How We Avoided A Smaller Tax Refund (And What We’re Doing With It)

Have you done your 2018 taxes yet?  Are you one of the unfortunate people who are seeing a smaller tax refund this year?  If you are, I hope that it won’t impact your finances in a negative way.  Thankfully, we were able to avoid a smaller tax refund this year.

tax refund checklist

How We Avoided A Smaller Tax Refund

When we got our tax forms back, we were happy to see that we’re getting a little more back than last year.  While many people think getting any sort of refund is bad thing, I actually welcome a refund.  We don’t count on the refund.  For us, it’s just nice to have money that isn’t a temptation to spend during the year.  The removal of that temptation is worth the small interest we’re foregoing.

So, how did we avoid a smaller refund? There were two main reasons.

Read moreHow We Avoided A Smaller Tax Refund (And What We’re Doing With It)

Allocationg Our 2013 Tax Refund

We got our tax refund information a couple of weeks back.  I spent some time coming up with some proposed allocations, and my wife was more than happy with what I came up with, so I thought I’d give a brief rundown on the categories which we’re allocating this year.

The Three Sources of Our Refund

We get our refund from three different sources

  • Federal Refund – Self-explanatory
  • State Refund – Again, shouldn’t require any detail
  • Side Income Allocation – When we make money from our side hustles, the sales of stock, the cashing in of savings bonds, or other areas where I know we’ll pay taxes but there is no withholding, we set aside 25% in an earmarked fund within our money market accounts.  If we were ever in a position to have to pay estimated taxes, this would be the source, but for now, it’s a nice way to get a ‘refund’….and earn interest on it along the way!

So, here are the categories for which we are distributing the money this year:

  • New Car – Eventually we’ll get a new car (new to us, anyways), so we stick a few hundred bucks toward that
  • Car / Camper Repairs – I like to have $1,000 set aside to cover any repairs.  My car needed about $1,300 in repairs last year, and I project that we need new tires on our camper this year, so we’re putting a few hundred bucks into this to bring it close to ‘fully’ funded.
  • Roof Payback – As I alluded to above, our money market fund is broken down (via a spreadsheet) into multiple allocations.  One of those was the roof that we got installed last year.  As it cost about $2,000 more than I’d budgeted, we essentially ran a negative balance, which is fine because there are always other funds running positive balances.  We are about $600 away from fully paying that off, so we’ll do so with a portion of our refund.
  • General Home Fund – Everything for the ‘around the house’ fund went to re-stock the roof fund, so not only do I want to bring the balance to $0, but start adding money to it so we can do improvements or start saving toward whatever major project comes next (hopefully in a few years)
  • New Mantel – Normally, I don’t get very specific, but this year, I decided to get somewhat detailed. My wife has been asking to have a mantel installed above our fireplace since we moved in.  Now that it’s been seven years, I figure I can’t use the ‘maybe next year’ brush-off too much longer, so I’m specifically putting aside a small sum toward this.
  • Kids Rooms – Our youngest will be ready to move into a big girl room, and we’re looking at doing some re-shuffling of rooms.  This would require painting three rooms, new bedding, some new draperies and the like.  I am setting aside several hundred dollars to help offset this work.
  • Preschool – Our oldest will be heading to kindergarten this fall, but our youngest will have two years.  We’ll set aside a few hundred bucks to cover the cost of preschool.mb-201403stacks
  • Kids Activities – This is the one that sold my wife.  As our kids are getting older, they are getting more interested in things that have costs associated (e.g. T-ball for my son, swimming lessons for both, dance lessons for my daughter), and rather then complain about the costs each time one of these comes up, I wanted to set some money aside.
  • Gifts – We fund our Christmas fund, and also a ‘Month of May’ fund throughout the year so that when the gift needs arise (May has multiple birthdays and Mother’s Day, so I started saving for this a few years ago to spread out the cost), it’s already paid for.  Just a token amount to each fund.
  • Maintenance – Just last week, I referenced a few items that would need some routine work done this year.  $100 each toward getting the snowblower, lawn mower, and HVAC system looked at will help cover these costs.
  • Anniversary Trip – My wife and I try to take a small in-state trip for our anniversary every two years, and I set aside a couple hundred dollars to cover some of the costs.
  • Fun Money – My wife and I each get a little bit of money to spend as we want.  With kids at the age of 4 and 2, I expect that it won’t be long before we have to throw a little bit their way, huh?

