Author Topic: How to Not get a Tax Refund  (Read 4626 times)

ichangedmyname

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How to Not get a Tax Refund
« on: February 17, 2014, 12:17:06 AM »
http://money.msn.com/tax-planning/why-i-hate-income-tax-refunds-jeff-schnepper

I'd rather have my $1700 refund in stocks or at least a savings account earning interest. He explains in the article but I still don't get it. Help?

wtjbatman

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Re: How to Not get a Tax Refund
« Reply #1 on: February 17, 2014, 01:27:06 AM »
I'm ok with refunds. Especially for people who don't know how to make every dollar they earn work for them.

He says the average refund is around $3,000. Let's face it, most people have trouble saving money anyway, so having the government hold $3000 (even interest free) until the end of the year isn't such a "bad bad bad" thing as he says... assuming the person actually saves or invests the money after getting their refund, instead of spending it on an Xbox One and 60inch TV.

b4u2

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Re: How to Not get a Tax Refund
« Reply #2 on: February 17, 2014, 06:06:31 AM »
I normally get a big refund every year. I use it to pay large chunks of debt at one time. Since finding this site I have changed my mind on that process. This will be the last year I get a large refund (8k). I adjusted my withholding (weekly) and will have set up automatic payments on debt weekly. This way I am hitting my debt even harder and saving on interest weekly. If you have a hard time saving money getting the refund it's nice. Once you become disciplined enough to pay your debt and control spending it's pointless.

MrsPete

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Re: How to Not get a Tax Refund
« Reply #3 on: February 17, 2014, 08:47:51 AM »
I work with people who are THRILLED with a tax refund.  I think this illogical thought process stems from two things:

- Although they know it's their own money, it "feels like" free cash falling from the sky.
- They're so afraid of having to pay a big bill to the government, so they'll err on the side of caution, allowing the government to take a little more than is due each month. 

ichangedmyname

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Re: How to Not get a Tax Refund
« Reply #4 on: February 17, 2014, 10:23:52 AM »
If I make 40,000 before taxes, how much should I pay for taxes so I don't owe? My husband doesn't have much income so I think that's why I got the refund as well as that saver's credit.

Spork

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Re: How to Not get a Tax Refund
« Reply #5 on: February 17, 2014, 11:03:45 AM »
If I make 40,000 before taxes, how much should I pay for taxes so I don't owe? My husband doesn't have much income so I think that's why I got the refund as well as that saver's credit.

I have found this to be an iterative process.   In other words: I'll use the IRS w-4 formula and wait a year.  If you are way off, adjust the withholding a little.

If I end up owing or getting refunded +/- 300, I stop.

In some ways it is a moving target.  Tax laws are always changing.

ichangedmyname

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Re: How to Not get a Tax Refund
« Reply #6 on: February 17, 2014, 11:07:25 AM »
Thank you everyone! I'll keep working on it I guess. I didn't want to owe money but now I'm thinking maybe overpaying by little is ok but my refund could have gone towards stocks.

Thegoblinchief

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Re: How to Not get a Tax Refund
« Reply #7 on: February 17, 2014, 01:15:06 PM »
My family withholds at the correct rates for our deductions, but we still end up with some refund. This year it was larger than normal because my state added a few new refundable tax credits that boosted our combined refund to about $2K. Last couple years it's only been $1K.

If it were up to me, I wouldn't have any income tax withheld (just paying whatever we owed at end of year), but I'm not sure whether that's legal or not.

Spork

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Re: How to Not get a Tax Refund
« Reply #8 on: February 17, 2014, 02:37:34 PM »
My family withholds at the correct rates for our deductions, but we still end up with some refund. This year it was larger than normal because my state added a few new refundable tax credits that boosted our combined refund to about $2K. Last couple years it's only been $1K.

If it were up to me, I wouldn't have any income tax withheld (just paying whatever we owed at end of year), but I'm not sure whether that's legal or not.

Whether it's legal or not... if you're off the payment target by some amount (10% comes to mind) -- you pay a penalty.

Numbers Man

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Re: How to Not get a Tax Refund
« Reply #9 on: February 17, 2014, 02:45:19 PM »
If I make 40,000 before taxes, how much should I pay for taxes so I don't owe? My husband doesn't have much income so I think that's why I got the refund as well as that saver's credit.

Withhold 5% of your income for federal taxes. I assumed you don't contribute a significant amount to a 401k plan and your household consists of two people with a standard deduction. So your total federal tax bill will be about $2,000. Just tell the payroll department you want to withhold $77 a paycheck if you are paid 26 times a year.

Thegoblinchief

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Re: How to Not get a Tax Refund
« Reply #10 on: February 17, 2014, 03:04:44 PM »
Whether it's legal or not... if you're off the payment target by some amount (10% comes to mind) -- you pay a penalty.

Good to know. I don't mind getting a little refund. Fits right in with my DW's semi-annual bonus checks, and the two months she gets a third salary check (biweekly instead of semi-monthly). All gravy that goes right into savings and then to the next debt/investment target!