Here's my annual warning/suggestion to those of you out there getting big tax refunds -- don't do it. Instead, adjust your withholding so you get the amount owed to you throughout the year. Here's what Yahoo has to say on the issue:
If you regularly get a big refund, increase the number of personal allowances. Once you get the correct amount taken out and have a bit more cash each paycheck, don't automatically spend it. Since you're no longer a customer of the Unofficial Bank of the IRS, open an account -- savings, money market or certificate of deposit -- at an institution where your money will earn you, not the federal government, interest.
Last year, tax refunds averaged more than $2,260. That's a fairly large amount to be loaning the US Government. Instead, change your allowances and have that extra $188 automatically invested in a mutual fund or at least put into a decent-rate savings account. Make the money work for you during the year instead of simply letting Uncle Sam use it for months for free.
Ok, warning over. Go back to your regularly-scheduled activity. ;-)
Addendum:
Don't try to 'game the system' by under-withholding such that you owe the government at tax time. Although it's tempting to think that you can deposit the money that you think you're going to owe them and earn even more interest, you can be penalized for under-withholding. (Not to mention the risk of possibly not having the money you owe them at tax time!)
The sensible strategy for most people is to try to be tax-neutral (nothing owed, nothing refunded) come April 15th.
Posted by: tinyhands | February 22, 2007 at 12:08 PM
do you know of any calculators that will approximate the difference from withholdings, like the difference to your salary and typical tax return for, claiming 0 and claiming 1?
Posted by: | March 19, 2007 at 04:53 PM
I don't. Does anyone?
Posted by: FMF | March 21, 2007 at 03:32 PM