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:
These articles just aggravate me. "Money" people write this crap and neglect a large portion of population that gets tax credits rather than refunds. There is a box on your filing status form that you can check to be exempt from paying federal tax if you always, and expect to, get it all back in a refund. My income and family status puts me in that category for the past several years, but with credit the government still sends me around $6k every year. Just how they deem that appropriate I have no idea, but if they're going to send it I'm going to spend it. How do you expect me to adjust my withholding and not plan on getting that money to use for bills, repairs and such?
I am always within a couple thousand of owing no big deal I would rather have the money. When you learn to use money instead of money using you then you can really be free. It amazes how many people will spent hours learning the stats of their favorite fantasy team, or know everything about something not really important but have never read a single book about money! The reason wait for it........they are lazy and want other people to do it for them problem is the other guy or gal needs to make a living to so guess you pays? It is not that hard....Save early in life, pay it off each month or do not spent it. STAY OUT OF DEBT. I am not perfect in this I LOVE to spent money the best money spent is that money that helps someone else best return I have ever found. Long term joy.
Just be a little smart and a little not so lazy. Just saying.....
Everyone has their own idea of what to do with their money. Many times the money "experts" are wrong. There is no right or wrong when you decide what to do with your money. It is your choice. You can choose to follow suggestions like this or not. However I disagree with safety nets the taxpayers have to pay. it is your choice and the responsibility is yours as well.
I choose to get a refund. To me it is like free money at this time of year. I have no plan for it. it is money that comes into our hosehold that is not on the budget anywhere. Free money to blow as we wish. We do not miss it through the year because it is not in our pocession. How we use it is decided after we get it. Usually on something fun. People say that is wasting money. Yes it is. My choice.
I'll probably get a ration about this but here goes. I'm retired and pay my taxes quarterly and find it more convenient to roll the refund over into the next year. Makes for owing less each year. think about it.
Wait, is MSN actually telling people what they should or could do with their tax refunds? Taxes that the IRS had NO LEGAL RIGHT to obtain in the first place!
Is MSN telling us that we have the option to place this legal tender that is already ours, in a bank account? Wow! Thanks for that advice, Freakin' morons.
Here's an idea... I want the IRS to replace the legal tender that they have taken from me, (under the guise that it's the "law") with actual gold and silver. REAL MONEY. Not the valueless greenbacks that we put a value on.
You think its bad now just wait until next years when Obamacare takes hold and everyone that cant afford health insurance gets taxed even more.
Plus all the other hidden crap he put into it that he would not tell people until its too late
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