Author Topic: Savings Via Tax Rebate  (Read 2291 times)

The Dutchman

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Savings Via Tax Rebate
« on: May 17, 2013, 08:32:33 AM »
I bet this is a little controversial.  However, I changed jobs and claimed the minimum on my w-4 for deductions (1 or 0 I can't remember).  I have done this in the past and gotten 1.5k back from 2011 and previous years.  However, since I changed jobs (45% raise), had two kids, moved back to God's Country (Michigan), and did not change my deductions I got 6k back from my 2012 taxes.  Now if you ask me that is not the way to save.  However, it worked quite well because I have been living comfortably without needing that 6k.

So what do you guys think?  Keep the forced savings or change the deductions and actually utilize this 6k in real time?

PS - If I change; I will likely change it in August as I rolled over my 401k into a RothIRA and I estimate the taxes I need to save for on that to be about 3.5k. 
PPS - When I got the 6k my wife and I spent 100 $/each on whatever and the rest went to debt.
PPPS - We are both such savers that we both spent only half of our 100 on ourselves and the other half on the house.  Losers I know. 

Joel

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Re: Savings Via Tax Rebate
« Reply #1 on: May 17, 2013, 08:35:18 AM »
Personally, I always minimize the amount Uncle Sam borrows from me on an interest free loan.

icefr

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Re: Savings Via Tax Rebate
« Reply #2 on: May 17, 2013, 09:31:23 AM »
Try the IRS Withholding Calculator: http://www.irs.gov/Individuals/IRS-Withholding-Calculator

I've had good luck with that. I try to keep my withholdings pretty close to keeping my tax liability to 0 though and then save normally each month.

TLV

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Re: Savings Via Tax Rebate
« Reply #3 on: May 17, 2013, 03:38:53 PM »
Currently, I set my withholding allowances to the maximum allowed (ie minimum taxes) at the beginning of the year, and I'll use the IRS calculator after annual bonus day in September to have enough withheld to minimize taxes owed/refund by the end of the year.

Done by Forty

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Re: Savings Via Tax Rebate
« Reply #4 on: May 17, 2013, 03:44:35 PM »
In a perfect world, you'd not pay the taxes and invest the funds as you earned them throughout the year.  However, I know some family members who simply can't save if given the choice.  Their mortgage and "forced" 401k savings are the only way they build assets: money in their hands is gone as quickly as it arrives.

As long as the tax refund actually turns into an investment (and not, say, into a vacation), what you're currently doing it's not really the worst thing in the world - it's just not optimal.  If I were you, I'd adjust my witholding, get the extra cash, and track to see if I was actually saving the delta.  If so, that's the way to go.

Are you already maxing your 401k and HSA?  If not, those would be good, first options for that cash.

foobar

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Re: Savings Via Tax Rebate
« Reply #5 on: May 17, 2013, 08:36:55 PM »
Every paycheck, write yourself a check for the amount of the tax rebate. You never see that money so you can't spend it.