As the April 15 tax deadline has just passed, most people have filed their income tax returns. What are you planning to do with your tax refund or how are you planning to pay any tax amount due? Knowing what to expect when filing your taxes can help you plan what decisions to make next. If you expect your income to stay similar to the previous year, do you need to make any adjustments on your withholdings? Tax time can be a good time to reflect on your finances from the previous year and start to make a plan for next year.

Income tax due

If you are an individual or household that received a tax-due amount on your return, was this what you were expecting? For many people, the ideal may be to have just enough taxes withheld to cover what is owed. This means that it should be close to break-even come tax filing time as opposed to owing money or receiving a refund. The advantage of this strategy is that you have access to use your money during the year in other ways that may better your financial situation, such as paying down debt or avoiding borrowing money by having extra money available. Understanding how income tax works and what to expect can assist you in financial planning.

Income tax refund

If you received an income tax refund, do you have plans for how to spend or save the money? Some people see their refunds as a bonus to spend on self-care or a luxury item that is not typically affordable in their everyday budget. Unfortunately, you may feel the need to just apply this extra money to your grocery budget as the cost of food has risen so much recently. Maybe take some time to see how this money could be used to improve your financial situation. Are there any outstanding debts that have been lingering that could be paid down? Do you have an emergency savings account ready for the next unexpected expense? Maybe you are ready to start taking advantage of the high-interest savings rates or Certificates of Deposit (CDs) currently available or starting an investment account. So many options are available to use a refund to your long-term advantage.

Make a tax plan or revise your current plan

Now that you know whether you owed money or received a refund, do you plan to make any changes during this year? If you have standard employment, you typically complete a Form W-4 that determines how much money is withheld toward income taxes. On the Form W-4, adjustments can be made to increase or decrease the amount withheld.  The IRS also provides an estimator tool to assist with your decision-making. Use tax time to your advantage and make a plan that works for you that takes income taxes into consideration throughout the entire year, so your refund or amount due is what you expect next time around.