Were you among the thousands of taxpayers who got a big tax refund this year? While most Americans happily accept their tax refund checks, smart taxpayers understand that refunds actually cost them money. Here's why:
  • The government pays no interest on refunds. Kept in your hands, those dollars could have been productive. For example, you could have invested the money or used it to pay off your debt during the year. If the money had been added to a 401(K) plan, tax would have been deferred on both the investment and its earnings. Even better, your employer might have matched all or part of your investment, adding to your retirement savings.
  • Refunded cash is not available for use until actually received. Even though most taxpayers get their checks promptly, circumstances or erros can delay (or stop) a refund.
To prevent losing money on tax refunds, consider reducing your withholding or estimated tax payments. For most taxpayers, withholding must equal either the prior year's tax or 90% of the current year's liability. If your annual income changes little, it's relatively easy to avoid overwithholding. You should consider filing a revised Form W-4 withholding sttement with your employer if you're having too much withheld.

For taxpayers with fuluctuating income or multiple sources of income, the problem is more complex. If you would like assistance adjusting your withholding, feel fre to contact our office.