It is hard to believe that tax filings were due six weeks ago. So, it is about time that those getting refunds are receiving checks or electronic deposits. It is often difficult to find fruitful ways to use the money. Keeping in mind this was your money to begin with, it is always a good idea to use the proceeds to invest in more ways to save money.
Here are a few ideas –
- Start, or add to, an emergency fund. If we have learned anything in the last five years of economic uncertainty, it is to be ready with back-up funds for whatever unexpected thing comes your way.
- Invest in yourself – consider taking a course in something that sparks a new career interest. Or, buy some workout equipment to get in shape.
- Invest in Assets – thinking about buying some land or a new vehicle? This money could be used to lower future payments.
- Retirement – put money away now, and watch it grow tax free – win, win.
- Pay down debt – the sooner that debt goes away, the less interest you are paying. Less interest means more available for other needs later.
- Selling your home? – use a refund to spruce up areas of your home and maximize the re-sale potential.
- Energy Savings – ever consider new appliances or energy saving alternatives? This money could be used to upgrade and then save over the long term.
- Get prepared – use funds to stockpile canned foods, water, batteries or other items needed during storms or other catastrophes.
- Health – if you have been putting off getting a health issue checked, now is the time.
- Travel – put a down payment toward a trip you have been considering. The bite will be less later.
- Charity – nothing feels better than helping those that need it. Donate to a local cause or a large charity with strong discipline to meet their intended goals.
It is always better to look forward and plan good uses than to look back and wonder where it all ended up.
Being an entrepreneur that has started a few businesses, I am often asked “What are the things that need to be done when starting a business?” Obviously that is a pretty broad question – many answers on which I will not elaborate now. However, in this time of focus on taxes, it is important to make sure that things are correctly set up for the benefit of not giving the IRS reason to come knocking. Here is a brief, high level list that I know of. Be sure to consult a tax professional when starting a company –
- Decide what type of business entity you want to establish. The type your business takes will determine which tax form you have to file. The most common types of business are the sole proprietorship, partnership, corporation and S corporation (and LLC).
- The type of business helps determine what taxes are to be paid and how they are paid. The five general types of business taxes are income tax, self-employment tax, employment tax, sales and excise tax.
- An Employer Identification Number is used to identify a business entity. Generally, businesses need an EIN. Visit IRS.govfor more information about whether you will need an EIN. You can also apply for an EIN online at IRS.gov.
- Good records will help you ensure successful operation of your new business. You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes. Usually, Quikbooks is a pretty good choice.
- Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used.
- Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and an accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you incur them.
- Visit the Business section of IRS.gov for resources to assist entrepreneurs with starting and operating a new business.