How to Prepare for a Successful Tax Season

There’s just something so fresh and motivational about January. Between New Year’s resolutions and fitness goals, renewed commitments to organization and financial responsibility, the list of things we can accomplish in January seems almost super-human.

Use this heightened motivation and momentum to prepare for tax season, too! While you’re not required to file for a few more months, it’s best practice to take a look at your taxes now so you’re not scrambling come April. There are a few steps you should take to proactively prepare for a successful tax season. Let’s take a look.

preparing for tax season
Know what you’re up against when preparing your taxes.

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Are Interest Rates Really Too High?

The stock market has been a mess over the last couple of months.  I guess after almost a decade of solid growth, it was time.  Of course, our President has a different thought.  He blames high interest rates.  The President has been pushing the Federal Reserve to lower interest rates.  They haven’t been listening.  Currently the Fed rate stands at 2.25%.  So, are interest rates too high?

Comparing Interest Rates To Recent History

In a quick answer, no.  Interest rates are not that high at all.  Of course, this takes some comparison.

Since the start of the 1990’s, interest rates have been higher than they are now more often than not.

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Why FIRE Never Would Have Worked In The Past

The latest buzzword in the personal finance community is FIRE.  Many of the most successful blogs now talk about FIRE.  For those that don’t know, FIRE stands for Financial Independence, Retire Early.  The blogging community now has many blogs where people achieve financial freedom at a young age, and can retire well before traditional retirement age.  Many boast of retiring in their 30’s.

This is a pretty cool movement, especially in the age where Millennials are breaking many of the molds created over years past.

I started thinking about it.  I came to the conclusion that FIRE probably wouldn’t have been embraced by generations past.

Here’s my take on what I think generational mindsets are regarding FIRE.

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Why Are Michigan Roads So Bad? 10 Things To Know

The past month has seen roads in Michigan deteriorate to never before seen conditions.  Potholes and cracks are everywhere.  The freeze and thaw cycle has been especially bad this year, turning many roads to near gravel. But, Michigan isn’t the only state with this weather.  So, why are the roads so bad?  The answer isn’t as simple as any one thing.  Here are ten things to know about why Michigan roads are so bad.

Taxes and Spending

  1. Michigan drivers pay a lot in fuel taxes.  Michigan is one of the top five states in terms of taxes collected at the pump.  This infuriates a lot of drivers.  Common sense tells you that higher taxes should mean better roads.  Unfortunately it doesn’t work out that way.  So why?
  2. Michigan doesn’t allocate sales tax at the pump to roads. Most states assign all taxes collected at the pump toward roads.  Michigan only allocates the fuel taxes specifically toward roads.  The sales tax portion goes to the general fund.  This means our spending levels are among the lowest in the nation per capita.
  3. Voters said no when given a chance to correct this.  A few years, it was put before voters to allocate the sales tax on gas toward roads.  This would have infused a ton more money into the roads.  But, it required an increase in the sales tax rate, which required it be put before voters.  They said no.  I wonder how many regret this decision now.

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What Are You Doing With Your 2017 Tax Refund?

We are lucky enough to already have our taxes done and filed.  I anticipated that we would get a refund (which we’re OK with).  Now the idea is how are we going to apply our 2017 tax refund.

Goals

Our goal with our tax refund has always been a mix of things.

  • Boost Savings Goals.  When there is something big we’re saving for, money gives us the chance to help things along.  This has helped us when we needed big projects done around the house.  Examples: A new roof a few years back or exterior painting last year.
  • Offset Spending Needs. If there is spending we know we are going to do regularly, sometimes this can give it a push.
  • Repair.  Getting this fixed or maintained is something I’ve always used when applying refund dollars.
  • Enjoyment.  As you’ll see below, putting our refund to use for vacations is a strategy we use.

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Why It’s OK To Get A Tax Refund

Don’t get a tax refund.  That’s one of the first things most personal finance bloggers will tell you.  It’s giving the government an interest free loan.  That’s what they will say to justify the reasoning.  Keep the money yourself.  That’s the advice you’ll get.  Earn the interest on your own money.  That’s the benefit you’ll be told justifies it.

I’m here to tell you that you don’t need to worry about it.  If you get a refund, even a large one, it’s no big deal.  It really isn’t much of a problem at all.

The Justification For No Refund

Avoiding a tax refund was one of the first big tenets of personal finance I heard when I started reading money blogs.  That was over ten years ago.  I listed above the reasons, but it basically boils down to the idea that you shouldn’t give the government an interest free loan.  It’s money that you paid all year that you get back, right?  So, you should earn interest on it.  Interest is more money.  More money is great for personal finance. It all makes perfect sense.

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