So, there you have it.  As you can see, it’s nothing exciting, but it all helps to fund expenses that we have that I don’t really include in our monthly budget.

What are you doing with your refund check(s) this year?

Budgeting Our Tax Refund

We haven’t received our tax refund yet, but I’ve already budgeted what we’re going to do with it.

Before any readers get up in arms, know this:

  • I have a ballpark idea of what our refund will be
  • I usually estimate conservatively, meaning that we usually get at least what I estimate
  • Most of it is going into savings

Using a couple of online estimators, I was able to forecast roughly what our tax refuCalculator and tax returnnd will be from the feds.  I have a separate fund within our money market account (one of the many types of savings accounts we consider) where I allocate a portion of any blogging income aside to offset the increased income which does not get taxed throughout the year.  Add this to our state refund and this comprises the entire amount we’ll get back.

Without knowing the amounts, I can already tell you where it will likely go.  Things might change a little bit here and there, but overall, here’s the percentage allocation we’re likely looking at:

  • Savings replenishment – 25% – When we bought our camper last year, we went a tad bit over budget.  We have a comfortable savings and we went ‘over budget’ with the understanding that we’d essentially pay ourselves back with the refund and a percentage of other income
  • New car fund – 20% – Eventually we’ll need to replace our cars, currently 5 and 6 years old and ideally we would not take on a new car payment when that happens.
  • Home repair – 20% – We have a really big oak tree in our backyard that is dying and needs to be removed this year as it is annoying (it drops what leaves it grows around the 4th of July) and is close to the corner of the house so it presents a future danger.  It’s very tall and will have to come down in pieces so it’s probably going to be pretty costly.  We’re also continuing to save for a new roof in the next couple of years.
  • Kids fund – 15% – Little Boy Beagle will be starting pre-school in the fall, so we would like to have that paid for up front.
  • Travel fund – 10% – This fall will be our 5-year wedding anniversary, so we’d like to do something fun for that, as well as pay for the camping trips we plan on taking throughout the summer in our new camper.
  • Auto / Camper repair – 5% – Fix any routine or unexpected costs arising from the cars or camper
  • Gift funds – 5% – To pay for Christmas gifts and other gifts that we purchase throughout the year.

All that adds up to 100%.

If the refund comes in significantly higher than we estimated, we’ll often give ourselves $50-100 each in extra spending money but if we don’t get that, it’s not that great a deal.

In other words, most of it goes directly into savings with allocations to specific earmarks. The travel fund is the only thing that my wife would consider ‘not boring’ *lol*

What are you planning on doing with your tax refund this year?

Image: Calculator and tax return by Images_of_Money, on Flickr

The First Step In Organizing Your Tax Information

Now that it’s February, chances are that you’ve received most (and hopefully all) of your tax documentation.

The problem I’ve found is getting it all together.  So much mail comes in that sometimes it’s easy to overlook something, not to mention the fact that we get electronic statements for more than a few things, which can save on paper and such, but require you to actually print those tax documents.

Getting everything organized can be a challenge.

For me, what I’ve found works best is to rely on the fact that we are creatures of habit.

What does this mean?

Well, most of us probably work at the same job, have accounts at the same banks or brokerage firms, give to many of the same charities, etc.

For us, that means that the best way to start organizing our tax information for 2011 is to look at our 2010 tax return.

I can quickly go through the return and jot down the items that we used in 2010 to create a checklist of what we need in 2011.  This process will also trigger thoughts of things that were different and lead me to note what I need to do there.

For example:

  • Charitable deductions – We typically give to church, schools, Salvation Army, and a few other charities.  Looking through the list is a good way to remind me to look up the exact amounts
  • Mortgage – The biggest deduction we have is the interest deduction on our mortgage.  Jotting this down will remind me to check for our statements, and this year, we re-financed, so I can write down a note to pull out the closing statements since we can write off some of the closing costs as well.
  • Income – My wife doesn’t work and I didn’t change jobs, so this seems easy, but I also note that I should declare income from blogging, so I add that to the list.

You get the idea.  Now, there might be other changes as well that you won’t necessarily see from the list, but if you check last year’s statement as a first step, you’ll typically cover almost everything you need to get yourself ready for this years taxes.

How far along are you in getting your tax info ready for the upcoming tax season?