When I originally thought about writing this blog, it was mid-March. My initial thoughts were to focus on what to do if one did not meet the tax deadline of April 15, but COVID-19 has changed everything.
Every year, there are individuals that wait to file their taxes until April 15, but with the new extension many will wait until July 15, 2020. Due to the extension there are a few things to consider if you decide to delay filing your taxes.
When thinking of when to file taxes there are a few things to keep in mind. For example if you are expecting a refund or typically get a refund you may want to file sooner rather than later. In other words, get your money back as soon as you can. Even if you file now, you can pay later (July 15) if you owe money to the IRS, it is good to file early because once you get it, you have it, and you can cover current expenses or even save it if possible.
The America Saves initiative provides some suggestions as to what to do with your refund. Some items to consider include paying debt, creating an emergency fund, saving for financial goals, and retirement.
When paying down debt, you should come up with a plan. Some people prefer to pay their highest interest debt (debt avalanche method), while others prefer paying their smallest debt first (debt snowball method). Doing research to find which method works best for you can help you figure out how to use your refund money effectively.
Utah State University Extension has a great program called PowerPay. It assists in developing a debt elimination plan. A good rule of thumb is “when you get out of debt, stay out.” You shouldn’t pay off one debt just to start another.
The next item to consider is an emergency fund. An emergency fund should cover three to six months of expenses and can come in handy during times of crisis like this pandemic, or if you find yourself in a situation where you lose your job. Financial goals and retirement are your mid- to long-term plans. It always feels good to jump start your goals with a tax refund.
Another reason to file early is to avoid identity theft and scams. The longer you wait the more chance you are taking that someone else will file your taxes without your knowledge. The IRS has a site that focuses on identity theft. If you have been a victim of identity theft, visit the Federal Trade Commission’s website.
If you have not filed your taxes yet, the IRS has some free file options depending on your income. For more information, click here.
For information about the tax filing extension visit the IRS Coronavirus Tax Relief and Economic Impact Payments website. Many states extended deadlines, so check with your state about any changes.