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Managing Tax Season Anxiety

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By Devin Partida

Special to Financial Independence Hub

Tax season can be stressful for most people. Though there are many tools and services to help you manage your finances, they don’t do anything to help your mental state. The truth is much of that stress can be of your own making. Thankfully, there are ways to manage that anxiety and get your taxes done.

To help manage your tax season anxiety, knowing why tax season makes people so stressed might be helpful. A big part of that stress is the simple fact that it has to do with money. Although they say money can’t buy you everything, studies have shown financial troubles can directly affect your mental health.

Is it any wonder? People’s worth is often judged by how much money they earn — not to mention money can affect how high your standard of living is. You are happy when you gain more money and become stressed out when you lose it.

Financial stress has become a more significant part of the world in the last few years. Events like the COVID-19 pandemic and the war in Ukraine have caused global financial difficulties, making it harder for the average person to save.

Fear of the government also causes stress during tax season. While most people are upstanding citizens, the idea of the government swooping in and taking everything you have just because you missed a payment or filled out the wrong form is as prevalent as it is irrational.

How to reduce Stress during Tax Season

The key to overcoming tax season stress is to adjust your mental state. Doing your taxes is the same as any other task you have to complete. Here are some things to remember to make doing your taxes less stressful.

Address Misconceptions about the Government

Contrary to popular belief, the government will not throw you in jail for missing tax payments. In fact, the U.S. and Canadian governments will try to help you make your payments — though there are penalties for not paying on time.

The government also cannot immediately take your property if you’re late in your tax payments.

They can place a lien on your property that they can lift if you set up and commit to a long-term payment plan. The government will also be more lenient if you have a lower income, though they can still audit you.

If you’re living in Canada, there are ways to work with the Canada Revenue Agency so they can accommodate your financial needs. The CRA also encourages you to file your taxes online — it’s easier and faster to process.

Stop Procrastination

Filing your taxes is probably not many people’s definition of fun. However, constantly putting it off can cause even more stress as the due date gets closer and closer. Good time management habits can help you reduce stress and get your taxes done.

A common solution is to break down filing your taxes into smaller tasks and space them throughout the month. This can make your taxes less daunting by letting you finish in increments while giving you more time to do other things.

Use Online Tools

Online tools like TurboTax can make doing your taxes much more manageable. These tools streamline the process, making it quicker to get the job done. In addition, some tax collection organizations like the IRS have partnered with certain companies to offer free e-filing. The IRS free-file system allows you to file with them free of charge.

Filing your taxes online comes with other benefits, such as receiving refunds faster and record-keeping services. Most online tools come with 24/7 support you can contact in case you need help.

Take the Stress out of Tax Season

Stress during tax season is a common problem, but one you can overcome. Practice good working habits to prevent procrastination and get it over with. Remember that the government is not out to get you. Fire up that TurboTax and get to it.

Devin Partida is the Editor-in-Chief of ReHack.com, and a personal finance writer. Though she is interested in all kinds of topics, she has steadily increased her knowledge of the intersection of finance and technology. Devin’s work has been featured on Entrepreneur, Due and Nasdaq.

Retirement investments to avoid? Here are our thoughts on this critical subject

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Retirement investments to avoid include everything from bonds down to stock options. Here’s why.

Image courtesy TSInetwork.ca

Our best retirement planning advice is to invest early and often — and don’t forget to use our three-part Successful Investor philosophy.

But if you’re heading into retirement and are short of money, you should move your investing in the direction of safer, more conservative investments. That’s a far better option than taking one last gamble on retirement investments to avoid like the ones we look at below.

Investing in bonds will hurt your retirement finances

As some investors near retirement, their advisors recommend switching to bonds and other fixed-income investments instead of holding stocks.

To some extent, this is an understandable retirement investing strategy, since bonds can provide steady income and a guarantee to repay their principal at maturity.

Unfortunately, we don’t think using bonds for retirement is the best strategy for Successful Investors. Bond prices and interest rates are inversely linked. When interest rates go up, bond prices go down, when interest rates go down, bond prices go up — and with inflation still high, there is pressure for interest rates to keep increasing.

We continue to recommend that you invest only a small part of your Successful Investor portfolio — if any — in bonds and fixed-income investments.

Investing in annuities can fall into the category of retirement investments to avoid

Here are 3 key drawbacks you should keep in mind when deciding whether annuities are a good choice for your retirement investment options:

  • It may be hard to get out if you change your mind: Unlike stocks, it can be difficult or impossible to sell an annuity if you decide it no longer meets your needs. Moreover, you will likely get a low price for your annuity because the date of your death is uncertain.
  • Link to interest rates makes today a poor time to buy annuities: The rate of return you receive on an annuity is linked to interest rates at the time you buy it. That makes periods of still relatively low interest rates an especially poor time for buying annuities. However, if you want to buy annuities, you could buy one annuity a year for the next five years. That way, your returns will increase if interest rates rise, as we expect.
  • Tax treatment: When you own an annuity, the income payments you receive are made up of interest and a return of your principal. The return of your principal is tax free, but the interest portion of the payment is taxed as ordinary income.

