Every day my morning starts with a news update followed by targeted financial headlines and then financial planning updates. Information is moving so fast, it’s hard to keep up.

Most recently, the government has passed multiple legislative acts to help American workers and small businesses during this unprecedented time. With that in mind, here is an overview of the relief that your family can expect as part of the CARES Act and other recent legislation.

As a bonus, we have a printable checklist for you as well!

Tax Relief

With the advent of the CARES Act, the government has made updates for taxpayers by providing rebates, additional credits, and upgraded deductions.

First, taxpayers who filed in 2018 or 2019 will receive a one-time emergency cash payment of $1200 per person, or $2400 per married couple filing jointly. Additionally, taxpayers will receive an additional $500 for each child under age 17. There are income limitations, so not everyone will receive a payment.

While this money is not a non-taxable credit, taxpayers who have a large increase in their adjusted gross income in 2020 may need to pay back some or all of their money next tax season.

If you haven’t received your money yet, check the IRS website for your status. 

The Federal tax filing deadline for 2019 has been moved from April 15 to July 15, 2020, so you have extra time to file and pay any taxes due. This July 15th deadline applies to North and South Carolina state taxpayers as well.

To help spur giving during this time, there are additional deductions for Charitable Giving. If your family uses the Standard Deduction, like 90% of our population, you can take advantage of a new tax credit of $300 of your cash charitable contributions beginning in 2020.

There are additional benefits for wealthy taxpayers, corporations and other businesses; however the above tax incentives are the most common ones you will see.

Student Assistance

Students and graduates can expect benefits of college grants, work-study benefits, and loan relief within the CARES Act.

Colleges will receive government funding to be used for grants to students to pay for course materials, technology, food, housing and child care. The allocation of these funds is up to each individual college, so you should check with your school to determine if funds are available for your student.

Students who are in a work-study program can continue to be paid, even if they are not able to work, and provides additional flexibility for colleges and universities in determining aid eligibility.

As the student loan crisis continues to be problematic, the CARES Act provides help in two ways. First, employers can provide up to $5250 per employee in payments of student loan principal and interest which is not taxable to the employee. While this benefit is not the norm, if your employer has this program, it’s a good time to take advantage of it. 

Next, the new legislation suspends student loan payments AND interest accrual through September 30, 2020. This can be a huge help to your cash flow if you have been laid off and are trying to decide whether to pay bills or make dinner. 

Retirement Breaks

The government knows that in times of crisis, the biggest asset workers have available is their retirement account. Since the market value of our IRAs and 401(k)s have decreased, it’s a bad time to withdraw money too. Fortunately, if you are normally required to take a distribution, you can skip it this year.

If you have to take funds out, there are some additional rules that you need to follow. However, they allow you to take funds out before age 59 ½  without the usual 10% penalty. 

• You, your spouse or a child has been diagnosed with COVID-19.
• You’ve experienced adverse financial consequences because you were quarantined, furloughed, or laid off, or because their employer reduced their working hours.
• You experienced adverse financial consequences because you were unable to work due to lack of child care.

While these distributions are still subject to income tax, you may spread the taxes over a three year period. Or, if the amount is repaid into an IRA or employer sponsored retirement plan within three years, no income taxes will be due. 

Help from Your State

In addition to the Federal help, you may be eligible for assistance through your state’s aid programs. The CARES Act beefed up unemployment benefits by adding an additional $600 per week to the regular payments.

North Carolina provides up to $950 per week in unemployment benefits. South Carolina has a page devoted to unemployment information for individuals and businesses 

Credit Breather

If you are concerned about making any payments for your loans, be sure to contact your lender. Whether you are struggling with your mortgage, car loan, or credit card payments, don’t hide from your creditor. They want to help! 

And when you talk with them, they are required to report to the credit bureaus that you are in compliance with your payments.

Blessings

These benefits, and many others for businesses and non-profit organizations, are here to help you. Use them to help keep your family afloat until the job market returns. 

I recently heard this: The storm wasn’t over when the boat got to the other side. It was over when Jesus got in the boat. Try not to become overwhelmed with the news. Hug your kids. Pray. And count your blessings. 

Still unsure about the emergency relief options available to you as a result of the coronavirus pandemic? We’ve got you covered with a printable checklist — click here to download! 

