About 2.2 million people overpay the IRS every year. That's almost like the whole city of Houston with its 2,258,000 people all overpaid the IRS every year. All the over payments total to around one billion dollars. Around 82% of Americans receive refunds every year for overpaying taxes from the year before. So what is the tax refund for? Why so many people are happy to receive it every year but why do many experts advise against it?
If you want to find out how easy it is to stop overpaying the IRS, read on. If you are from Salt Lake City have similar tax problems and would like to talk to a professional this website has some very helpful information.
Reasons to Stop Overpaying the IRS
You and I have been there, April rolls in and we're just glad we have some unexpected windfall care of our tax refunds. Now, that we've got more wisdom and experience under our belts, we are here to tell you that while that windfall my do well for you psychologically it's not such a great move financially.The average tax refund in 2014 was $3,034. That's a pretty substantial number. You could use it to go on a weekend vacation with the wife or buy that designer bag you've been eyeing all year. You know what else that money would've been great for? All the bills and unexpected monthly expenses of the past year. Three thousand dollars divided by 12 is around $252 a month. It is ironic that those who are the most excited about tax refunds are those who are living paycheck to paycheck and could've used the extra $252 to pay rent, prevent getting evicted or prevent being late on bills and health insurance. Instead it gets sent as a lump sum a year after with the promise that the money will go into paying debt or savings and investments--which of course never happens.
Some people have been over withholding their monthly incomes and using the IRS as a sort of forced savings system. The intention behind it is well meaning but financial experts don't think giving your money to the IRS for "safe keeping" is such a hot idea. First of all, while you're slaving away at your job cutting coupons and scraping by whatever you can just to save a buck or two, the U.S. Treasury now has an extra billion dollars' worth of cash in its possession to use as it pleases or grow as it pleases. You are essentially giving your $3000 away on an interest-free loan to Uncle Sam.Secondly, while you are strapped for cash because you've decided to over withhold on your income, you are more likely to incur charges on your credit card and not having cash on hand for emergencies could put you in financial jeopardy. Less cash could also mean missing payments on your credit card forcing your credit card debt to grow.
There are better ways taking advantage of the taxation system than just over withholding your income. If you are in the Salt Lake City area there is a good Salt Lake City tax attorney and his firm (they also have CPAs who can help you) who can help you maximize your tax exemptions so you aren't so heavily taxed every month. You can contact them here.
Adjusting You With holding
It's pretty easy to adjust your withholding. Just fill out the new W-4 that you file with your employer every year and adjust your withholding to an amount as close to your tax bill as possible.
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