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Karen writes,
What if I asked you to send me $250 a month for the next 12 months so that I could invest it and earninterest for myself. At the end of the year, I will have $3,000 of your money. At that time I will go aheadand give you your $3,000 back but without interest. Would you do it?
As crazy as that sounds, that is what a large percentage of US citizens are doing when they get a yearlytax refund.
They pay more taxes than they need to all throughout the year and then ask for their moneyback at the beginning of the next year.
Of course, the reason most people do this is so they won’t endup having to pay any taxes at the end of the year. However, giving money interest-free for a year is not great money management. Further, letting the government hold money interest-free while simultaneously paying interest on other debts is not wise.
There is a way to figure out how many allowances you should be claiming on your W4 form so that youwill come out even at the end of the year. The IRS actually has a calculator on their website for that verypurpose.
Anita writes, “When I found out about this, a year ago, I thought that claiming more allowances was illegal or against the IRS rules. But after visiting the IRS’ site I found that it is actually encouraged to figure out how many allowances you can claim to prevent overpaying.
After filling out the calculator, I asked my employer how I should change my W4. He had me call PayChex (the company that processed payroll for him) and I simply confirmed my ID and had them increase the allowances.
The next paychecks we received resulted in an additional $237.00 of cash flow. Thus, we were able to pay off our vehicle much earlier and save money on interest.
When we did taxes the next year, we actually got a very small return back. I was elated that the calculations were correct, that we had paid off our car, and that we had saved on interest.”
So Challenge #29 is to goto this linkand figure out how many allowances you should be claiming so that you will not be paying more taxesthroughout the year than you need to. Then fill out a new W4 (found here) and give it to your employer, or ask your employer how you can change the allowances on your W4.
Tips to make this easier:
- Have your most recent pay stubs handy.
- Have your most recent income tax return handy.
- Estimate values if necessary, remembering that the results can only be as accurate as of the input you provide.
Filling out the calculator will result (for most) in extra money. You can use it to pay down your own debts and save on interestor invest it and earn a little interest for yourself!
Need ideas on investing? Check out Anita’s blog post on poor, good, and great ways to investhere.
Other Posts:
Step 1 of the Financial Fitness Bootcamp Course
Step 2 of the Financial Fitness Bootcamp Course
Step 3 of the Financial Fitness Bootcamp Course
Step 4 of the Financial Fitness Bootcamp Course
Step 5 of the Financial Fitness Bootcamp Course
Step 6 of the Financial Fitness Bootcamp Course
Step 7 of the Financial Fitness Bootcamp Course
Step 8 of the Financial Fitness Bootcamp Course
Step 9 of the Financial Fitness Bootcamp Course
Step 10 of the Financial Fitness Bootcamp Course
Step 11 of the Financial Fitness Bootcamp Course
Step 12 of the Financial Fitness Bootcamp Course
Step 13 of the Financial Fitness Bootcamp Course
Step 14 of the Financial Fitness Bootcamp Course
Step 15 of the Financial Fitness Bootcamp Course
Step 16 of the Financial Fitness Bootcamp Course
Step 17 of the Financial Fitness Bootcamp Course
Step 18 of the Financial Fitness Bootcamp Course
Step 19 of the Financial Fitness Bootcamp Course
Step 20 of the Financial Fitness Bootcamp Course
Step 21 of the Financial Fitness Bootcamp Course
Step 22 of the Financial Fitness Bootcamp Course
Step 23 of the Financial Fitness Bootcamp Course
Step 24 of the Financial Fitness Bootcamp Course
Step 25 of the Financial Fitness Bootcamp Course
Step 26 of the Financial Fitness Bootcamp Course
Step 27 of the Financial Fitness Bootcamp Course
Step 28 of the Financial Fitness Bootcamp Course
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