What Could You Do with Your Tax Refund?

During the month of March, the COMPASS blog is providing space for questions, guidance, ideas and reflections related to taxes. Today we welcome Grace Duddy Pomroy back to the blog to share her reflections. Grace currently serves as Executive Director of Operations at Kairos and Associates. Grace shares thoughts about what you could do with your tax refund, if you receive one.

If you receive a tax refund in the mail, it might look something like this.

If you receive a tax refund in the mail, it might look something like this.

This past week I was listening to the radio on my way to work and I heard a story about how people are using their tax refunds this year. According to the story, more people are using their tax refund checks to pay off debt and/or save for retirement than in previous years. The commenters I heard on the radio about this story commended these people for their desire to reduce debt and save and encouraged those who had not decided yet how to use their refund check to do the same. They then proceeded to seemingly admonish those who might use this extra cash to go on a shopping spree or take a family vacation because they really should use it for debt repayment or savings.

The word should can be misinterpreted in many contexts, including when we make suggestions about how others should use their money. So often people seem to be in search of a “one size fits all” way to use money. If you budget your money in X way, you will be able to make ends meet. If you budget X amount for retirement and emergency savings, then your family will be safe and secure. But ultimately, everyone’s situation is different. The way that you use your money should be unique to you, your family situation, and your values.

Maybe a better way to consider how to use a tax refund is not should, but could. What could you do with it? The only should I would offer is that you be intentional about it. Since you know the amount that you will receive before it arrives by check or in your bank account, take time to decide what you want to do with the money. If you don’t decide, your refund can get lost in your “general fund” and disappear before you have a chance to designate it.

Here are a few ways you could use your tax refund:

  • Divide it: distribute it into a couple of different funds. This will allow you to give, spend, and save your money from just one check.
  • Do Something Special With It: Go out to dinner, spend a night out, take a day trip away. Do something extra special as a sort of reward.
  • Spend It: If you have maintenance on your car or home that you have been waiting to take care of, here is an opportunity to use these extra funds to pay bills.
  • Pay Off Debt With It: If you are working hard to pay off a particular credit card or loan, this can really enhance your progress.
  • Save It: If you haven’t started an emergency fund, this can be a great way to begin. You might also put this towards a particular larger savings goal or even a fun fund – like a travel fund. Another place to put this money is in your retirement fund. Especially if you are young, putting a refund check in a retirement account (even if the amount is small) can really pay off over time with the power of compound interest.
  • Give It: Give all or part of the refund check to a cause or charity. Or, use it to buy something for a neighbor or friend in need.

Join the Conversation: How are you using your refund check this year?

This blogpost is adapted from a post that previously was published on Grace’s blog, “The Classy Frugalist.” It is adapted, reposted and shared here with Grace’s permission. Also, if you are looking for more thoughts about ways that you might spend your tax refund (if you receive one), check out these ways from “Money Crashers.”

Grace headshotAbout the Writer: Grace Duddy Pomroy is Executive Director of Operations at Kairos and Associates, and previously served as Assistant Director for the Center for Stewardship Leaders and Luther Seminary. She is author of “Stewards of God’s Love,” recently published by the Evangelical Lutheran Church in America. She blogs regularly and you can follow her on Twitter.

 

This blog is a component of the Ecumenical Stewardship Center’s COMPASS initiative to engage young adults in conversations about faith and finances. Like what you see and want to know/do more? Visit the COMPASS web page and join the COMPASS community on Facebook.

Image Credit: Tax Refund

It’s Tax Time Again

During the month of March, the COMPASS blog is providing space for questions and reflections related to taxes. Today we welcome Sandy Crozier to share her reflections. Sandy Crozier is the Director of Stewardship Development for The Free Methodist Church in Canada and a member of the COMPASS Steering Committee.

Sandy Crozier, Stewardship Development Director of The Free Methodist Church in Canada

Sandy Crozier, Stewardship Development Director of The Free Methodist Church in Canada

I am what is known as a “First Generation Canadian”. This means that I was born in Canada – but my parent wasn’t. You wouldn’t think that has anything to do with taxes, but you would be wrong. You see, my mom was Russian, and she had an enormous mistrust of government. Any government. Including ours. In fact her parents also had this same mistrust. They did not ‘register’ her birth for three weeks! This is why my mom had two birthdays – but that is another story. This mistrust of government ran under the surface all year round, but would start to come to a head around tax time each year. There was an uneasiness around the house. Tempers were short. Growing up we knew to stay out of sight around ‘tax time’.

So when it comes to tax time in our home – I have an inherited disposition to panic. But I am happy to let you know that there is hope. In fact, I prepare all our household taxes now. Here are some things I learned along the way that you might find helpful.

Don’t Panic…

Jesus tells us again and again ‘Fear not’. The Bible tells us that “this is why you pay your taxes, for the authorities are God’s servants, who give their full time to governing” (Romans 13:6). They are not out to ‘get you’ (no matter what my mother thought!). If you are prone to panic, then you may want to consider using the services of a tax preparation company, or a tax software that does all the math for you. If you are a single young adult that just needs moral support, then get together with group and have a ‘tax party’ where everyone pitches in for a software package that does 10 claims for one package and get some pizza and have fun!  It will at least make filing your taxes a little less stressful!

