace retirement fund
- Fund a Health Savings Account (HSA)
- Contribute to an Individual Retirement Account (IRA)
- Consider other investment options
- Pay off high-interest credit card debt
- Start a savings account or add to your savings account (you never know when you’ll need it)
Each option delivers various opportunities for tax benefits. Depending on your financial situation, some of these opportunities might make more sense now and less sense later.
If you’re not sure how to figure out what is best for your situation this year, we invite you to set up a Financial Review. This free service is available to all Vantage West Members. Just like checking your credit report on an annual basis, a yearly financial review will help make sure you are on target to achieve your goals. Just visit VantageWest.org/Financial-Review and fill out the form at the bottom of the page. Select the most convenient branch for you, and a Vantage West Financial Representative will connect with you.
No matter where you find yourself this tax season
We wish you the best and are always here to help you however we can!