ScottGem
Jan 24, 2009, 11:41 AM
This isn't a question but advice.
When you borrow money (mortgage, credit cards, etc.) you expect to pay interest on that money, right? But when you setup your tax withholding (using the W4), you are, in effect, loaning Uncle Sam (and the possibly your state govt) that money interest free.
This is primarily directed at those people who look forward to big refunds after they file their tax returns. By doing so you are LOSING Money. It is better to adjust your exemptions via the W4 so that the amount of tax you will owe is roughly equal to the amount of withholding. This puts money in your hands throughout the year that you can use for savings in interest bearing accounts or to pay down debt, reducing interest costs, or to avoid borrowing, again saving money.
For the last several years, I've been managing less than $100 +/- on my Federal return. Most years I get less than $100 back, but some years I've had to pay less than $100. I do this by using tax software to do What If calcs and adjusting my W4s accordingly.
And while we are on the subject, don't compound this by taking a Refund anticipation loan. Not only do you lose out by not being able to use YOUR money during the year, but now you are paying even more to get your refund a few weeks earlier.
When you borrow money (mortgage, credit cards, etc.) you expect to pay interest on that money, right? But when you setup your tax withholding (using the W4), you are, in effect, loaning Uncle Sam (and the possibly your state govt) that money interest free.
This is primarily directed at those people who look forward to big refunds after they file their tax returns. By doing so you are LOSING Money. It is better to adjust your exemptions via the W4 so that the amount of tax you will owe is roughly equal to the amount of withholding. This puts money in your hands throughout the year that you can use for savings in interest bearing accounts or to pay down debt, reducing interest costs, or to avoid borrowing, again saving money.
For the last several years, I've been managing less than $100 +/- on my Federal return. Most years I get less than $100 back, but some years I've had to pay less than $100. I do this by using tax software to do What If calcs and adjusting my W4s accordingly.
And while we are on the subject, don't compound this by taking a Refund anticipation loan. Not only do you lose out by not being able to use YOUR money during the year, but now you are paying even more to get your refund a few weeks earlier.