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🌊 Messy tax season ahead

January 14, 2021 Sign up

Happy Thursday everyone!  In today's Gist, we'll cover three money topics you've asked about:

  • Taxes, taxes, taxes!  How should you prepare for what's looking to be a rough tax season?
  • What is a credit freeze, and should you do it?
  • Calling all bookworms!  What finance books do Finny members recommend?

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How should you prepare for what's looking to be a rough tax season?

In a normal year, the Internal Revenue Service (IRS) would have issued a start date for the tax filing season.  Not this year though!  

The economic disruptions of 2020 will get reflected in the tax returns filed, reshaping people’s typical patterns and changing their usual tax refunds.  Many people will need to file tax returns to get the balance they are owed for stimulus payments. Others will have to pay taxes on their unemployment insurance benefits, while some others will face the complexities of state-tax rules for remote work.

Even though the start date of the tax filing season hasn't been announced yet, there are helpful tax moves you should consider now.  Like what? 

Brush up on your tax knowledge.  Preparing your taxes shouldn't feel like reading a foreign language textbook.  Take a fun, 3-minute, quiz-based Tax lesson on Finny (see the gif above if you're new to this), refresh on tax jargon, and learn new ways to save on your tax bill.  (By the way, when you learn on Finny, you can earn rewards!)

Every year, the IRS adjusts more than 40 tax provisions—from income tax brackets, standard deductions to credits and exemptions—for inflation.  Be sure to check relevant updated figures and don't forget that... 

  • Contribution limits to retirements plans are unchanged from 2020
  • If you received unemployment benefits in 2020, they count as income and must be reported
  • If you took money out of a retirement account before age 59.5 to help cover your costs during the pandemic, you have three years to pay that back without penalties

Start collecting your tax forms and supporting documents now.  Don't underestimate how long it'll take to gather all the forms you need to file on time.  A quick hack here is to pull out a copy of your 2019 return and make a list of things you need for your 2020 tax return.  And if you want your refund fast, get your returns in ASAP as the IRS is still dealing with returns from last year.

Individual tax returns and extension requests are due on April 15 for the 2020 tax year.  This is also the last day to contribute to a traditional or Roth IRA for the 2020 tax year.  Good luck!

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Should you freeze your credit?

Have you heard of freezing your credit?  If not, consider it. It's one piece of advice the Finny community shared to protect yourself from identity theft.  When 33% of US adults have experienced identity theft—a figure twice the global average—it may be the right thing to do preemptively!

How does it work?  It prohibits the three credit bureaus from sharing the contents of your credit report to anyone requesting the data.  Without that credit report, lenders will not extend credit to you or anyone claiming to be you, which helps to prevent new credit accounts from being created in your name.  Freezing your credit isn't going to make all potential fraud go away.  But it sure as hell will make it more difficult for someone to use your stolen data to open up accounts in your name. 

How do I freeze my credit?  Visit the websites of each of the three credit bureaus (Experian, TransUnion, and Equifax) and request a credit freeze.  It's free, easy to do within minutes online, and doesn't have any negative consequences on your credit score.  If you need to unfreeze your credit, you can do so online and your credit report will usually become available within half an hour.

Did you know that 1 in 8 Americans don't know what their credit score is?  And of those who have checked their credit score, a whopping 46% haven’t done so in over two months?  The good news is that most credit card firms, banks, and companies like Credit Karma make it easy and free to check your credit score.  Make sure you're checking your score regularly, and if you're not actively applying for new credit accounts right now... freeze your credit!

Follow the discussion on Finny.

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What personal finance and investing books does the Finny community recommend?

The long weekend is coming up... maybe time to pick up a personal finance book?   

We asked our members for their favorite book recommendations.  Here is what they came up with:

  • J. L. Collins’s book “The Simple Path to Wealth” is an excellent investment book for those who are looking to achieve financial freedom and retire early.  Collins provides simple advice on how to live, avoid debt, and hold your nerves during market downturns!
  • “The Little Book of Common Sense Investing” by John Bogle.  John Bogle was the founder of Vanguard Group and is known for creating the first-ever index fund.  Even Warren Buffet gave his endorsement to Bogle’s book, saying that “investors large and small” should read it.
  • "Rich Dad Poor Dad" by Robert Kiyosaki—a great read for young investors.  Kiyosaki believes the poor and middle-class work for money, but the rich work to learn.  He stresses the importance of financial education and teaches people how to avoid the rat race of corporate America.
  • "The Total Money Makeover" by Dave Ramsey is a book financial literacy book that imparts common sense wisdom (albeit, with some fiery Christian passion).  The main battle cry of the book is to live debt-free, providing 7 baby steps to get to financial freedom.

For the best podcasts about investing, check out recommendations from our friends at Public.  And chime in in the thread below!

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