26 - Tax Day: Last-Minute Sanity & Looking Ahead

Welcome to the Season 2 premiere of "Making Sense of Your Cents!" With the tax deadline just 24 hours away, Daniel and Shanna are here to help lower your financial blood pressure. In this episode, we provide a last-minute sanity check by breaking down the critical difference between an extension to file and an extension to pay. We also debunk the myth of the "big tax refund" and answer community questions about managing taxes with a side hustle and avoiding common filing mistakes. Tune in for a simple 10-minute tip to help you take total control of your cash flow for the rest of the year. Let's start the new season by making some sense of your cents!

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Transcript

26 | Tax Day: Last-Minute Sanity & Looking Ahead

00:00:00 Shanna Browning: Hey, Daniel. I was driving by the post office yesterday, and that line was already starting to wrap around the building. I even saw a couple of people sitting down with folding chairs.

00:00:10 Daniel Hill: Oh, yes, the April fourteenth special. It's that universal feeling of collective blood pressure rising across the country. It's the one day a year where the post office feels like a stadium entrance.

00:00:24 Shanna Browning: Oh yes, it does. And it really doesn't matter if you've done, if you've done for months or if you're in a currently staring at a mountain of receipts or your dining room table, that text deadline just has a way of making everyone a little jumpy. It's like a final exam that the whole country takes. At the same time.

00:00:41 Daniel Hill: It really, it really is. And for a lot of people that jumpiness comes from a place of uncertainty. We hear in our branches all week. Did I do it right? Do I owe? What if the check doesn't clear in time?

00:00:55 Shanna Browning: Well, today we're going to try to lower your blood pressure just a little bit. We're going to talk about what to do if you're in a current state of panic, and more importantly, how to set yourself up today so that in the next year, you're not the one in that folding chair in the post office line.

00:01:20 Daniel Hill: Welcome back to Making Sense of Your Cents. I'm Daniel Hill.

00:01:24 Shanna Browning: And hey friends, I'm Shanna Browning and welcome to our Season Two Premiere. Woo hoo! We are so excited to be back with you, helping you navigate your financial life with a lot more confidence and a lot less jargon.

00:01:39 Daniel Hill: Absolutely. Well, Shanna, today is April the fourteenth.

00:01:45 Shanna Browning: April fourteenth.

00:01:47 Daniel Hill: Tomorrow is the big deadline. And while we aren't CPAs or tax preparers, let me say that out front. We are bankers who see the aftermath of tax season every single year. And today we're going to help you find some last minute sanity. Let's start with the most common question we get. What if I'm just not ready?

00:02:13 Shanna Browning: Well, let's talk to that person who's listening to us right now and saying maybe in their car on the way to work, and they're realizing they are simply not going to finish their paperwork by tomorrow. So what is the very first thing they should know?

00:02:28 Daniel Hill: Well, the most important thing to understand is the difference between an extension to file and an extension to pay. This is the number one mistake that people make.

00:02:40 Shanna Browning: So let's tackle that a little bit. That's a huge distinction. I think people hear the word extension and they think grace, period.

00:02:47 Daniel Hill: Exactly. You can go to the IRS website right now and file form four eight six eight. It gives you an automatic six month extension to file your paperwork. It's easy and it stops the failure to file penalty, which can be pretty steep. But. And this is a very big but. An extension to file is not an extension to pay.

00:03:13 Shanna Browning: So the IRS still wants their money by tomorrow. Even if you haven't finished the forms yet.

00:03:19 Daniel Hill: Precisely. If you think you're going to owe money. You need to estimate that amount and send a payment by tomorrow to avoid interest in late payment penalties.

00:03:31 Shanna Browning: Okay, so that's great. But what if someone literally doesn't have the cash to pay what they owe right now? Should they still file the extension?

00:03:38 Daniel Hill: Yes, even if you can't pay a dime. File the paperwork. The IRS is much easier to deal with when you've been transparent. They have payment plans and options, but those only become available if you've actually filed. Don't go radio silent on the government. That's when the expensive penalties start stacking up.

00:04:00 Shanna Browning: Of course. So now let's talk about the other side of the coin the refund, the refund. We see people get so excited when they see a three thousand or a five thousand refund coming their way. They start planning vacations or buying new furniture with it.

00:04:17 Daniel Hill: Well, Shanna, I hate to be the bearer of bad news.

00:04:21 Shanna Browning: But I'm trying to buy something here. Daniel.

00:04:25 Daniel Hill: A massive tax refund is actually a sign of a missed opportunity. It's essentially a participation trophy for overpaying your own money.

00:04:35 Shanna Browning: Okay, you're going to have to explain that because most people think a check from the government is a huge win.

00:04:40 Daniel Hill: Think of it this way a refund is just the government returning your own money to you because you overpaid throughout the year. You essentially gave the IRS an interest free loan for twelve months.

00:04:55 Shanna Browning: And while they had your money, my money, we couldn't use it.

