Blasting Away Our Consumer Debt

We e-filed our federal tax return on Wednesday, February 22 using the IRS’ Free Fillable Forms — and received our refund on March 1. We got back a nice chunk of change — although I know many of my fellow personal finance bloggers abhor the idea of getting a big tax refund.

There was no doubt about what to do with 1/3 of the tax refund: pay down our credit card debt, which has been lingering for a year following the arrival of Baby Frugalista. While initially the bulk of it was from the hospital bills from her birth, the rest came from the accrual of months of buying baby-related items and things we wanted for our home following our down-to-the-wire upstairs bedroom renovation around the time she was born. Coupled with an extended 6-month-long maternity leave, with less than 2/3 of my pay coming from disability/family leave insurance for 12 of those 24 weeks (the other 12 were unpaid), the debt started adding up.

We’ve been paying a good amount toward the debt each month, but by continually making purchases, we kept winding up back where we started. To remedy this, I put a moratorium on purchases and tossed $2,000 at the credit card debt, eliminating the balance on a credit card with a 6.24% interest rate on purchases. That leaves $2,300 in debt, split between two other credit cards, both at a 0% balance-transfer rate. One card’s 0% interest rate expires in June, and the other in December. The earlier one will be paid off next.

What about the other 2/3 of the tax refund, you ask? It’s in our savings account, and a portion of it will be used to fund our upstairs bathroom renovation. We’re doing one room at a time to minimize our cash outlay.

Paying off that credit card felt great. I can’t wait to get back to our pre-baby state of no consumer debt!

Tax Season Means Tax Refund (For Us, at Least)

It’s that time of year again, when many personal finance bloggers start telling folks that it’s better NOT to get a big refund when they file their taxes. While I agree with the theory, it’s not my personal preference. I’d rather let Uncle Sam hold onto “my” money and then get it back in a nice, big chunk that’s direct-deposited into our bank account.

But not all personal finance bloggers think getting a tax refund is a bad thing. For those who suck at saving money, it’s a way to automatically keep that money aside, then get it in one big windfall come tax season. Sometimes, you have financial needs that are better met with a little extra in your paycheck each week. Either way, there’s no real right or wrong answer. It comes down to personal preference.

Tax Refund – Pros

If you’re like me and work more than one job, you might want to keep the number of exemptions on your W-4 at “0” — any more than that, and you could wind up owing Uncle Sam come April. I pay my own taxes on my freelance gigs, so I don’t want to get caught short.

Others like knowing that they’ll get a “windfall” each year. Homeowners tend to get the biggest refunds, thanks to deductions on mortgage interest and property taxes. And here in New Jersey, those two costs can really add up. Getting about 1/3 of it back each year is a minor consolation for our high costs.

Tax Refund – Cons

Right now, savings accounts barely pay interest, but on a nice chunk of money, you could get $50-$100 a year on money that would otherwise be held by the government. Some people in this economy really need the extra funds in their paychecks to pay their bills, while hard-core investors prefer to take their chances on the stock market moving in their favor.

And then there’s the “don’t let the government keep your hard-earned money!” argument.

In the End

It’s up to you whether or not you want to adjust your W-4s to minimize (or maximize) your tax refund amount. But before you make a big move, gather some of your financial information and check out the IRS withholding calculator. It’s estimating that we’d get back about $7,000 as a tax refund next year. Since our salaries are holding steady for 2012, let’s see if this year’s refund will be about that much. In the past two years, it’s been a few thousand dollars less because of my freelance work. But I’m not complaining.

Do you like getting a tax refund, or do you adjust your withholding so your refund is minimal?

H&R Block Premium Edition Tax Software Giveaway: Win One of 5 Copies!

Every year, I scour the federal and state tax codes to see what’s new before filing our taxes. I want to know if there’s a new deduction or tax credit so I don’t miss out on getting some more of my hard-earned money back from the government. This year, you have an extra three days to file your taxes — until Monday, April 18. Check out this post I wrote for Rainy-Day Saver for an explanation of the extension.

Do you want to ensure you receive a fat refund or reduce your tax liability? Then this giveaway is for you! Enter to win one of five copies of H&R Block’s At Home Premium Edition tax software, courtesy of the fine folks at H&R Block. Winners will receive a key code enabling them to file their 2010 FEDERAL taxes online — FOR FREE! This is especially great for those of you who tend to wait until the last minute to file — with online filing, you won’t have to even leave the house.

The giveaway is valued at $55, which covers the $49.95 cost of filing your federal taxes by using the software, plus any sales tax you may incur upon redeeming the code.

If you’re one of my lucky winners, you can get started on filing your federal tax return HERE. When you’ve finished, enter the code I’ll provide you with for free filing. (NOTE: If you want to do your state taxes, it’s an additional $34.95, and not covered by this giveaway).

Some highlights of H&R Block’s At Home Premium Edition software

It’s for most taxpayers, including homeowners, investors, the self-employed and rental property owners.

