News & Articles

July 2018

July 10, 2018  |   Monthly NewsletterNewsletters

This month:

July 4: Independence Day

July 31:

  • Quarterly federal excise tax returns (Form 720) due
  • Employer quarterly federal tax returns (Form 941) due
  • Calendar-year employee retirement and benefit plan returns (5500 series) due

It’s the height of summer, and hopefully you’ve had a chance to enjoy some pleasant weather and Fourth of July fireworks. This issue contains tips on deciding whether to amend a tax return and strategies for reducing debt.

Should you wish to review your situation please feel free to call. Also feel free to forward this newsletter to someone who may benefit.

Become Debt-Free

The average household carries $137,063 in debt, while the median household income is less than $60,000, according to data from the Federal Reserve and U.S. Labor Department. While it’s easy to get into debt, it can be hard to get out. Here are five tips personal finance experts recommend to lower your debt burden:

  1. List and prioritize
    Create a list all of your debts by amount owed and the interest rate you are paying. Then prioritize your repayment based on one of two strategies:

    • The Avalanche. Focus on paying the debt with the highest interest rate first, to minimize the total interest you’ll pay.
    • The Snowball. Focus on paying the debt with the smallest balance first. While this may seem counterintuitive, it’s recommended for those who have difficulty sticking to a repayment plan. The smallest balance gets paid off sooner and then its debt repayments can be devoted to the next debt. This gives you a powerful psychological boost and sense of achievement.
  1. Pay more
    Pay more than the minimum amount due. Your lender receives more interest income from you if you pay the minimum, but that’s not what you want. Think of ways you can increase your income to make the extra payments, such as:
    • Taking a second job or freelancing.
    • Asking for a raise at work.
    • Devoting extra cash to debt repayment, such as your refund check.
  1. Spend less
    Review your monthly expenses to find things that you can eliminate to increase your debt repayment. You can reward yourself by renewing these luxuries, but only after you’ve paid off what you owe. You could cut spending on things like:
    • Cable TV
    • Gym fees
    • Restaurants
    • Entertainment
  1. Downsize and declutter
    Not only does it help to spend less, it may also be worth getting rid of what you already have. Consider selling possessions you no longer need, or finding a place to live with lower rent or smaller mortgage payments. Be ready to make some sacrifices in exchange for financial freedom. Things that you may be able to part with include:
    • Sporting equipment
    • Extra or recreational vehicles
    • Electronics, games
    • Collectibles
  1. Negotiate
    It’s worth calling your lenders to see if there’s a way to lower your interest rate. They will often do this if you’ve been a longtime customer with a history of timely payments. In some cases, you can even get them to forgive part of your debt. Also consider using zero-percent balance transfer options with different credit card providers. While these may come with fees, 12 months of no interest can be worth it.

Remember, reducing your debt burden can seem overwhelming, but small steps can yield big results.

Is It Worth It to Amend Your Return?

Whether it makes sense to amend your return depends on which of these situations you’re in:

If you owe the IRS

If you discover an omission on your tax return that results in you owing additional tax, you need to correct it with an amendment and provide the tax due.

Don’t delay if this is your situation. If the IRS discovers the omission before you do, they may add interest and penalties to your bill.

If you are due a refund

If you find a mistake that should result in getting a larger refund check, you can claim it by filing an amended return. But there are several reasons it may not be worth it.

  • It may open a can of worms. In many cases, amending your federal return means also amending your state returns. Multiply the hassle if the error spans across two or more years.
  • It puts a spotlight on you. While your original return may have passed through the IRS’s automated system without a hitch, now that it’s amended you can virtually guarantee it will get a closer look. If you have anything else in your return that can trigger an audit, like business deductions, charitable donations, or other credits, this can be a concern.
  • It may take a long time to get a refund. The IRS tries to process your original return within three weeks. No such luck for an amended return. It can take several months to get an amended return processed and see that extra refund, even as long as 1 1/2 years in rare cases.
  • It stretches out the audit window. The IRS generally has a three-year window to audit returns and request changes. When you file an amendment, you extend the audit time frame.
  • It may be too late. Depending on when you notice an error and how far it goes back, it may be too late. The deadline to file an amendment is generally the later of three years after the original return was filed, or two years after the tax for that year was paid.

Ultimately you have to weigh the extra money you could get from amending against the potential problems it could cause. If it’s worth it, get an amendment filed.

Call to get help with an amendment or if you have other tax questions.  As always, should you have any questions or concerns regarding your situation please feel free to call.