A friend of mine is getting a divorce and having trouble paying the bills. She mentioned that she should be getting about $6,000 from her tax refund this coming year, and is anxiously waiting for January to roll around so she can file. She said before the divorce she had normally used the money to buy antique furniture or go on trips with her husband. I asked her why she had any refund coming to her at all. She looked at me like she didn't get my question. I suggested she set up her W-4 withholdings so she didn't get any refund at all and perhaps even had to pay $100 or so in April so she could have use of her own money the whole year, instead of giving it to Uncle Sam to use, interest-free. She had honestly never thought of this. Wouldn't it be better for her to pay the right amount of taxes as she went throughout the year, rather than having too much taken out and not having it to earn interest or pay down debt (she's having to move out of her house because she's been so strapped all year). I have to ask why, since she has about $6,000 sitting where she can't get at it that she could really use RIGHT NOW. You can do a W-4 calculation on the IRS Web site to figure out if you have too much tax being withheld each paycheck.
Getting a Tax Refund is Silly
October 16th, 2007 at 08:52 pm
October 16th, 2007 at 09:11 pm 1192569066
October 16th, 2007 at 09:40 pm 1192570832
Ideally, you should just pay the taxes you actually owe. It makes absolutely no sense to pay hundreds or thousands extra for no reason, just to get it back the following year.
October 16th, 2007 at 09:58 pm 1192571932
October 16th, 2007 at 10:45 pm 1192574713
October 16th, 2007 at 11:28 pm 1192577333
We tend to tell people to invest through their 401(k)s because they won't feel the effect as much. Paying taxes this same way has the same effect.
October 17th, 2007 at 12:35 am 1192581342
And because most W-2 workers don't pay attention to what's happening to them tax-wise, they have to work to age 65, and are pinning all their hopes on 401(k)s. Tax is a big piece of the puzzle, but no one wants to deal with. Fine...but you can NEVER expect to get in control financially unless you do, no matter what anybody tells you. It's a lie. You cannot taxes and ever truly get ahead...no matter what you've heard the experts tell you.
October 17th, 2007 at 12:44 am 1192581881
I'm assuming Jennlem is implying that he/she will need to save up to pay their taxes. If that's the case, no...you will pay the right amount as you go. You won't need a lot of money on April 15 to pay your taxes. If he/she means that they won't be disciplined enough to use the money wisely throughout the year herself/himself, then what does that say about being able to manage anything related to money? If people can't do that, then how can they be sophisticated enough to handle a credit card without getting in big trouble or a mortgage, for that matter. If we can't even manage a few extra dollars every paycheck that we save by not giving it to Uncle Sam unnecessarily, then should we really be charging shoes at the mall?
October 17th, 2007 at 03:15 am 1192590921
I understand the impulse of getting the big refund - it does force you to file because it will be good news, but think about this strategy - change the withholding, figure out the increase in each paycheck, then have it direct deposited as soon as the paycheck comes in. Its easy to set it up in ING, and even at "only" 4.3%, $6000 is $258/yr more.
October 17th, 2007 at 12:56 pm 1192625799
I'm not saying you need to save that extra money each paycheck. You (general you) may actually need that money to live on.
October 17th, 2007 at 05:09 pm 1192640968
And it has NOTHING to do with having to save money to pay my taxes in April! @@
I know that if I were to receive an extra $20 a week, I would piss it away in a heartbeat. The fact that I shouldn't is irrelevant. I WILL!
Therefore, I prefer to get a $1000 tax refund which is immediately delegated to savings, a bill that has popped up, etc. I cannot, have not nor will I EVER piss away a lum sum of $1000.
I am assuming that is more to what Jennlem was saying.
October 17th, 2007 at 06:03 pm 1192644198
Yep, that is exactly what I was getting at.
Everyone--
I didn't intend to suggest my alternative to the OP I was just mearly stating what I do.
And also--blowing $20/month/paycheck/whatever and not saving it has nothing to do with not being able to pay a mortgage or other bills