Greetings, dear readers! Are you tired of waiting for your refund windfall to magically pay off your revolving credit card debt? Well, if you keep purposefully overpaying your taxes, you’re just giving Uncle Sam an interest-free loan! Let’s put an end to that nonsense by evaluating your withholdings every year. Ask a tax professional to help or use the “Tax Withholding Estimator” at IRS.gov to adjust what’s taken out of your pay. You can submit a new W-4 Employee’s Withholding Certificate to your employer if needed. Take that, Uncle Sam!
According to IRS spokesperson Eric Smith, “Our tax withholding estimator offers workers a great way to target the refund range they’re comfortable with”. But hold on, not all of us can avoid getting a large refund, especially if we’re eligible for certain tax breaks. For instance, the refundable earned income tax credit ensures that even if you’re not owing any tax, you can still receive a refund. That’s the IRS for you, always giving and giving.
Now, my dear procrastinators, if you’re tempted to splurge as soon as that juicy refund hits your account, stop! Remember my youngest child who said, “Mommy, today is tomorrow,” when I kept postponing something she wanted? Don’t disappoint your future self like that. Make this the year you finally do something smart with your refund. Here are some ideas to get you started.
Firstly, why not start or build up an emergency fund? You don’t want to be caught off guard without much-needed cash in desperate times. A Bankrate report shows that nearly half of US adults either have no emergency savings or have less saved than last year. Experts recommend saving at least three months’ worth of expenses. With an average refund of more than $2,800, many people can get a head start on that goal. Emergency funds, saving the day!
Additionally, you can create a “life happens” fund for unexpected emergencies such as a major car repair. This fund will cover expenses that would otherwise diminish your emergency fund, leaving you vulnerable if your income drops. And, of course, pay down your debt! Credit card balances have skyrocketed to $986 billion in the fourth quarter of 2022, surpassing pre-pandemic levels of $927 billion. Don’t be part of the one-third of US adults whose credit card debt is greater than their emergency savings.
What about investing in an inflation-proof I bond? Thanks to the IRS, you can directly deposit part or all of your refund straight to a financial institution of your choice. You can purchase up to $15,000 in savings bonds using IRS Form 8888. How great is investing, right? And since money doesn’t grow on trees, let it work for you!
For parents of college-bound kids, start funding a 529 college savings account. With a 529 plan, earnings aren’t subject to federal tax if used for qualified education expenses such as tuition, fees, books, and room and board. And for those with disabilities, there’s an opportunity to save in an ABLE account, also called a 529 A account. This tax-advantaged way to save for disability-related expenses has an annual contribution limit of $17,000. It’s a win-win!
Finally, take control of your finances and recession-proof your life. For more money advice, read Michelle Singletary’s Money Milestones or take our quiz to see where you stand financially. Remember to always have fun and laugh while managing your money. Money might not buy happiness, but it can definitely buy more laughter!
Serious News: washingtonpost
