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When the state or federal authorities send you a refund check after you file your return, it’s fun to take this to the bank and cash it.
The typical taxpayer feels like they just won the lottery or got an inheritance.
But the reality is that this is really your money which the government is allowing you to keep this year.
You gave them too much for your tax obligations and the law requires them to return it to the rightful owner.
Many taxpayers use this system as a form of forced savings as it seems less painful to have the withholding taken from your paycheck before you get a chance to spend it on weekly needs.
Then once each calendar year, a big refund check provides you back your own money and that is often used for holidays or other major purchases.
The problem with this system is that everybody needs a cash reserve for new events year-round.
You should be ready today for a large ticket surprise like a car repair or appliance replacement or medical expense which may occur at any time.
The IRS only allows you to get access to the overpayments that you’re making to your future tax obligations after you record in the spring.
You should have control of the money year-round.
Otherwise, you may be forced by emergencies to place something on your credit card and pay the interest until the refund check comes. How expensive is that?
Another lost opportunity is that the IRS never pays you any attention on your yearly refund.
Even though interest rates are very low this year, thanks to federal reserve policies, generally you would have the ability to earn 1-3% on the money you set aside in a savings account or money market in your financial institution.
You might have money sent directly from your checking account into a savings account a couple of times per month equivalent to the refund check that you receive.
That would be just as easy and painless as the excess paycheck withholding that you may be doing now.
Will I Get a Tax Refund This Year And Am I Eligible For a Tax Refund?
Review your 1040 form after you file annually and create an estimate of the income and deductions that you expect to have in the following year.
Alternatively, you can speak to the IRS or call them to find out more about your exact tax refund eligibility for this year.
If last year’s financials will be very similar to this year’s assumptions and you received a refund check that was more than 10% of your tax obligations, consider adjusting your W-4 in your employer to get more exemptions applied right away.
More exemptions will reduce the paychecks and assist to bring your prepayment more in line with your actual tax liabilities.
You’ll be giving yourself a raise in your paycheck immediately which may assist you with bills payable now.
In addition, to help to fund the emergency savings that you have needed all along.
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