Don’t Lie…

As Christians, we are to reflect the image of God in all we do – including how we file our taxes. Plus when you lie or cheat in order to pay fewer taxes, you are stealing from your neighbour.  The taxes that are collected is what is used to provide hospitals, health care (in Canada), schools and special programs for those in need, programs and activities for your family, garbage collection to keep your neighborhoods clean, park lands to remind us of the beauty of God’s creation.

Get Organized and Start Early…

Start a file for all your tax information and receipts early in the year. Keep it in a safe place, but keep it accessible to file and update the information throughout the year. If you take a few minutes every month it will save you hours come tax time. Keep original receipts and write notes with them – trying to recall why you saved this receipt is not always easy months later and under the stress of tax time.

In Canada, if you file electronically, you do not send in the original receipts. But the government can request that you provide the backup for any claim you submitted. However, if you mail your taxes in each year, you must submit all the original receipts. In the United States you do not need to submit original receipts, but if you are going to claim deductions, it is important to keep those receipts in case of being audited. It is highly recommended that you make copies of any documents you submit with your taxes and keep them in a clearly labeled file.

Claim Medical Expenses…

Medical expenses that can be claimed on your tax return include (but are not limited to) prescription medications, dental services, psychologists, physiotherapists, attendant care, and a portion of assisted living home costs. Check out these links for more on potential medical expense deductions in Canada and the United States.

Find out What’s New…

Changes are made every year with taxes. Don’t miss out on an extra refund from the various layers of government because you didn’t know about a new credit. (Check out these links for some of what is new this year regarding taxes and returns in Canada and the United States.)

But err on the side of caution – if you qualify for a tax credit, then claim it but if you can’t prove or validate an expense, don’t.

Be Generous…

Giving simply to get a tax benefit is not why you give – but it can make a difference on your taxes. And if it results in a higher refund, you have more to be generous with. As with any deduction that you might claim, make sure that you have documentation to prove it.

Be On Time…

Always file your taxes on time. Even if you are waiting for documentation, you can always submit an adjustment. Filing late will mean penalties, fines and interest charges if it turns out that you owe money. And make sure you double check your submission before you send it in. The government will not correct your mistake.

So despite my inherit disposition to mistrust the government and panic, tax time can be healthy. It allows us to account for the year and steward all that God (and the government) have for us.

Take a deep breath. Pray. And do your homework, stay organized and know what credits/deductions/options are available to you. Get help if you need it and double check everything. Be like the men of Issachar who understood the times and knew just what to do (1 Chronicles 12:3).

This blog is a component of the Ecumenical Stewardship Center’s COMPASS initiative to engage young adults in conversations about faith and finances. Like what you see and want to know/do more? Visit the COMPASS web page and join the COMPASS community on Facebook.

Tax Time

During the month of March, the COMPASS blog is providing space for questions and reflections related to taxes. To start this month’s series, I thought I would share some of my own thoughts and reflections.

Add in your computer, and this may look similar to your experience doing taxes.

Add in your computer, and this may look similar to your experience doing taxes.

Have you already submitted your tax return? If so, congratulations! If not, you are like my wife Allison and I. I admit, I have started filling out our joint return, but have not yet completed it. Part of me loves doing our tax return, because it’s kind of like putting a puzzle together that you’ve never seen before. You are not quite sure what the picture is going to look like. At the same time, there is some dread because you are not sure what it is going to look like and how much you might owe.

Many people receive tax refunds. Allison and I have only had that experience once. My best guess is we won’t often receive a refund because of the nature of our work and ministry. If you are a Millennial or young adult, there is a good chance that you work in multiple roles or work as part of multiple projects. If this is the case, at least in the United States, you are likely classified as self-employed for tax purposes (you might get a 1099-MISC instead of a W-2) and need to deal with self-employment tax filing.

My first year with this experience was an eye opening one because our tax bill was much higher than we had anticipated, mainly because we were working while in school and did not realize that some of our roles and projects were considered self-employment at the time. Since that experience we have worked hard to find ways to make the most of deductions and write-offs. I mention all of this because even though I have a degree in economics and a graduate degree in management, I was still surprised and caught off guard. I chalk that experience up to an important life lesson. It also helped Allison and I grow into a fuller sense of who we are as a family.

We have found that money conversations are important, and when we don’t talk about our finances, our collective stress level goes up. Tax time is no different. Since I had put off doing our taxes until the beginning of March, I could sense my own stress level going up. Long story short, we had more income-producing projects last year which was great, but also some job transitions and changes that led to some unexpected income fluctuations. I’m not sure what quite to expect about what we might owe in taxes this year.

I’m encouraged though, because while I’m not done with our return yet, it doesn’t look like we are going to owe as much as feared we might. I am a little bummed that we won’t be receiving a refund, but in all honesty I wasn’t expecting one either. To be fair, I don’t have a problem with paying taxes. In their best and necessary sense, I believe they are a form of stewardship- a way to support the common good through the provision of education and infrastructure.

This month you’ll find more reflections on the blog about taxes. Would you like to share a story or some of your own reflections? What is the thing you dislike most about tax time? What stresses or questions are you dealing with during tax season? How do you stay grateful?

Image Credits: Finances and taxes

This blog is a component of the Ecumenical Stewardship Center’s COMPASS initiative to engage young adults in conversations about faith and finances. Like what you see and want to know/do more? Visit the COMPASS web page and join the COMPASS community on Facebook.