We all know this time of year affectionally as “tax time.” That time of year we are gathering our financial information to properly get our taxes completed. Did you know it is also a good time to look for ways to boost your emergency fund?
First, make sure you are getting all the tax credits and deductions you qualify for when filing. Earned Income Tax Credit (EITC), Child Tax Credits, and Dependent Care credits all reduce your tax liability dollar for dollar, so make sure you are claiming them.
And if you always receive a refund, you can use the IRS Form 8888 to have a specific amount direct deposited into a savings account. Since you have not been using that money all year, putting it directly into savings boosts that emergency fund. Additionally, if your income or family situation has changed and your refund has increased, perhaps it is time to review your deduction(s) to reflect your new financial situation more accurately.
If you realize you forgot to claim a credit or deduction from previous years, you can file an amended return up to three years from the year of the error.
And lastly if possible, put money into qualified retirement accounts to help reduce your taxable income. You have until the tax deadline to do this, and it will count towards this year’s return. The benefits you receiver are twofold: First you are lowering your taxable income for the tax year, and you are contributing to your retirement account which allows that money to build until you retire.