00:05:01 Daniel Hill: Exactly. Let's do some quick math if you got a refund, let's say three thousand six hundred dollars. That's a three hundred dollars a month that was missing from your paycheck. If you had that three hundred dollars a month in a high yield savings account at, let's say, four percent interest, you'd have earned over eighty dollars in interest for yourself.

00:05:23 Shanna Browning: Or if you used that three hundred dollars to pay down a credit card with a, for instance, twenty percent interest rate, you'd have saved thousands, sorry, hundreds, hundreds of dollars on that.

00:05:34 Daniel Hill: I like thousands better.

00:05:35 Shanna Browning: I like thousands better, too. Saved hundreds of dollars in interest charges over the course of the year.

00:05:41 Daniel Hill: Now, I do want to add one important footnote because we're talking about overpaying. But for a lot of our listeners with families, that refund check might actually be coming from things like the child tax credit or other family related credits.

00:05:56 Shanna Browning: Okay. That's a great point, Daniel. So I guess in those cases, it's not necessarily that you gave the government an interest free loan. It's. The government is providing a benefit you're entitled to because of your dependence.

00:06:09 Daniel Hill: Right? Right. Those are often refundable credits, which means it's essentially new money coming to you. If your refund is purely from credits, you aren't necessarily losing out on monthly cash flow. However, you still want to check your W-4 to make sure you aren't also over withholding on top of those credits.

00:06:29 Shanna Browning: So the goal is to have the most accurate paycheck possible, so you can support your family in real time, whether it's through credits or withholding. We want that money working for you as soon as possible.

00:06:42 Daniel Hill: Precisely. And while a big check feels like a windfall in April, it's much better to have that money in your paycheck every month so you can put it to work for your goals. Our goal should be to get as close to zero as possible, meaning you didn't owe a ton, but you didn't give Uncle Sam a free loan either.

00:07:04 Shanna Browning: That's right. That's exactly right. And that perspective shift is the key to going from being reactive to being proactive with your finances.

00:07:14 Daniel Hill: When we talk about shifting that perspective, we have to look at the real world questions that we hear at our branches every day.

00:07:24 Shanna Browning: And these are the questions that come up across the desk every day this time of year. For example, Daniel, a big one we hear is how should someone manage taxes when balancing a full time job with extra income from a high, from a side project, or even a hobby.

00:07:41 Daniel Hill: That is so relevant right now? I think almost everyone has some kind of plus one income stream.

00:07:49 Shanna Browning: Absolutely.

00:07:49 Daniel Hill: The biggest mistake people make is thinking that because they have a regular job where taxes are taken out, the side income is free and clear, but that side income is usually untaxed. I recommend setting aside roughly twenty to twenty five to thirty percent of every side hustle dollar into a separate savings account the moment you get it. Don't wait until April to find out you owe two thousand. You didn't have.

00:08:17 Shanna Browning: Yeah, that's a great thought. And then another question that our neighbors often ask is, what are some common tax filing mistakes that can really hurt your ability to save for the next year?

00:08:27 Daniel Hill: Well, aside from not filing a huge one, is missing the Saver's credit. If your income is below a certain level, the government will actually give you a tax credit just for contributing to your retirement account. It's like a reward for being responsible, but many people don't even know it exists.

00:08:45 Shanna Browning: Wow. That's a really interesting one to know. So one more before we go. Just because I heard this one just yesterday, is it better to pay a professional to do my taxes or use a free online software?

00:08:59 Daniel Hill: Wow, what a great, great question. If your situation is simple, for instance, one W2 and you don't own property or a business. The free software is great, but if you have a side hustle, rental property, or complex investments, a local CPA is worth their weight in gold. They often find deductions that pay for their own fee. This. This has been an awful lot to process over Tuesday morning, so let's keep the action item simple and helpful.

00:09:37 Shanna Browning: Great idea. So actionable tip for this week is check your W-4.

00:09:45 Daniel Hill: If you got a massive refund this year or if you were surprised by balance due, taking a look at your withholdings can really make a difference for your monthly budget.

00:09:56 Shanna Browning: And you don't have to wait for next year to just fix it. If you have ten minutes this week, log in to your employee portal or check with your HR department. The IRS has a, quote, tax withholding estimator, end quote on their website. That makes it really easy to see exactly what to put on that form so that your paycheck is really working better for you.

00:10:18 Daniel Hill: It's a small investment of time that puts you back in the driver's seat of your cash flow for the rest of the year.

00:10:26 Shanna Browning: Daniel, it feels so great to be back with you for season two.

00:10:29 Daniel Hill: It really does. And we're really just getting started. Next week we're moving from the tax office to the car lot.

00:10:38 Shanna Browning: Because we got money.

00:10:39 Daniel Hill: Absolutely. We're going to do a deep dive into auto loans, how to get pre-approved, and why the monthly payment isn't the only number you should be looking at.

00:10:48 Shanna Browning: Well, you really don't want to miss it. So please subscribe now. So it's in your feed next Tuesday.

00:10:53 Daniel Hill: Thank you for an incredible start to season two. Now go out and make some sense of your cents.