It is the start of the new year, and before you know it, tax time will be here. This is a repost of blog about getting a tax refund that was originally published on 9/24/2012.
Have you ever received a tax refund? It may have felt good to get that lump sum payment that could be used for purchases, paying off debt, or for savings. However, is that really a good thing?
When you get a tax refund from the government (state or federal), it’s because you paid too much. Another way to look at it is that the government was like a savings account for you, but they paid you ZERO interest. Sounds like a good deal? Or, the government borrowed your money at ZERO percent interest.
What if you were to pay exactly what you owed? For example, if you received a $2000 refund, that is $166.67/month. Would it be helpful for your monthly budget if you had that extra cash? The money could be used to pay off debt, build wealth, and give.
Maybe it’s time that you reviewed the amount of money being withheld from your paycheck for taxes. Changing your deductions (dependants) will either increase or decrease the amount of taxes you owe. Having somewhat control of your taxes can create a sense of empowerment.
There are several ways to do this. One way is to use an IRS withholding calculator. The calculation is not perfect since the IRS tax tables are not very reliable, but you should still get a better feel for how much money should be taken from your paycheck and the service is free.
Using a tax professional is good way for getting recommendations on how to adjust your deductions. He or she may also recommend alternative strategies such as increasing your charitable donations.
If I had a choice between sending my money to charity or to the IRS, I will give to charity every time especially since the federal government is well known for its exceptional abilities in handling money.
Question: Did you receive a tax refund this year? If so, have you made changes to your tax withholding in your paycheck?