When Uncle Sam Owes You

Taxes

When Uncle Sam Owes You

A tax refund may feel like a bonus, but breaking even is better. If you end up with a refund, you may want to reconsider how much you’re withholding from your paycheck.

January 24, 2016

When it comes to federal income taxes, a small refund or getting nothing back means you (and your tax preparer) were precise and came close to achieving the desired outcome: to break even. If you end up with an unexpectedly large bill or a refund, however, that means you may want to reconsider your estimated taxes or how much you’re withholding from your paycheck. A qualified tax preparer can help you find tax strategies that could help you keep more of your money in your pocket – legally.

If you expect a refund because the government withheld too much of your money, don’t think of it as a windfall. We’re not denying the psychological effect of getting a springtime “bonus,” we’re just encouraging you to make sure your money is being used wisely. It’s inadvisable to spend your tax refund on a trip, gadget or some other source of instant gratification. Instead consider investing in your life, well-being and financial future. Then remember to talk to your tax pro about making adjustments for next year.

Investing ideas to help make the most of your refund this year:

Invest in your future

  • Save for retirement. Contribute to your existing IRA or start a new one.
  • Pay down debt. Eliminate high interest debt as soon as possible.
  • Build up your emergency fund.
  • Fortify your portfolio. Talk to your financial advisor about how to invest the money.
  • Apply the refund to next year’s taxes.

Invest in yourself

  • Join a gym or hire a trainer. Your well-being is important.
  • Start a “fun” fund. Save money for a vacation or other big-ticket “wants” so you can enjoy it without going into debt.
  • Renovate your home. Add value to your home by making thoughtful upgrades or repairs.
  • Save for higher education for yourself, your kids or grandkids.

Invest in the world

  • Become more generous. Give to a charity you have always wanted to support.
  • Go green. Invest in ways to save on energy expenses and reduce your carbon footprint.
  • Grow your own garden. Save money by growing healthy fruits and veggies in your backyard.

Whatever you decide to do with your refund this year, avoid squandering the money and make the most of it. If you end up owing taxes, talk to your tax and financial advisors about ways you can pay the bill without disrupting your investment plan (perhaps with a low-interest rate loan) or depleting your savings. If you anticipate owing taxes again, you may also want to discuss investment and tax-saving strategies to reduce your liability next year and over the long term. These two professionals should be able to work together to address your specific situation and help you refine your tax strategies going forward.



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