Perhaps you are newly divorced or are going to be filing your tax return without your spouse for the first time this year. Failure to plan ahead can result in an unexpected tax liability. However, with proper planning, you may find yourself in the fortunate position of receiving a refund. Here are some suggestions about utilizing your “windfall.”
The most important thing to remember about a tax refund is that it’s not “manna from heaven.” It’s money that you’ve earned. It’s not a gift from the IRS. It’s money that you loaned to the government. Now it’s being returned to its rightful owner—you. Therefore, the choices that you make on how to spend that money should be meaningful.
The Fiscal Times recently published an article on this very topic—”The Best and Worst Ways to Spend Your Tax Refund.” #7, my contribution, is my personal favorite! Put your money to work toward your future. Here’s a link to the complete article which includes several ideas.
Which strategy would you choose for your refund?
Major life events, like divorce, often create changes in your tax filing status. Paying or receiving alimony, being a single parent who is now the head of a household or no longer being a homeowner can have material tax consequences. Do you know that if you are divorced on the last day of the year, you can not file a joint return even if it will give you a larger refund?
Therefore, it’s important to consult a financial professional to be certain you are not only in compliance with changing tax laws but positioning yourself for the best possible result. Just because the tax forms are online and TV commercials claim that “you’re the expert on your life” doesn’t mean you’re an expert in achieving the most advantageous tax result for your new status.
Consulting a CDFA or CFP prior to your divorce (or after, if necessary) can help you create a plan and make more informed and strategic decisions during a complicated stage of life. This way you can avoid pitfalls, obstacles, and know of opportunities ahead of time. With the help of a skilled professional, you might be surprised at how much easier your tax filing is. You’ll most likely get a much better result. And when you do, they can help you discover the appropriate strategy to put that refund to work for you.
Are you planning for a refund or fearful of owing money? Call for a financial discovery session.