Retirement investments to (especially) avoid include penny stocks, junior mines, and stock options

Penny stocks: Penny stocks are cheap and that’s why many novice investors think they make great investments when they don’t have a lot of money. Here’s some insight: it’s much easier to launch a seductive penny stock promotion than it is to create a successful, lasting business. Most penny stocks are over-hyped. Penny stocks tend to be speculative, and are engaged in such things as finding mineral deposits that can be mined at a profit, commercializing an unproven technology or launching new software. They are unproven companies that have very little chance of becoming a sustainable business. You’ll also have to be on the watch for unscrupulous stock promoters who will over-inflate earnings and talk up a stock for their own best interests. If you’re headed to retirement, stay away from penny stocks.

Junior mining stocks: One rule of thumb for mining stocks is that you have to look at 1,000 “anomalies” to find one “prospect,” and that fewer than one “prospect” in a thousand turns into a mine. In other words, finding a mineable deposit is a million-to-one shot. Continue Reading…

Giving with a Warm Hand: through the new FHSA

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Image via Pixels: Rahul Pandit

By Michael J. Wiener

Special to Financial Independence Hub

I expect to be leaving an inheritance to my sons, and I’d rather give them some of it while I’m alive instead of waiting until after both my wife and I have passed away.  As the expression goes, I’d like to give some of the money with a warm hand instead of a cold one.

I have no intention of sacrificing my own retirement happiness by giving away too much, but the roaring bull market since I retired in mid-2017 has made some giving possible.  Back then I thought stock prices were somewhat elevated, and I included a market decline in my investment projections to protect against adverse sequence-of-returns risk.

Happily for me, a large market decline never happened.  In fact, the markets kept roaring for the most part.  As it turned out, I could have retired a few years earlier.  A large market decline in the near future is still one of several possibilities, but the gap between our spending and the money available is now large enough that we are quite safe.

Our lifestyle has ramped up a little over time, but not nearly as much as the stock market has risen.  We just aren’t interested in expensive toys.  Owning a second house or a third car just seems like extra work.  Our idea of fun travel is to go somewhere with nice hiking trails.

So, we have the capacity to help our sons with money, but there is another consideration: what is best for them?  I’m no expert in the negative effects of giving large sums of money to young people, but I’m thinking it makes sense to ease into giving.

Ease into giving with the FHSA

This is where the new First Home Savings Account (FHSA) is convenient for us.  Our plan is to have our sons open FHSAs, and we’ll contribute the maximum over the next 5 years.  This will give them an extra tax refund each year, and if they choose to buy a house at some point, they can use the FHSA assets tax-free as part of their down payment.  If they don’t buy a house, they can just shift the FHSA contents into their RRSPs without using up any RRSP room. Continue Reading…

Fraud was bad during pandemic, but poll finds it could get worse if recession hits

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Image from Unsplash

Kevin Purkiss, vice president, Fraud Management, RBC

Special to Financial Independence Hub

While we don’t always want to think about the risk of fraud, it’s never been more important to stay vigilant. During the pandemic we saw a sharp rise in fraud attempts, but it may be about to get worse if we end up in a recession later this year.

Not only have we seen a strong correlation between increased fraud and economic slowdowns in the past, but many Canadians believe a recession will make fraud even more risky, according to new RBC research.

The poll found that 78% of Canadians believe a recession will increase everyone’s fraud risk and 42% think it will be harder to spot scams during a recession than in the pandemic. Three quarters (75%) also believe that it’s easier to fall victim to a scam when you’re struggling financially and 36% are simply too worried about other issues to be concerned about fraud.

While it’s understandable that Canadians have a lot on their minds and don’t want to think about fraud, scams are getting harder to spot and fraudsters are becoming more sophisticated. This is why we all need to continue to stay aware and take steps to protect ourselves.

Missing the signs of fraud is costing us money

Our research also found that 32% of respondents are concerned they are already starting to miss the signs of potential fraud and 71% are worried it will be harder to spot the signs of fraud as they get older.

Almost a quarter (23%) have been a victim of fraud or fallen for a scam, with 14% saying they lost money because of a scam. While the average lost was $400, 6% of respondents say they lost more than $10,000.

Apathy about fraud risk among Canadians 18-34

More than half (53%) of adult Canadians under the age of 35 say they share more information online than they should and 44% say they are quick to share personal data to get access to an offer, website, app or service. Thirty-five per cent of this age group also perceive fraud as something that happens to others, but not to them, and 33% have never been worried about falling victim to a scam. Continue Reading…