Do something spectacular and unusual this year when you visit your tax professional: tell her you don’t want a refund next year more than $1,000!
Yes, you read correctly, NO REFUND next year more than $1,000.
Wow, this is a radical concept.
Everyone knows that we Americans love our tax refunds. That late winter/early spring windfall of cash helps out with so many different financial goals. Doesn’t it?
I don’t think so.
I think most people get that money and fritter it away. Spending it on a new flat screen television or a spring wardrobe or a weekend away at Mohegan Sun: this isn’t prudent financial planning. And, if you’re a homeowner, you need to plan your finances carefully.
There’s always work to be done on the house. Or maybe there’s the credit card bill from your purchase of new windows last fall to pay off.
I digress. Let’s return to the concept of that “windfall” of a tax refund.
The truth is this is just a repayment of an interest-free loan you made to the United States government, nothing more.
When your employer takes money out of your paycheck, what is really happening is you are making an advance payment to the government of your tax bill. But that tax bill won’t be prepared by your tax professional until next winter!
And, if you are a homeowner, then you will find your tax bill is substantially lower than the one calculated by your employer. The reason is simple: your mortgage interest and property taxes are tax deductible against your income.
That means your “taxable” income is actually lower than your “real” income!
That’s why you get the windfall, the refund. You are getting back your own money that you loaned to the government all year.
Uncle Sam repays it to you with ZERO interest! There’s not even a “Thank You!” note enclosed. Believe me, if you made an interest-free loan to me, I’d definitely say, “Thanks!”
Often that refund is a substantial chunk of change; it’s a lot more than $1,000!
Think about it: if your refund is $6,000 that’s $500 a month you overpaid your income taxes! You can do a lot with that $500, can’t you?
So, do something radical, spectacular and surprising this year: tell your tax professional you don’t want a refund more than $1,000 next year. Your tax professional—admiring your obvious financial smarts—will then calculate how to reduce your withholding on your paycheck so that money you’ve been lending the government goes into your pocket each payday, instead!
Armed with that advice, you then pay a visit to your payroll department, file a new W-4 withholding form and KEEP YOUR MONEY!
I’ll bet you can put it to better use that way in your monthly budget than waiting for that windfall next year.[tags]Word Press, Technorati, SimpleTags, Tax Time, Tax Refund, Mortgage Interest Deduction, Home Buyer, IRS[/tags]