Now that it’s tax time, you’ve got some decisions to make

It is tax time again, and many of us are starting to work on our taxes. I received my first tax document from Social Security in the first week of January. Who says the federal government isn’t efficient?

Because it is tax time, many of the schools that I am in are working on income tax units in personal finance, career and even math classes. Students ask me all the time, what are my key income tax tips?

Tax tips

They are, first, make sure that you don’t pay more taxes than you are obligated to, and if you have any doubts, hire an accountant.

Second, don’t over withhold in order to obtain a large refund and, therefore, give the federal and state governments a series of tax-free loans. Instead, use that money during the year to build up an appropriate emergency fund to pay down any high-interest debt, to earn a return, to avoid any additional debt and to save for things like retirement, a vacation or next year’s holidays.

Also, watch, listen and learn from all of the tax advice on the airwaves at this time of year.

Rising credit card debt

We know that credit card debt continues to increase in this country, as are buy-now, pay-later transactions. We also know that Americans in credit card debt are taking longer to pay it down or off.

Perhaps it is more than just higher prices, depleted pandemic savings and higher interest rates. Perhaps it is in part because of the increasing “debt is OK mentality” in this country, reinforced by the federal government’s now record debt of in excess of $34 trillion.

As I always say, based upon my interviews with so many debtors when I was on the bench, too many Americans in credit card debt seem to have a cash flow analysis of affordability, rather than using a balance sheet test, which is what people did before credit cards.

You paid all of your bills, funded your savings categories, and if you had extra money, you could afford other things.

Now many Americans feel they can afford something if they can make the monthly payments on their debt, even if they have to go further into debt. Regarding credit card debt, I found it interesting when a representative of Consumer Credit Counseling Service of Rochester, in a television interview, reported that the average credit card debt of clients seeking counseling in 2023 was $15,000, and that it might be higher in 2024.

As for the national debt, Ingrid Jacques, the USA Columnist, recently wrote what we all know, that we can’t get the debt under control unless we reform Social Security or Medicare, or both, or raise middle class taxes.

Buy now or pay later?

By the way, with the increase in buynow, pay-later transactions, people ask me what I think of it. As we have discussed, paying in four installments, with truly no interest or fees, for something you could otherwise afford (you could pay cash for it or have the money in the bank earning interest) can make good financial sense. It’s just like using your credit card only for convenience, because you otherwise have the money in the bank earning interest, so you are getting a free loan from the credit card company. However, if it is allowing you to otherwise overspend, playing and reinforcing that dangerous “cash-flow” game, I don’t feel it is a financial habit that makes sense in the long run.

Up your financial IQ

At the beginning of my CARE presentations in the schools, I tell students that my goal is to reinforce some of the things they may have learned in class or otherwise, and to, hopefully, leave them with a greater sense of urgency about the need to up their financial IQ every chance they get and to take learning about personal finances and effectively managing money more seriously.

By the way, I also try to do that in this column. So when a student at Horseheads High School recently wrote, “I learned that finances, budgeting and saving are more important than I thought,” it was a special day.

Student loan changes

The student loan system has been in turmoil in recent months. President Biden’s forgiveness plan was struck down, repayments resumed, and forgiveness programs came with more stipulations and accommodations.

Now, even the FAFSA form is getting a revamp. Here is a summary by The Gist by Finny, important for college bound students and their families.

“The reconfigured form comes with some noteworthy changes that 20242025 aid applicants will want to be aware of. Here are the biggest changes:

“A shorter, more streamlined form is at the top of the list of changes. According to FSA, depending on their specific situations, applicants may bypass up to 26 FAFSA questions. In certain cases, some individuals may only need to answer 18 questions, completing the process in less than 10 minutes.

“The Pell Grant will also be expanded, with an estimated additional 610,000 students being new recipients this year, and 1.5M more receiving the maximum amount.

“The ‘multiple siblings in college discount’ is also going away. In the former calculation method, the anticipated family contribution for households with multiple siblings concurrently attending college was determined by dividing it by the number of children pursuing higher education. The updated formula addresses and rectifies this specific provision.

“Reduced 529 Income: Previously, disbursements from 529 plans owned by a grandparent or a party other than the student or the parent were regarded as untaxed income for the student. This had the potential to substantially diminish the student’s eligibility for financial aid. However, under the revised FAFSA system, such distributions are no longer considered as part of the student’s income.”

In the next column, we will take a look at college costs and student loan debt, something I have been concerned about and writing about for 30 years now.

Let’s end with a little economic humor from Ziggy. “With so much inflation these days, money buys even less happiness than it couldn’t buy in the past!”

John Ninfo is a retired bankruptcy judge and the founder of the National CARE Financial Literacy Program.