I won’t claim I’m a tax professional at all. I barely get by on doing my taxes properly using TurboTax as they’ve gotten much more difficult in the last few years since owning my sites, increased income at work, bonuses, etc. But I do know one thing, but I’ll get to that.
My wife was having a conversation with a friend and coworker about taxes. She was saying how we were having difficulty this year because we had to wait for a corrected W-2 from my employer and will probably owe a couple thousand dollars. In fact, we’ve owed thousands every year for the last 4-5 years. Sound wrong? It’s not!
Her friend expects a refund every year and always has plans for it. How many of you also do this? I did it for years. Everyone in my family does it. Many of my friends expect a refund. I bet most of you do too. She actually told us we were doing our taxes wrong because we owed money instead of getting a refund!
BUT YOU’RE ALL WRONG!
The answer is simple. When you get a refund, that means you’ve given the government a free loan. You think they would do the same for you? You might enjoy getting hundreds or thousands in the mail each year and plan your family vacation or some other big expense around it, but you’re forgetting one thing: the money was already yours!
If you would just plan appropriately at the beginning of each year based on last year’s results, and earnings and deduction expectations for the coming year, you could result in breaking even. However, I always make sure I have more than enough in savings to cover what I’ll owe. If you want to figure out how to fill out your W-4, use the IRS Withholding Calculator, but also consult an accountant in complex situations.