Many people consider a tax refund a great way to save money or a nice way to get a bonus at the beginning of the year. But in reality you are giving the government extra money each month interest free when you receive a large tax refund. If you adjust to get a smaller refund you get the money throughout the year, and you can use it to do the things you want to now instead of waiting until the end of the year. If you do have a large refund this year, create a spending plan for your refund so that you can use the money effectively.
If you struggle to make ends meet each month, and you get a big refund, the extra money can make a big difference in your budget. If your refund each year is $6,000, that works out so you can receive an extra $500 a month to help cover your bills. The extra money can help you stop going into debt or it can be used towards your debt snowball. If you are really struggling to make ends each month, this will help you to stop going into debt so you can turn your situation around.
If you qualify for the Earned Income Credit you can have that paid to you throughout the year. It is important to be sure that you will continue to qualify for it, before you do this however, so you do not end up owing money at the end of the year. If you get a raise or a second job you may no longer qualify and you will not want to sign up to receive it through work. Contact your human resources department to sign up for the early payments. There are other tax credits that can increase your refund amount as well.
If you still want to receive a large amount around the time of your refund, you can set up a savings account with an automatic transfer for the same amount you would have paid in taxes. This will allow you to earn interest on the money and you can use it for the same things you would if you received a tax refund each year. This will let you earn interest on the money, and give you more flexibility about when you can access it.
You can find out how much you should claim to get a small refund or no refund by using the tax withholdings calculator provided by the IRS. You will need a copy of your most recent paycheck and any other sources of income you expect to receive during the year. You should prepare your tax forms at the end of each year so it is easier to file your taxes in the future.