Pathfinder Planning LLC is a registered investment advisor in North and South Carolina. We serve young adults and working families by providing personal financial planning and asset management for a simple fee. www.pathfinderplanningllc.com

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In 2019, the average tax return was a little over $3,000 — which, no matter your income level — is nothing to sneeze at. I mean, an extra $3,000 added to your budget could cover a lot of shoes, that Peloton bike you’ve been eyeing, or even a weekend getaway that your family so desperately needs. 

But before you go on a shopping spree or otherwise splurge with your refund, you might want to consider some other options — like using that cash for home improvements or paying down your student loans. 

If you just received a big, fat tax return and don’t know what to do with it, here are my top three recommendations to put it to good use.

Sock it Away 

This is probably the single most important thing you can do to maintain strong financial health and prevent yourself from sliding into debt. Far too many of us don’t have a sufficient emergency fund. If your car breaks down, or you need to pay a large insurance co-payment, you need to have money on hand to do just that. 

Your emergency fund should contain 3 to 6 months of living expenses and should be held in an easily-accessible account, such as a savings account or a money-market account.

I’ll agree that this is the most boring thing that you can do with your tax return. But keep this research from the JP Morgan Chase Institute in mind. Research has found that the amount of cash you have in the bank is a more useful predictor of mortgage default than home equity is. People with three to four months of mortgage payments in the bank were far less likely to default than those with less than one month of payments.

Don’t be sidetracked by the fact that money in the bank doesn’t earn much, either. Remember – a bird in hand is worth two in the bush. Better to have the funds on hand than have to charge an unexpected expense and then pay interest while you wonder how to pay for it.

Bye-Bye Balance 

If you have enough in your emergency fund, consider using that tax return to pay off some credit card balances or other outstanding bills. 

In 2019, consumers spent an average of 10% of their disposable income on debt payments such as credit cards, car loans, student loans and other personal loans. Freeing up this money gives you breathing room to work on your other goals.

My two favorite ways to apply your tax return toward your debt are paying the highest interest rate loan first or paying the smallest balance first.

Paying off your highest-interest-rate debt will save you the most money mathematically. Paying off lots of little bills can be more satisfying than paying a large chunk on one bill, and it can simplify your monthly bill-paying process. This provides you with a psychological sense of victory that keeps you motivated to continue the process.

Both options will help you make significant progress toward eliminating your debt, so either one is a good choice.  

Home Sweet Home 

Once you are comfortable with some savings, and have the credit under control, do something good for yourself. 

For around $1,000 or less, you could make updates to your home that will improve your quality of life. You could repaint a room, fix a leaky faucet, buy a programmable thermostat, add new landscaping, or even pay someone to KonMari your stuff. 

These enhancements make your space more comfortable and functional for your family, and they add value to your home if you decide to sell it later.

The most important take-away here is to resist the urge to splurge first. We’re all familiar with the phrase, “treat yourself”. While it’s not a bad idea to spend money on yourself for fun here and there, it might not be the best way to spend your tax return. 

So, take a hard look at your finances and figure out what to do with your tax refund so it improves your financial standing — instead of staring blankly at your bank statement a few months from now wondering where the money went.

Pathfinder Planning LLC is a registered investment advisor in North and South Carolina. For more information, visit www.pathfinderplanningllc.com. 

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Few people enjoy doing paperwork, least of all their taxes.

And yet doing your taxes is a must every year. If only they got easier with time! But since our income, filing status, and life circumstances are all apt to change, our tax filings rarely remain the same.

That’s not even taking the tax code into account. Lawmakers are constantly making changes to it—take the most recent Tax Cut and Jobs Act of 2017 (TCJA) for example. This makes understanding tax law akin to hitting a moving target. Forget any details and you just might miss out on some tax-saving credits or deductions.

So what’s a person to do?

Use a tax advisor.

Why hire a tax advisor?

Since tax season only comes once a year, maybe you’re skeptical about whether it’s actually necessary to hire a professional for help.

