Is It Better Not To Get A Tax Refund?

Is It Better Not To Get A Tax Refund?

If you are an average American taxpayer, you probably fear the tax filing period. After all, the filing of all documents can be a drag.

But for many taxpayers, tax time is also excellent: it's the only time of year when the government sends you a check. Towards the end of the 2018 tax season, the average tax refund was $3,062, according to the Internal Revenue Service. And before March 23, 2018, the IRS reports distributed tax refunds of nearly $198 billion.

So, if you're like many Americans, wait for that big paycheck. You may be thinking of paying a debt, remodeling at home or taking a vacation. It is good. But receiving this tax refund cannot be the best.

What Is The Tax Refund?

Here is the news for you: if you do not qualify for tax credits, tax refunds are not a gift from the IRS. When writing this significant discount, the IRS only returns the money they owe you.

In other words, when you receive a huge tax refund, it means that you have lent the government money from your wages throughout the year. And the government does not pay it with interests.

Tax refunds usually indicate that you paid a lot to IRS too much from your paychecks. Let's talk about why it is just for a moment. But first, let's talk about other things you could have done with this money all year long.

Make Better Use Of Your Funds

What could you do with the $3,000 extra if you increase $115 every fortnight of payment? It's easy to spend extra money without doing anything meaningful. But if you are smart, you can do the following:

  • Pay The Debt Ahead

Suppose you have a credit card with a balance of $2,500, 18% for April and a minimum payment of 2%. Starting in January, you decide to pay $50 per month for your credit card. Then you will pay your balance by checking your tax refund. In December, you have paid $600 per card, but you have a balance of about $2,354 due to interest.

But if you still pay 233 pounds on the card during the year? Now, pay $283 a month. In this case, your credit card debt will run out in October, and you will only pay $202 in interest. To do this, ask your employer to keep your money on your salary by changing your retention.

  • Save For Retirement.

Many people save money when they receive a tax refund. This sounds like a good idea, but when you do, you lose a year of interest in your retirement savings.

Let's say instead of starting a 401(k) this year and paying only 233 pounds a month for a refund. On a monthly compound account of 6.5%, it can reach a balance of approximately $2,881. This is an additional $85, which would otherwise not have attracted interest.

So the $85 will be aggravated and add more interest next year. And the more you go on, the more you earn interest.

How To Solve The Problem

Paying off debts and saving for retirement is not the only reason you can pay the government more than you should. But these are smart ways to use the extra $115 for a salary.

So, if you want to put that money back on your checks, how do you solve the problem?

Everything is reduced to one form: W-4.

This is the form you will need to complete each time you start a new job. Tell your employer how much of your pay you should keep in federal taxes. In this form, you can, among other things, request exemptions for employees, have a job, have a spouse who does not work, or not pay childcare expenses. The more exemptions you receive, the less will be deducted from your tax checks. In the meantime, the less you claim exemptions, the more your employer will keep your salary.

If the tax refunds were sufficient, you probably would not have received enough relief. Often, employees forget to change their mind after an event in their life, such as getting married or having a baby.

To update your exemptions, all you have to do is ask your employer for a new W-4. You can also check out this IRS Retention Calculator, which the IRS has recently updated, by the new tax law, to determine the amount your employer needs to keep on your checks.

Before Changing Your W-4

Now, I spent all the time talking about the fact that it is preferable not to get a big tax refund. For most of us, this is not the case. However, if you do not have the discipline to use the extra $115 (or whatever) with caution, do not change the W-4 yet.

For many of us, it's easy to spend a significant amount on a responsible goal, such as repairing the oven or paying a credit card. But in broad outline of your monthly budget, it's easy to lose an extra $115 salary and let your fingers slip.

If you deem you do not have the discipline to continue using this extra money for good intentions, you may want to continue giving IRS these interest-free loans. You know that the next tax season will pay for everything and you can use the money wisely.

However, it is essential to develop a discipline to save money or pay off debts. Using the right W-4 form can be a simple way to get started.

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