All H&R Block tax prep solutions include:

  • Maximum refund guarantee – finds all the deductions and credits you’re entitled to
  • Free federal e-filing – get your refund in as few as eight days!
  • Accurate calculations guarantee andĀ free audit support
  • Easy importing of your W-2, 1099 and last year’s info (even if H&R Block didn’t do your taxes)

Learn about H&R Block At Home Online Tax Preparation Software and all that’s in theĀ Premium Edition.

How to Enter the Giveaway

The giveaway ends on FRIDAY, MARCH 18 at 11:59 p.m. Eastern Time. Be sure to get your entries in before then to have a chance at this free H&R Block At Home Premium online tax software! Winners will be chosen via random.org and will be announced on Monday, March 21.

1. Leave a comment on this post about what you love (or hate!) most about doing your taxes. Be sure to include your e-mail address when filling out the form so I can contact you if you’re a winner! (E-mails are private and won’t be displayed).

2. If you don’t already, subscribe to The Penny Frugalista. You can subscribe via Feedburner or e-mail.

That’s all! Be sure to enter by the giveaway deadline to be in it to win it!

Little Bites: Tax Filing Time & Other Chores

Holy crap, it’s March. The past month has been a blur of unexpectedly early motherhood and all the sleepless nights, diaper changes and constant feedings that come with it — and it’s been wonderful. We were caught fairly unprepared when Baby Frugalista arrived five weeks early, but thanks to family and friends, we were able to get our home ready for our new addition. They came through with meals, clothes, diapers and assorted little things that we had yet to pick up.

Now we’re settled into a routine — or as much of a routine as possible with a premature newborn. She’s gaining a lot of weight and growing at a good pace. One thing I’ve found is that our normal budget has been turned upside down. We have to factor in diapers and formula, and I’ve found that my $200 monthly grocery budget has increased to reflect that.

Now that I’m out of work on maternity leave for 6 months to spend as much time with my little girl as possible — and only getting disability and family leave payments for 3 of those — we really need to watch our spending. I’d prepared for the 3 months without income by amping up my freelance gigs while pregnant (because I’m nuts), but that doesn’t mean we should burn through that reserve. Gas prices are headed toward uncharted territory — again — and I’m happy I don’t have commuting costs for the next few months. I just filled up the gas tank the other day, and I’m sure I won’t have to refill it for a day or two. I only bought lunch at work maybe once or twice a month, but that’s a little bit of savings, too.

We’re going to do our taxes this weekend and we’re expecting a nice refund thanks to the mortgage interest and property tax deductions. I’d like to change our withholding status on our W-4 forms at work from “O” to “1” or “2” — it’s better that we get that money put back in our paychecks, rather than get it in a large tax refund.

Other things we’re working on:

Medical Coverage — We’ve added the baby to our health insurance, provided by Mr. NSF’s employer. The pre-tax cost has increased two-fold just to add one little person. Amazing, right? So instead of $220 per month in paycheck deductions, the cost will be $440 monthly.

Will — We do not have a will as of yet, and this is something I’m going to look into. There are advantages and disadvantages to wills (enough for a separate blog post), but there are other options, too, such as payable-on-death designations on accounts.

Life Insurance — Although we have some life insurance coverage through our employers, we’ll lose it if we change jobs. I’ll have to see if getting our own policies is advantageous, in case the unthinkable happens to one of us. We want to make sure our daughter is provided for and that we could keep our home in the event something happens to one of us.

I’m sure there are other things we need to consider, but I think this is a pretty good list to start with.

Paying the December Mortgage Bill Before December 31

Now that we’re snowed in (thanks to a blizzard that no one seems to have nicknamed as of yet), I’ve been cleaning my little heart out. The bathroom is sparkling, the Christmas gifts have been sorted and the tissue paper, boxes and gift bags carefully tucked away for re-use next season, and the back room that was loaded with baby stuff generously given to us by family and friends has been organized into a tolerable mess.

One thing I did remember to do before the end of the year is to pay our December mortgage before the 31. Why does it matter, you ask? By paying it before the end of 2010, we’ll be able to deduct the mortgage interest on our taxes come February. Between the mortgage interest and property tax deductions, we know we’ll be getting a hefty refund, and this will boost it. Yes, it’s an interest-free loan to the government, but this will be the first full year we’ve been paying these things, and I want to see what the numbers are before we readjust our W-4 withholding, if we choose to do it at all.

Currently, we both claim “zero” on our employer W-4s. I did so because I’ve always had freelance gigs. I get a 1099 at the end of the year, and I’m responsible for paying the taxes — and the last thing I want is to pay taxes in April. But now that we own our own home, it’s a whole new ballgame.

Do you remember to pay your December mortgage bill before the 31st? Worst comes to worst, you’ll include that mortgage interest in the follow year’s tax deductions, right?