But having one in your corner can make all the difference. That’s because a tax advisor can:

• Set you up for success. Major life events, like getting married or having a baby, will affect the amount of money you can withhold from your paycheck for tax purposes. An advisor can provide insight on your tax planning options and what your best move may be depending on your unique circumstances.
• Save you both time and money. Without a tax background, how will you know all of the deductions and credits you qualify for? There’s a lot of room for error when filing a tax return, but this can easily be avoided by consulting a trained tax professional.
• Give you confidence about doing your taxes right. No one should have any doubts about whether their taxes are filed correctly or not, especially since incorrect filings may result in penalties. Tax advisors can give you peace of mind that no tax preparation software can. After all, they’re real people who can answer questions about your specific situation—not even Google can do that.

If you’re still not sure whether getting a tax professional’s help is right for you, here are some signs that suggest you should.

1. You’re not sure if you should itemize or not

Thanks to the latest tax reform legislation, many itemized deductions have been eliminated or modified, including home mortgage interest, medical expenses, and charitable contributions. What does that mean for you? You may be better off electing the new standard deduction, which nearly doubled for both single taxpayers and married couples filing jointly.

2. You paid the alternative minimum tax (AMT) in the past

In previous years, as many as 5 million tax filers paid the alternative minimum tax (AMT). Now, it’s been all but eliminated. This is because the new tax laws increased the exemption threshold to adjust for inflation, meaning the AMT will apply to fewer taxpayers moving forward. If there’s any uncertainty on your end, a tax advisor can help you determine whether or not you’re exempt, and if you’re due any credits for past overpayments.

3. You’ve recently retired

Think tax filing might be simpler as a recent retiree? Unfortunately, that’s not quite the case. If you have any income outside of Social Security benefits, like regular income, retirement withdrawals, and pension payments, you’ll need to file a tax return. Enlisting an advisor’s guidance with tax preparation will help you figure this out while also getting you on track to make the most of your retirement finances.

4. You pay taxes in multiple states

If you pay taxes in more than one state, you may be surprised to find that the new tax legislation has affected states differently. For instance, in South Carolina, lawmakers voted to align the state’s tax code with the federal tax law in response to the changes made by the new tax law. This, in short, should result in many South Carolinians paying less income taxes, although those making over $150,000 a year will likely see the opposite.

It’s not just Federal changes affecting state tax codes, though. North Carolina officials also revamped the state’s tax code in recent years so that the advantages of contributing to the state’s 529 college savings program were eliminated.

Feeling overwhelmed? Keeping track of the various tax nuances between different states is nothing short of difficult. A tax professional can help guide you through these complexities when filing your tax returns.

Additional Considerations

When it comes to getting professional tax help, you have a variety of options. Should you hire a certified public account (CPA) or an enrolled agent (EA)? Or should you use an online program like TurboTax?

To those working outside of finance, the difference between a CPA and EA may not be so obvious. Though both are licensed financial professionals, one may be better for your tax needs.

Broadly speaking, CPAs are licensed state by state to assist clients with a variety of accounting services. They often focus on businesses for proper accounting practices and auditing. EAs, on the other hand, are federally licensed tax specialists who work specifically with tax returns and can represent taxpayers before the IRS. This ultimately makes them the better choice for helping with tax preparation as not all CPAs specialize in taxation.

This is relevant because with the new tax withholding tables come changes to your paychecks and withholdings, all of which a professional can help identify for you.

As for online tax preparation software—they aren’t terrible, but they tend to be best suited for those with simpler financial situations. If you’re in a more complex situation, then consulting a tax professional is strongly recommended for making tax season more bearable.

Conclusion

Some people hesitate to enlist the services of a tax professional because they’re worried about the cost. And, if you’re used to taking care of it on your own, maybe doing your own tax return again doesn’t seem so bad.

However, the latest changes in tax reform legislation, as well as any major life changes you’ve recently gone through, can make filing your taxes a bigger headache than usual.  

That’s where tax advisors come in. With a financial expert on your side, you’ll be able to better navigate this tax season’s murky waters and set yourself up for success next year.

Pathfinder Planning LLC provides personal financial planning advice and asset management for a simple fee to young adults and working families in North and South Carolina through group classes, one-on-one planning, and ongoing advice.

Your Financial Mom blog posts are not meant to be legal, accounting or other professional service advice. Content represents the opinion of the author only. Pathfinder Planning LLC is not responsible for the accuracy or validity of content contained in third-party comments.

www.pathfinderplanningllc.com

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