How To Plan Your Finances So You Never Need To Count on a Tax Refund
Written by
Chris Adam
Edited by
Zuri Anderson
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Tax season can be one of the most stressful times of year for some individuals and families. But for many it comes with a nice bonus at the end: that great tax refund.
While that refund may sound great — and there are many useful things to do with it — the reason for the money may not make everyone smile. The refund comes because someone overpaid the government.
If you’d like to keep more of your money to have throughout the year, rather than counting on the tax refund to help shape up your finances, here are some steps you can take that may help your budget all year long.
Consider Your Options
First, you’re certainly in good company if you receive a tax refund each year. It’s likely most of the people you know are among the millions who typically receive a refund from their taxes.
But what would happen if you changed your withholding status for taxes? You might have an extra $247 each month if you balanced it out so you didn’t owe and you weren’t waiting for a refund, according to TurboTax.
Complete a New W-4 Form
If you’ve decided you want to recalculate your tax withholding so you don’t get a refund but also don’t need to pay anything additional, some simple steps can go a long way.
The first step is to fill out a new W-4 form. That’s the paperwork you filled out with an employer so they know how much to take out for taxes. You may not realize a new version of the form was put out in 2020.
You could take the time to fill out a new form and adjust how much is taken out from each of your paychecks, per Ramsey Solutions.
Do the Math
Another step you’ll need to take is figuring out how to fill out the W-4 so you don’t need to count on a refund ever again.
One way to do this is to take the refund amount you received in the last tax year and divide it by how many paychecks you receive. You can then do the math and adjust your paychecks and taxes accordingly.
You have some other options, as well. You could use an online tax calculator. Additionally, a tax professional may be able to help.
Plan Your Budget
If you are looking to plan your overall finances so you never need to count on a refund, that means some more work than simply filling out another W-4. You also need to figure out how to plan the budget based on what you’ll receive from each paycheck under the new withholding calculations.Â
If you’re used to using your refund to help your overall finances, you could consider doing the same thing with the extra amount you might have each month from adjusting how much is withheld. Per Fidelity, you could look at investment opportunities or put the money aside for emergencies.
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