Are you anxiously checking your bank account or mailbox waiting on the tax refund to show up?  The IRS states the average tax refund last year was around $1,949 and so far this year refunds are averaging $1,952. I’d be waiting anxiously too if that was what I overpaid.

Sadly most folks are eager for the money to come because they have already decided how they are going to spend it.  We treat our tax refund as a little nest egg we’ve been putting money into all year.  Our goal though isn’t to save up for rainy days, or college.

I got this picture in an email this week, encouraging me to book a cruise.  This isn’t the only one either.  There is nothing businesses love more than tax return season.  Adults behave just like my 4 year old who walks around the store just wanting to buy anything, she doesn’t care what.

Getting a huge tax refund is the government repaying you for an error you made over the course of the year.  They kept your money in a “savings account” for you and with a lovely 0% interest rate. In reality you never had to give them all that excess in the first place.

I have heard a lot of folks that are sad at the idea of not having a refund check, but it’s really the feeling of having a money windfall that you don’t want to lose.  This isn’t extra money you’ve found, it’s your money they are giving back to you!  If you overpay the electricity bill and they reimburse you, do you immediately go out for dinner to celebrate?

How to Fix Your Taxes

If you got a huge refund last year, and you didn’t have anything unusual that you claimed, then you are probably looking at the same scenario for next year too.  Let’s fix this now.  You don’t need to let the government hold your money interest free for you.  You can save it yourself in an interest bearing account, even better you could invest it and pay even less taxes next year (we’ll get there in a minute).

First things first, let’s fix your withholding.  This is the amount that your employer taxes out of your paycheck every pay period and sends to the government for you.  The IRS has a nifty little calculator you can use to figure out how much you need to withhold.  You’ll need your most recent pay stub and then you’ll be able to answer every question.

At the end it will tell you what to change your withholding numbers too.  It even tells you how to fill out the form.  Now that numbers are set correctly your refund will be around $50.

Take your updated W-4 form into the office and give it to the person that does payroll.  If you get paid twice a month and your refund was the average $2,000 then this means you just put around $77 back in your pocket every single pay period! Read More→