Quit getting tax refunds
Many Americans depend on tax refunds for savings. But you might be better off adjusting your withholding and opening a savings account.
This post is by Kay Bell at Bankrate.com.
That's no secret. Every tax filing season, the Internal Revenue Service notes that most taxpayers get refunds.
But the American Tax and Financial Center, a new undertaking by tax software giant TurboTax, has taken a closer look at this refund trend.
A federal tax refund is the largest lump sum of money received in a year by the typical American household, according to the Center. And based on 2011 and 2012 IRS data, it estimates that around $230 billion in federal tax refunds will be issued this year to American taxpayers.
They'll get this money, their money, eventually -- after the IRS finishes updating forms and its computer system to match the tax law changes Congress didn't approve until Jan. 1.
Because of that congressional tardiness, the IRS is processing returns, and issuing refunds, a bit later this year. And that could cause a lot of people a lot of problems.
Tax refunds, says the American Tax and Financial Center, are especially vital for U.S. households who live paycheck-to-paycheck and who depend on a tax refund to help cover the costs of everyday living.
Forty-two percent of early tax filers plan to use their refund to pay down debt and cover the costs of rent, food and utilities, according to the Center's analysis.
Adjust withholding instead
As longtime readers of know, I am not a fan of tax refunds. I think it's better to have your money in hand throughout the year via proper payroll tax withholding.
But I understand that a refund is an easy, forced savings account. And with interest rates on traditional savings accounts and CDs at just fractional percentage points (thanks for nothing, literally, Federal Reserve!), you're not losing any earnings right now by letting Uncle Sam be your banker.
But you are losing access to your refund money because the IRS can't get it to you as quickly as you'd like.
So just think about adjusting your withholding this tax year. That way a bit of your usual refund will show up in each of your 2013 paychecks.
Sure, Congress might finally get its act together and tax filing this time next year may be on schedule. But we are talking about Congress.
If you're afraid you'll just spend that money that you usually get as a refund, there's a way to save yourself from yourself. Open a savings account and have the amount that you're sending to the IRS via payroll withholding directly deposited in your own account instead.
Since it won't show up in your pay, you won't be tempted to spend it. And I have faith that you can leave that savings account alone until you really need to tap it.
More from Bankrate.com and MSN Money:
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The money the fed has to return to you is basically borrowed. Interest free. They can borrow as much as they like without penatly but if you owe more than $1000 on your taxes, you get hit with a $100 penalty (and then some, depending on the circumstances)
Time to limit their intake as much as possible! DON'T LET THEM BORROW YOUR MONEY FOR FREE!!! It is TIME to DEMAND more fiscal responsibility out of washington.
Too bad it seems that they keep the system as convoluted as possible. Makes it harder for you to plan anything and keeps extra money around to be played with.
Have no fear the IRS and its changing tax table will insure we all stop getting Tax refunds by making sure we all OWE, no matter how we fill out our tax withholding forms!
I claim zero all year yet I suddenly started owing four years ago and the kicker is I never made more or got a raise, strange how a guy thats way,way,way under Obama's millionaire tax yet I owe and the slacker 47% keep getting tax refunds!
Gonna be a hard life when the 47% no longer can live off the rest of us!
The only reason this is being suggested and is published here is because his is a liberal news site with a liberal agenda and the liberal government doesn't know how to budget (imagine that) and they can't plan ahead for tax season when they have to pay out billions of dollars in tax returns.
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