Americans aren't properly prepared for tax season according to a new survey from MDRT (Million Dollar Round Table), the premier association of financial professionals. This lack of preparedness could cost Americans much needed extra funds and could jeopardize their overall financial plans.
The survey of 1,000 Americans found that 44 percent of people who owe taxes would pay them by tapping credit cards, loans, and even personal savings. This may be due to the fact that only six percent of Americans who owe money actually budgeted specifically for this purpose. As a result, many people dip into revenue streams that are counterproductive to their financial plans. Particularly troublesome is that 46 percent of Americans at retirement age plan on using personal retirement savings to pay the IRS.
"While Americans find the money to pay back Uncle Sam, they are running the risk of draining resources from other critical areas of their finances," says Kathleen Dvorchak, an MDRT financial planner. "A simple way to avoid tax time pitfalls is to create a year-round financial plan that will save you from emergency rushes and provide a clear and consistent picture of your personal finances."
MDRT's survey also revealed a lack of knowledge in tax law changes, as half of Americans admit they are not knowledgeable in new tax breaks and credits. With only 55 percent of people using a professional to prepare their taxes, many are losing out on the potential benefits these tax changes could bring.
"Americans are busier than ever, thereby cutting down on the time we have to learn about new tax laws," says Dvorchak.
On a positive note, the survey found that Americans who expect to receive a refund this year are planning to do the right thing with the money. 39 percent of Americans say they are using refunds to pay back their debts -- the number one priority for any sound financial plan.
To help Americans navigate through tax time, Dvorchak has the following advice:
- Start early and budget. Avoiding the issue only makes things worse. Create a plan for your finances and factor in tax obligations to ensure that you are not caught unprepared at tax time.
- Don't leave money on the table. Getting a large refund often means that you overpaid the government during the year. That money could have been earning interest, so make sure you're taking full advantage of your dollars.
- Be wary of falling for gimmicks. Some tax preparation companies offer expedited refunds in the form of high interest loans. Essentially, you are giving away your own money to get refunds back a month or two earlier so don't fall for gimmicks as they only benefit the ones that offer them.
- Be involved in your own finances. Getting professional assistance is an excellent idea, but leaving it all to your planner isn't. While they take care of your finances, work with them to understand processes and educate yourself.