With the coronavirus still raging and the holidays right around the corner, you might not be thinking about your taxes. But tax time starts in just a few weeks, and although you’ll have until April 15, 2021, to prepare your taxes, the time to save money for your bill is now.
This year brought a lot of different tax situations, from extended unemployment and PPP loans to EIDL grants and stimulus checks, so your tax bill will probably look different from other years. The first thing you have to figure out is if you will owe money to the government because that’s the worst-case scenario.
To Owe or Not to Owe
If this year didn’t affect your income, you probably have a rough idea about whether you owe taxes or if you’ll receive a return. But if this unstable year did impact your finances, you might be unsure about your tax fate this coming year, and you have to prepare to pay in a few short months.
Assuming you’re living paycheck to paycheck with little to no discretionary income, you could find it challenging to save for your tax bill. It would help if you created a gap between your income and expenses so you can use that money to save for taxes.
The way you create extra cash in your budget is either by increasing your income or decreasing your expenses. With unemployment rates rising, it might be challenging to add to your income, but if you can pick up a side job to bring in a few extra dollars, every bit counts.
The more straightforward thing to do to find that extra money is to decrease your expenses by eliminating as much of them as you can. Evaluate each bill and decide if the cost is absolutely necessary and eliminate it if the answer is no. If you have to keep your expenses, call your creditors and see if they’ll reduce your monthly payment.
The biggest reduction you can make in your expenses is by eliminating any loans you have — specifically credit cards. If you have multiple credit cards, you also have several minimum payments, and that can eat up your extra money quickly. To solve that problem and open up your budget, consider debt consolidation.
Debt Reduction and Removal
Debt consolidation is when a company like Sooner Partners takes your eligible debts and rolls them into one personal loan. Although it doesn’t remove the amount of debt you owe, it gives you the opportunity to make one monthly payment instead of several, freeing money up in your budget. You could use that cash to save for your potential tax bill, and it might give you just what you need to satisfy the IRS in April.
Plus, it gives you a clear path to living debt-free, which will benefit your budget and help you build financial security.
After Tax Time
Once tax time is over, you will still have the extra money in your budget, so what do you do with all that cash? The best thing to do is to double down on your debt payments because the sooner you can get out from under your debt, the quicker you can redirect your money to the things that matter to you.
It can be tempting to look at the extra money as a chance to shop and buy things you don’t need instead of paying off liabilities. But if you do that, the longer you’ll stay in debt and the more money you’ll eventually pay.
Your Future Wealth
As you get ready for tax time and think of your future wealth, visit your budget often to make adjustments and remind yourself of your financial goals. Remember, there will be tax time again next year, and if you adjust for the yearly event and pay down your debt, you’ll always be ready.