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If you haven’t done your taxes yet, you’re not alone. According to the 2016 WalletHub Tax Survey, which has some funny questions worth seeing about how much Americans hate tax time alongside the serious survey data, more than a fourth of the 1,000 U.S. taxpayers who responded haven’t filed their taxes yet.
Don’t wait too much longer though, because the federal deadline is April 18! But whether you already have filed or not, it’s likely that half of you have a refund coming your way and it’s a good idea to think about what you want to do with it – and, while you’re thinking about money, how to plan for next year.
First of all, do you really want a tax refund? Most people are understandably excited about getting a fat check to help pay off a credit card, or to help fund the cost of a home improvement dream. There are lots of tips for getting “a bigger refund,” but one thing you may wish to consider is not getting one at all.
If that just sounds wrong, it’s because many of us are taught to plan for getting that refund rather than thinking about how we can keep that money in our pockets in the first place throughout the tax year.
If saving is a challenge for you, and you’re still working on getting more disciplined about a budget, then maybe it makes sense to treat the IRS like a savings account. When you get that money back at tax time, it feels a lot like a Christmas club or vacation fund account – except it’s not. That money is yours and it hasn’t been earning any interest. You have essentially loaned that money to the government for free.
Instead, you may be better off with more net income on payday. When every little bit helps, that “extra” money at the grocery store and the gas station is better than making the same routine purchases with a credit card, or by taking out high-interest payday loans that bridge the gap. The truth may hurt, but the cash may make more sense in the everyday routine of life than waiting for a refund of your money does.
The most important thing you’ll want to do is check your withholding, and that’s true whether you’re a person who loves your refund or someone who wants to maximize your take-home pay. Try to make it a habit to review your withholding as part of your tax filing, and check for any lifestyle changes that affect it. Be sure that amount is consistent with your expected tax due. No one wants to owe the IRS money!
If you’ve made adjustments so that less money is taken out – or perhaps more, if you were disappointed by taxes you still owed this April – take a few minutes to understand how that will impact your budget. It will help you to see where you have a little extra to put in savings, or a need to cut back on dinners out.
This year’s refund may already be committed to other plans or purchases, but if you’re still waiting to get that cash in hand, it can be a significant sum. The average refund is nearly $3,000, and it’s a good idea to put that money into savings if you can. Our January Moneylend blog focused on the struggle faced by a majority of Americans when confronted by an unexpected $500 expense, and the more ambitious goal of having an emergency fund of at least three months’ worth of expenses to cover life’s surprises. Paying down your debt is a priority, but using that refund to protect you from taking on new debt is a smart way to make the money you earned in 2015 provide a safety net in 2016 and beyond!