Taxes: Tips for tax season

If you’re expecting a tax refund, said Allison Linn in CNBC.com, will you save it or spend it? “Many Americans say they plan to do something virtuous with the money they get back from Uncle Sam,” but when the check actually arrives, they often don’t follow through. People who receive refunds usually use at least part of the money to save or pay off debts. But “having a little extra money in the checking account also often leads to a splurge or two, like a new pair of shoes or a nice dinner out.” If you’re serious about saving your tax refund for a rainy day, “the best thing to do is to put it in a place where it’s hard to get to, like a mutual fund account or a retirement plan.” When you park your cash in a checking or savings account, “it’s too easy to dip in, even unintentionally, for nonessential expenses.”

To maximize your refund—or minimize your bill—pay attention to your deductions, said Jennifer Calonia in USNews.com. “Tax filers have the option to accept the pre-established federal standard deduction on their return or choose to itemize each allowable expense that can be deducted from the 2013 year.” Taking the standard deduction may make “the already-grueling tax preparation process much simpler,” saving you time if you’re too busy to sort through stacks of receipts and paperwork. But it’s not “a viable option for everybody and might not be the most rewarding option for your bank account.” Itemizing your allowable expenses might add up to a larger deduction, but “you’ll have to brush up on your arithmetic.” And the more you earn, the more likely you are to face limitations on deductions and expenses, particularly on things like charitable giving, paid taxes and interest, and business expenses.

If you end up owing taxes, don’t get ripped off, said Jason Steele in Credit.com. The IRS makes it easy for filers to pay their tax bill “by authorizing select companies to process credit and debit cards on its behalf.” But that convenience comes at a cost, since the companies charge taxpayers a processing fee, which ranges from 1.87 to 2.35 percent of the taxes due. Two sites—ValueTaxPayment.com and payUSAtax.com—charge the lowest rate: 1.87 percent. If you’re paying your tax bill online, using a card on one of these sites may be a good idea, especially if you use a rewards card. Just make sure your card’s benefits will offset the card transaction fee. Cash-back rewards are best, but if the card offers airline miles or points, do some math to check their value. When the rewards are worth less than the fee, paying your tax bill with a card may still make sense if you’re on the brink of earning a large rewards bonus.

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