Your Tax Return

Here we are in February and by now you should have all the paperwork you need to file your taxes. If you’re like millions of Americans you’re looking forward to a refund. The question is how will you use it? Will you let it disappear and have nothing to show for it or will you put it to work for your future? 

For a lot of people this is their Christmas, tax return time. From a financial perspective, the best income tax return is $0. A tax refund is simply, the Government giving you back money you over paid. Look at it this way, if you owed me $10 and you gave me $100 and I gave you $90 in change a YEAR from now, would you be happy? This is simply what the Government tax refund is. That’s money you could have invested, saved, paid down debt etc. When the Government gives you back a $5,000 refund, you could have put a down payment on a house, invested in a Individual Retirement Account (IRA), invested in a business however the Government held your money and the worst part held your money at 0% interest. 

So how can we be more tax efficient? The best way is do it throughout the year. When starting a new job we will fill out the W4 form. The W4 tells how much tax to be withheld from your paycheck. Most people don’t know what to put down on the W4. The more allowances you put down, the least amount the Government will take out your paycheck. The least allowances, the more the Government take out your paycheck. So if you have 0 allowances, the Government will get more throughout the year in your paycheck and be in a position to control your finances more. 

One may ask, how do you figure the number of allowances to put down on your W4. The Rule of Thumb is 1 extra allowance per person you take care of. For example, for my wife and I and our 3 sons, I should be putting 6 (5 allowances including me + extra 1) as my allowance. If you’re single, your allowance should be 2 (yourself and extra 1). Moves such as these allow you to keep more of your income throughout the year. One caution, you must be disciplined not just to have more money throughout the year to spend but to meet financial goals. The only reason to take money back from the Government early is do something smart with it like save, pay down debt, and invest and get a return on interest versus giving the Government a 0% interest free loan for the year. 
If you’re not a good saver, I recommend give your money to the Government (least allowances on W4). I rather for you to have a big refund and the Government make you save versus you not save at all with the additional money you get in your paycheck throughout the year. 

The overall objective is to be tax efficient and in control of your finances throughout the year. Money speaks one language, if you save ME today, I’ll save YOU tomorrow!
You deserve to make more money in 2020, without expecting it from your employer. Are you ready to give yourself a raise and promotion this year? Your gifts and talents are waiting to be used. As always, let’s continue to win together financially!