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Tax Experts' Best Tips To Save You Money

6:26 AM, Apr 15, 2013   |    comments
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Nobody expects you to know everything about income taxes. With the Internal Revenue Code about five times longer than the Bible, that's not practical, anyway.

But there are some common-sense tips that tax experts have been preaching for awhile,

These best-practices pointers can improve your financial situation and prevent unpleasant surprises:

• Aim for zero. Although it's nice to receive a tax refund around April 15, it's not the best strategy. A refund is just another way of saying you finally got your money back on the interest-free loan you gave the government. The other extreme - owing a big tax bill around April 15 - isn't smart, either, especially if you struggle to pay it.

Ideally, you should plan your withholding and other tax tactics so that you either get a minimal refund or owe just a bit more in taxes after filing your return. A big zero on the tax owed/due lines might not be interesting, but it's a laudable goal.

•Make your refund count. Assuming you get money back, it's important that you don't squander it. For lower-income people, especially, a refund could be the biggest chunk of cash they receive all year.

The American Institute of CPAs suggests a simple decision hierarchy on how to use your refund. First, spend it on food, shelter, health care or other basic needs, if necessary. Otherwise, build up your emergency fund. If there's money left, pay down debt. It's critical to have a plan to maximize the benefits from a refund, said Ernie Almonte,

On the debt side, focus on credit cards charging the highest interest rate, the group suggests.

As for emergency cash, three months used to be the suggested standard. But because it's still hard to find well-paying jobs, it would be more prudent to build up a reserve of at least six months.


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