With the first of the year rapidly approaching, now is the time to review your withholding selections. The first question you need to ask yourself is – Did you receive a large tax refund last year? If so, you allowed your money to be used as a loan to the government and gained nothing for this loan. To correct this situation you may want to adjust your withholding allowances so you receive the money in your pocket throughout the year rather than allowing the government through the IRS to use your money without paying you any interest!
The first step to adjusting your withholding is determining exactly how many allowances you have claimed on your W-4 form (the tax form your employer uses to determine how much income tax to withhold from your paycheck) then increase the number. For example, if you claimed three allowances and wish to decrease the amount you have withheld increase your allowances to four; the individual who prepares your paycheck should be able to tell what impact this change has on your paycheck.
If you rely on your refund to pay a particular bill such as property taxes, have the extra money you will receive in your paycheck automatically deposited into an account where you will gain some interest. Adjusting your withholding in this manner will still give you your refund but in smaller increments through your paycheck rather than your large refund at tax time. Also, if you handle your money in this manner you will avoid stressing at tax time wondering if your refund will arrive in time to pay that bill. This is particularly important to consider based on the last couple years’ tax season delays. A delay in the start of the filing tax year automatically means there will be a delay in receiving refunds from those returns.
Additionally by having the extra money you received in your paychecks immediately deposited into an interest bearing account, you will have gained something on your money – all it takes is you being disciplined and not spending the money before you pay that bill! So take the time now to review your withholding allowances and save yourself the potential of stressing at income tax time!
Submitted by Kathy Shrader
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