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Zero Refund

I’ve heard over and over again why I want to reduce my tax refund to zero. Or at least as close to zero as I can get. Keep in mind that I’m not a tax advisor or attorney, but here’s some information on tax refunds that you might consider or discuss with a tax professional.

Naturally, no one wants to owe the IRS on April 15th, but for years I have gotten big refunds at tax time. I’m told there are several reasons to avoid doing this:

  • The government gets your money interest free for up to a year. A savings account or short term CD would at least earn a small amount of interest.
  • You don’t have access to the money until tax season the next year, making it impossible to use for emergencies.

It isn’t available to pay down debt, forcing you to accrue interest until the refund comes in.

In short, if you are counting on the IRS to be your savings account, you really need to learn how to save money. The trick is not to overestimate withholdings, or you will end up writing a big check to Uncle Sam on April 15th.

As it turns out, there is a tool that helps with this. The IRS has a Withholding Calculator on its website. It’s a fairly complex tool, but based on my use from late last year, I was able to bring more home with each paycheck. I didn’t adjust my witholdings until late last year, so I still got a return, but smaller than last year’s.

Then comes the hard part, spending my refund wisely. Mine’s going to debt elimination and necessities. There are temptations for my money, but I have goals to achieve, so this year, I’m getting rid of what’s weighing me down.

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