The Folly of a Large Tax Refund
by Dave Mauder
This is a tax-time tip that SHOULD get you thinking about preparations for next tax season…
If you are like most Americans, you probably look forward to a big tax refund every year from the IRS. The majority of people use the money to pay off debt, complete a large home improvement project, purchase long overdue items, or indulge in something of little or no lasting value (sorry, but it’s true).
The important thing to realize is that a big tax refund is not cause for celebration. To understand why, you must understand where the money comes from.
It comes from your pocket!
Tax refunds are not extra money coming to you from the IRS. If you receive any amount of refund each year, it’s because you OVERPAID your taxes to the government during the previous year.
The worst part, is that Uncle Sam uses your money all year, and then gives it back to you in the form of a refund — without any interest, or even so much as a Thank You!
This excess money you are paying to the government all year could be put to better use like debt reduction, an investment plan, or starting a business. Why not let your money work for YOU by earning more money, instead of giving it to the government all year for free.
Give Yourself an Instant Raise!
Ask your employer for a new W-4 form this year and adjust the number of withholding allowances you are claiming. A proper increase in allowances will increase your take home pay slightly (sometimes much more than slightly), and reduce your income tax refund accordingly.
NOTE: You can download a current W-4 form from http://www.irs.gov/formspubs
You may want to ask your accountant or a tax adviser for help figuring the right number of exemptions. If you show him/ her your last tax return, they should be able to figure it out quickly. Actually, on second thought, if your accountant or tax adviser hasn’t suggested this already — you might want to look for a new one! 
Basically, for each $2,000 in tax deductions you have or create (such as business expenses, mortgage interest, medical bills, etc.), you should add one additional allowance on your W-4. BE SURE to use the worksheet provided on the form or check with your tax adviser for actual calculations. Update your W-4 as often as necessary throughout the year as your financial situation changes.
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