Eighty percent of Americans will receive a tax refund this year. Are you one of them? If so, this means you have given the government an interest free loan over the last 12 months! Although it is fun and a welcome influx of cash, that is not the best use of your money. Plus, we all know the government is not a great manager of money!
Ideally, it is best to have exactly the amount of money taken out of your check needed to pay your taxes. But most of the time knowing that amount is a moving target. We throw arrows in the dark to pay the right amount of taxes without owing the government on April 15th each year. For many of us, it is simply easier to pay a little bit more throughout the year to ensure enough is taken out.
There is a way to be more accurate in your approach while estimating your tax burden. If you have your taxes prepared by a CPA simply ask him or her for your recommended exemptions. If anyone knows what your exemptions should be it is your tax preparer! You could also go to your payroll department and have them change the amount withheld. If you owe $2400 for 2017, then go to your payroll department and have exactly $200 take out each month in addition to your current amount. Frequently, I also have my clients go to https://www.irs.gov/individuals/irs-withholding-calculator and plug in real numbers for the previous year. This calculator will tell you what your exemptions should be and estimate your expected refund or what you might owe. This exercise will take you less than 20 minutes and if you do it right now you have 10 months to benefit from any changes you make.
Now, what will you do with your refund check? It is very common for those who receive refunds to make a large purchase because it feels like a bonus, unexpected money, or a windfall. But, I challenge you to do something that most are unwilling to do. Pay off a debt or save your refund. Give yourself the opportunity to get ahead financially so that you can make quick progress.
Tax season doesn’t have to be a chore. It can be a chance for you to make some positive changes in your finances and plan for the upcoming tax season. Don’t give the government an interest free loan if you can help it. And don’t do what everyone else does when the refund hits your bank account. Plan right now for what you will do with your money. Be sure to review your goals and put some money towards them this tax season. You will be so glad you did!
You don't have to do this alone either! If you need some help prioritizing and creating a plan for your refund just reply to this email. I would love to help!