What to Do With Your Income Tax Return

Nearly 75 percent of Americans receive a tax return each year, with each return averaging nearly $2,500. That's a nice windfall for most of us but that doesn't mean you should run out and spend it like it's burning a hole in your pocket. The best tax advice from financial experts is to put the money to good use. Many of us have numerous projects or expenses that such a windfall can go towards so it's time to look at various income tax tips and think carefully about how you want to spend your tax return.

The best income tax tip is to make your tax return work for you. Consider paying off or paying down credit card debt. Your credit cards likely have the highest interest rates of any loans you currently have and paying the minimum means you're paying a large amount of money in interest payments each year. A substantial tax return can make a nice dent in your credit card debt. Another helpful piece of tax advice is to use your return to prepay major bills or set it aside for large expenses you know are on the horizon, such as insurance premiums, orthodontist bills, child support and alimony payments or heating and cooling bills. Given the current financial climate and the uncertain nature of the housing market, it might also be a good idea to make an additional mortgage payment to help pay off what is likely the largest investment you have.

Another excellent income tax tip is to pay yourself. Put your tax return in a savings account or an emergency fund. Numerous tax advice experts recommend putting strengthening your emergency fund so that you have 3-6 months of living expenses set aside in your emergency fund. Another good income tax tip is to plan for your retirement. It's coming sooner than any of us think. You can use your return to open a retirement account or contribute to a retirement account you already own.

Then again, it's rarely fun to do the sensible thing. This is, after all, your money. If you're receiving a large tax return that means you gave your money to the government in a tax-free, zero interest loan for 12 months. Another excellent income tax tip is to splurge with the money. Put it towards a new car. Buy the new flat screen television you've wanted. Plan the family vacation you've put off for years. Sometimes the best tax advice is to take care of yourself and have a little fun with your own money.

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While we all need to pay our taxes, you shouldn't pay more than you actually owe. Understanding a few basic income tax tips can greatly lower your tax liability. You can claim a number of tax deductions in order to lower the actual amount of tax you pay. However, you should be aware of issues such as raises and the alternative minimum tax (AMT), which may alter your income tax analysis.

When tax time rolls around, people tend to fall into two categories: people who want to file their income tax return immediately and be done, and people who want to put it off as long as possible

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Are you worried about penalties for late tax returns? For whatever reason, you've let the April 15th income tax deadline come and go. There are penalties for late returns, but, if you follow the appropriate steps, you can minimize the penalties and keep things in good order with the IRS. 

Use our checklist as a guide to help you gather necessary forms and receipts for preparing your income tax return. 

Paying income tax on tips is easy when you work for wages and your employer is in charge of extracting the amount from your paycheck. When your work includes tips, things become a little murky. You are the one responsible for reporting the proper amount on your income tax information and paying the right amount of tax on tips.

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