3 Reasons You Should Use Your Tax Refund To Pay Down Debts

Are you expecting a significant tax refund this year? You get a tax refund because the taxes withheld are higher than what you actually owe. Tax credits, expenses claimed, and RRSP contributions are all some of the ways you can reduce the taxes you owe and increase your return. A tax refund is a boon to many Canadians, but it’s important to remember that a tax refund is money you’ve already earned and the government owes you, not a sudden windfall. That mindset can affect what you do with your tax refund. The smartest thing you can do with a tax return is pay down debts.

Tax refund

#1 You Save More Money on Interest Payments

The best reason to use a tax refund to pay your debts is that it saves you money in the long run. If you’re carrying balances on your credit cards or student loans, the interest costs you more money every month. The more you pay down, the smaller the interest charges. Spending a dollar on your debts today will save you more money in the long run.

#2 Less Debt Means More Spending Money

Lower interest payments and lower debt also means you have more spending money in the long run. Getting a tax refund will make you feel like you suddenly have money to treat yourself, but by using that on debt today, you will free up more spending every month. When you become debt free altogether, you will be surprised how much extra income you find you have.

#3 Bankruptcy Is Always a Surprise

Bankruptcy trustees (or as they are now known, Licensed Insolvency Trustees) David Sklar & Associates warns that responsible spending isn’t always enough. Bankruptcy almost always creeps up on people. The most common reasons for insolvency include job loss, sickness or personal injury, divorce, and losing a business. Poor budgeting and excessive credit card use aren’t often so much the causes of bankruptcy as symptoms of a larger crisis such as income loss or personal injury. There are cases where overspending is the source of insolvency, but if you think of yourself as a responsible spender, do yourself a favor and eliminate credit card debt now. When you have extra money, many bankruptcy trustees like David Sklar & Associates will encourage you to eliminate high-interest debt first.

For some, it may be too late to avoid insolvency. When your debts are too high to pay off, you may need help dealing with bankruptcy from a bankruptcy trustee. Only a bankruptcy trustee can file for a bankruptcy, and they will let you know about alternatives including consumer proposals. If you are already in bankruptcy, your tax refund will be sent to your bankruptcy trustee. These are then available to creditors. However, in a consumer proposal, you agree to pay a fixed amount every month back to your creditors, unaffected by any additional income you receive. A bankruptcy trustee like David Sklar & Associates can further explain this process to you. If you’re facing insolvency or high debt, get help from a team with your best interests in mind. A bankruptcy trustee can explain all there is to know about insolvency.

How to Apply for A Tax ID Number and Why

Tax informationWhen you start a business, you need to apply for a Tax ID to make your company legitimate in the eyes of the law, and to avoid trouble during tax season. Here is more on applying for a tax ID number and how to do so with minimal hassle:

Tax ID for Businesses: Most new businesses need a Tax ID. If you are starting a business that will be hiring employees, you will need to file for an Employer Identification Number, or EIN, which will essentially double as your company’s tax id number.In addition to filing taxes, an EIN can be used to work with banks and even open a line of credit.

Tax ID for Individuals: For individuals, the social security number doubles as a Tax ID. People who do not have a US social security number but are working in the US as a non-resident or a resident alien, will need to apply for an ITIN or Individual Tax ID Number. The same applies for spouses or family that are claimed on a tax return. The ITIN is used exclusively for tax purposes.

Obtaining a Tax ID: Whether you are applying for an individual or company, getting your tax number online is the fastest and often easiest option. You can also submit the necessary forms by fax or mail. However, submitting by either fax or mail means waiting about a month for your Tax ID to be mailed. If you are applying for an EIN, you’ll need to submit form SS-4 and will also need to determine the entity of your business. If you are applying for an individual ITIN, you will need to fill out Form W7.

When it comes to taxes, it is important to comply with federal regulations and have the appropriate forms in order. If you need a Tax ID, it is best to apply well before tax season to help avoid stress.