Taxes
Why is it a bad idea to get a big tax refund? Why is it a good idea to actually owe the IRS? What changes are necessary to reduce the refund and increase the monthly paycheck?
Why is it a bad idea to get a big tax refund? Why is it a good idea to actually owe the IRS? What changes are necessary to reduce the refund and increase the monthly paycheck?
I don’t have a response, but I’m VERY interested in this question. From my working life (in Canada), this is what I’ve learnt:
* the government taxes you on everything.
* to maximize my refund, I will try to maximize my RRSP (US version: 401K) contributions for the year.
So, i’m very interested in this reply.
Thanks.
A big tax refund signifies that you have had too much tax withheld from your income during the year. Come tax time, the government is simply giving you back YOUR money that you overwithheld. You have basically provided them a loan for a year and they pay you back with no interest. Not smart.
Change this situation by raising your allowances on your W-4 to have less tax withheld from your paycheck. Strive to break even or possibly owe a bit when you file your taxes as you change who is getting the loan and who is paying no interest on it.
This will bolster your monthly pay and then you can use that money to pay down debt, increase savings, and invest for your future. Financial freedom to follow!