It’s that time of year, folks. If you haven’t filed your tax return yet, you’ve got a week to get it done.
This is the time of year where you hear people talking about “what they’re going to do with they refund money”. While I wholeheartedly agree that it is definitely good to make a plan for your money, if you get excited about the fact that the IRS owes you a lot of money at the end of the year, you’re looking at your situation all wrong!
For most Americans, the way they pay into the Federal tax system is through withholding from their paycheck. When you start a job, you fill out the Form W-4, that tells your employer how much to withhold from your paycheck each pay period. While the different statuses and exemptions to claim may seem confusing, the form does have several worksheets included that should help you get to the right number of exemptions to claim from your paycheck.
When you claim zero exemptions on your W-4 because it’s the easiest or possibly the safest (or they’ll withhold the highest amount from your check), and you end up owing far less on your tax return than you withheld for, you are essentially giving the government an interest-free loan for the entire year! Don’t you think that that money being withheld from your check could be put to better use throughout the year, with a good plan in place for that money? Having that extra money in your monthly budget could mean paying off debt months or even years sooner!
So if you’ve filed your return already this year, and are expecting (or have already received) a big refund, it may be time to reevaluate your withholding on your paycheck, and put your money to work for YOU, not the IRS!