En español | That hefty tax refund you may be looking forward to might seem like a windfall, but it comes at a price. You’re giving the government a tax-free loan while you could be investing the money, spending it, or paying down debts.
That’s just one tip from Hispanic financial experts, who come prepared with tactics to save you money on your taxes.
If you get a refund, here’s what experts generally recommend.
- Use it to pay down debts
Deposit the money into an interest-bearing account, or invest it in retirement savings such as a 401(k) or an IRA (individual retirement account).
- Change the tax withheld from your paycheck to avoid future refunds
Ask your employer for Internal Revenue Service form W-4 and adjust the number of allowances.
- Never get an advance on your refund
What masquerade as quick refunds are exorbitant “refund anticipation loans,” says Deyanira Del Rio, director of the Immigrant Financial Justice Project of the Neighborhood Economic Development Advocacy Project in New York City. She recommends waiting for the refund, which takes about three weeks for e-filing or six weeks for filing by mail.
If you owe the government, no matter the amount, don’t panic.
Do, however, file your 1040 tax form—even if you can’t afford the full amount right now—or you’ll pay a penalty. Blaire Borthayre, who consults with major tax companies on Hispanic issues, says if you need more time to pay, visit the IRS website or call 800-829-1040 to request an installment agreement in English or Spanish. If you can’t pay at all, ask about other options—but still file your 1040 on time.
Another way to play smart with taxes is to get help — from AARP’s Tax-Aide program, tax software, or tax consultants.
“Filing taxes incorrectly can result in penalties and legal repercussions,” Borthayre says. “You should ensure that you fully understand what is taking place.” If you’re more comfortable speaking Spanish, get help from someone who speaks that language. And find a consultant trained in tax issues that apply to Hispanics. For instance:
- Hispanics’ use of two last names can pose a stumbling block. Enter the wrong one and the IRS could reject your return.
- Something as simple as the order of the month and date can also cause confusion. If your birthday is May 1, it’s 5/1, according to the IRS, but 1/5 in some other cultures.
- The average tax preparer may not know that in many cases, you can claim dependents living in other countries.
- Undocumented workers with no Social Security number need to apply for an individual taxpayer identification number (ITIN).
- Find out if you’re eligible to save thousands of dollars with credits and deductions such as:
- Earned Income Tax Credit, for low-income families.
- Education Credit, for tuition and related expenses.
- Child Tax Credit, for dependents under 17.
- Credit for the Elderly or the Disabled, for people either 65 and older or under 65 and retired on permanent and total disability.
- Child and Dependent Care Credit, for care-giving expenses.
- Deductions for state and local taxes.
Because each person’s financial situation is different, it’s best to consult a tax adviser.
Don't let Tax Time give you heartburn—the Spanish-speaking volunteers with AARP's Tax-Aide program can help you fill out your return for free!