There have been tons of articles and it’s been hyped in the media that with tax season in full swing people are realizing that they are not getting a tax refund. It has really caused an uproar and I know many years ago I would likely be one of the people who would be in an uproar. However, as we’ve embarked on this journey to financial independence we have learned many things along the way and are still learning.
One of the lessons learned is that you don’t want a tax refund. Why? Because in getting a refund you have loaned the government your money all year and they are just returning it to you, without you earning anything on it. Yet if you don’t pay taxes right away the government will charge you a ridiculous amount of interest to give them their money back. So why would you want to loan free money to the government?
What needs to be done is to look over your W-4 Withholding Form which shows you how much you should withhold each paycheck based on your income. Pages 2-4 of the document provide examples of what you should enter on Page 1 to have the correct amount withheld. If that isn’t as helpful as you like you can always use the IRS Withholding Calculator that allows you to go into even more detail to determine if you are withholding enough each paycheck.
Each paycheck should be giving you the max amount of money you can receive without keeping more than you should in taxes so that when tax time comes around you owe $0 or as close to it as possible both to federal and state. This way you can use YOUR money all year to pay off debt, save, invest, whatever it is that will help you build your financial foundation.
It’s important to note that if you are still confused about how much to withhold you should see a tax professional – not an H&R Block employee, but a Tax Accountant, a CPA who specializes in this area. Yes it will cost some money but also yes he/she will make sure that you are choosing the correct withholdings based on current tax law. Don’t do this on your own if it’s not your area of expertise. Get the help to maximize your benefit. It will make doing your taxes that much easier the next time.
As with any help you choose to get, make sure to vet the potential hire because it is your money we’re talking about. Ask around for referrals. Your money is your business and you are the CEO of You or Us, Inc. Treat it that way and make sure you’re hiring the best people to help you maintain and grow your business. Don’t let another year go by where you are withholding too much and you get a huge refund at tax time whereas you could be getting that money throughout the year.
Do you use a CPA/Tax Professional to help ensure you are withholding enough? Do you use the Withholding Form or Calculator to determine it yourself? Are you used to getting a huge tax refund? Will you be adjusting your withholdings to get that money in your paychecks?
