The article below is up to date based on the latest tax laws. It is accurate for your 2019 taxes (filed in 2020) and 2018 taxes, which should be filed by the April 15th, 2019 (or October 2019 with filed extension) deadline.
Are you ready for the holidays? We don’t mean “have you bought all your presents.” The question is, have you done your financial planning for the holidays?
Huh? We know that’s not something most people think about, but it is important when you are figuring out how much you can spend. While the holidays are still months away, now is the best time to start planning and saving. Here are a few tips on where to start.
- Set your savings goals. Holidays are expensive, so your first step is to figure out how much you need to save to pay for everything you want to give to your friends and family. The average American shopper spent between $500-$1000 on holiday gifts last year, but it doesn’t stop there. What about the money you’ll spend on holiday travel including plane tickets, gas for the car, hotel rooms, and meals? Don’t ignore the parties and family holiday dinners where you pull out all the stops. And don’t forget the admission costs for holiday festivities and performances. Those Nutcracker tickets aren’t going to buy themselves, and it all adds up. Mint can help you easily create a budget that aligns with your savings goals.
- Compute how much you need to save each week. If your final tally shows that you are going to need $1,000 to $3,000 to pay for everything, you should divide that by the number of weeks you have to save. If the result shows it is not possible, then you can adjust: decide where you will cut spending or set a date further out by which everything will be paid for. Maybe it’s unrealistic to have everything paid for before Christmas, but you might be able to have the holiday charges paid off by January 31.
- Decide how to save. Opening a savings account and storing money away from each paycheck is straightforward, but that may not be enough. It’s time to get creative! Do you have unwanted possessions you can sell via social media to raise some extra cash? Can you work overtime, start a side gig, or take a part-time weekend job for a few months? Can you use frequent traveler points to reduce travel costs or even cash them in for gifts? Can family members chip in on a big gift, lessening the cost for each person? Or, can you replace buying new things with making something handmade – DIY gifts may not be as glamorous, but they can be more meaningful with that personal touch.
- Consider giving the gift of time. Instead of giving out items, think about how valuable it is to spend time with your loved ones. Maybe instead of new clothes or toys, you pledge to cook dinner for a family member once a month in the coming year. Or maybe you invite your friend over for an at-home movie marathon instead of splurging on tickets and popcorn for a night out (peanut m&ms at Walgreens are definitely cheaper than the theater!).
- Dial back your withholding. If you are expecting a tax refund for the year, you can claim extra withholding allowances to reduce withholding amounts and fatten your paychecks for the rest of the year. If you do this, don’t forget to adjust your withholding back based on your income in the coming year and also don’t forget tax law changes may impact your withholding. The TurboTax W-4 withholding calculator can help you figure out the correct amount of withholding allowances to report on your W-4.
- Plan for next year. Now it’s time to get a jump on next year. The earlier you start saving, the less you’ll have to save each paycheck and the easier it will be to accumulate the funds that you’ll need.
Don’t worry about knowing these tax laws. TurboTax will ask you simple questions about you and give you the tax deductions and credits you’re eligible for based on your entries. If you have questions, you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent with an average 15 years experience to get your tax questions answered. TurboTax Live CPAs and Enrolled Agents are available in English and Spanish and can review, sign, and file your tax return.