Big tax refunds can be costly
This is the season for income taxes—and income tax refunds. According to the IRS, nearly 78 million people received federal tax refunds in 2009 averaging $2,705. If you’re one of those folks, it may be tempting to think of your refund as a gift; but in fact, you’ve essentially been giving the government an interest-free loan for the past year.
Before spending this year’s refund, get on the right track for next year: complete a new W-4 form, so your employer withholds the correct amount from your paycheck. This recalculation is especially important if your income level or family situation changes—for example, new kids, fewer dependents, marriage or divorce, etc. Your goal should be to receive little or no refund.
So what should you do with this year’s refund? Here are a few suggestions:
• Pare down debt. By accelerating your credit card and loan payments, you can significantly lower the amount of interest paid over the long run. For example, suppose your credit card balance is $2,000 at 18 percent interest and you’re only paying $80 a month. Even with no further purchases, it will take 32 months and an additional $526 in interest to pay it off; by doubling your payment to $160, you reduce the payoff time to 14 months, and save $295 in interest.
One caution: Before making extra payments on your mortgage or car loan, make sure there’s no prepayment penalty. If there is, see if you can renegotiate the terms; otherwise, pay down another debt.
• Save for emergencies. To protect against layoffs or other unexpected financial crises, build up your savings to cover six months of living expenses. It’s best to keep emergency savings in accounts like a money market account that you can access easily to pay without early withdrawal penalties.
Another option is to park that money in a high-yield checking account where, in exchange for certain restrictions (like mandatory direct deposit and a minimum number of monthly debit card transactions), you can earn much higher interest than a traditional savings or checking account. Numerous websites track high-yield accounts including www.highyieldcheckingdeals.com and www.checkingfinder.com. Just be sure to compare terms and restrictions carefully.
• Save for retirement. If your debt and emergency savings are under control, consider beefing up your IRA or 401(k) accounts, particularly if your employer matches contributions, since that’s like getting free money. Practical Money Skills for Life, Visa Inc.’s free personal financial management program, contains detailed retirement financial planning information such as how 401(k) plans work, tax ramifications, and interactive retirement savings calculators (www.practicalmoneyskills.com/401k).
• Save on energy, save on taxes. You can claim a tax credit for up to thirty percent of the cost of certain home improvements to existing homes (including central air conditioning, furnaces, windows, insulation, and water heaters) purchased by the end of 2010, up to a maximum of $1,500. Not every product qualifies, so visit the government’s Energy Star website for details before you buy (www.energystar.gov/taxcredits).
• Bottom line: Before you splurge on something you don’t really need, consider investing at least part of your tax refund on something that will boost your future financial security.
Local Catholic Church gets financial support for a project years in the making
Our Lady of the Assumption Church in Jemez Springs, New Mexico was awarded a $30,000 grant from Catholic Extension to help advance parishioners’ 12-year capital campaign to build a multi-purpose building for large gatherings and meetings. The new facility is a welcome addition to the parish’s expanding community of rural Hispanics, Native Americans, and Caucasians, which has grown to the point that the church alone is inadequate to meet the needs of the community.
The cost of the project is $247,345. Parishioners at Our Lady of the Assumption—where the average weekly collection is just under $400 a week—worked for 12 years to contribute $166,000. With the grant from Catholic Extension and a loan from the Archdiocese, the parish has only $51,000 left to raise and has been able to proceed with construction.
The new building will not only provide extra space for holiday masses, wedding ceremonies, funeral services, and feast day celebrations, but will also include rooms to hold choir practices, religious education classes, and sleeping space for overnight retreats. The pre-engineered metal building located 100 yards from the church will include a kitchen, showers and bathrooms. Construction is scheduled to finish in April and the building is expected to be fully operational by May.
“It is inspiring to see the dedication of the parishioners who have diligently pursued the goal of building a larger facility for their community for more than a decade,” said Joseph Boland, Grants Director for Catholic Extension.
“Catholic Extension is committed to helping Catholic ministries that want to help themselves,” Boland stated. “It is a pleasure to provide the additional funding necessary for Our Lady of the Assumption to better meet the needs of its growing community.”
Catholic Extension has helped build or renovate 233 parish structures in the Archdiocese of Santa Fe since its founding in 1905.
The grant is one of more than 800 requests Catholic Extension will fulfill this year in poor and isolated communities across the U.S. and its territories. Last year, the organization invested $14 million in America’s 84 “mission dioceses”—geographic regions of the U.S. where the Catholic Church is growing and needs are great. Catholic Extension was able to do so through contributions from 47,000 individual donors who share its commitment to strengthen communities and sustain the Catholic faith throughout the country.