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Getting A Tax Refund? Use It Wisely, And Split It In Three

Wednesday, February 27, 2013 - 6:43 AM
Most taxpayers will get a tax refund this year, to the tune of $2,900 per payer, says the Internal Revenue Service, That’s about 58% of the 80 million U.S. tax filers getting a refund.

How can you make better use of your tax refund?

http://www.bankingmyway.com/home/getting-a-tax-refund-use-it-wisely-and-split-it-three
7
ShorebreakShorebreak2,603 posts since
Apr 6, 2010
Rep Points: 14,091
1. Wednesday, February 27, 2013 - 7:15 AM
I'd prefer to avoid getting a refund altogether, so I can have use of the money the entire year. 
6
pearlbrownpearlbrown1,431 posts since
Nov 2, 2010
Rep Points: 6,248
2. Wednesday, February 27, 2013 - 7:21 AM
"Ditto" What Pearl said.
3
klinkklink98 posts since
Dec 8, 2012
Rep Points: 265
3. Wednesday, February 27, 2013 - 8:09 AM
Unfortunately there are people who have too much money withheld from their wages for taxes on purpose. They are afraid of not having the money to pay the IRS at the end of the year if they owe taxes. The sad consequences of the inability to budget and save through the year.
5
ShorebreakShorebreak2,603 posts since
Apr 6, 2010
Rep Points: 14,091
4. Wednesday, February 27, 2013 - 9:03 AM
Shorebreak, you are absolutely right.  Some people use a hefty refund as a form of forced savings, since as you say they may not be disciplined/motivated enough to budget and save throughout the year.  Of course, that just begs the question of "and how long did the enforced savings stay in the account?".

But there are some who have too much money withheld simply because they are (surprisingly) unaware that they can make adjustments.  I recently ran across one such individual (mid 40's), who was unhappy that her work schedule was being reduced, because it would leave her in somewhat of a financial bind.  She happened to mention that she was looking forward to filing her tax return promptly so she could get a refund of about $3200, pay off some debt and add to her emergency fund.  It turns out this has been going on for some years:  her liability is generally only about $400 a year due to her personal tax situation, but roughly $3600 was being withheld because she didn't realize it could be adjusted.    She wasted no time in downloading the W-4 instructions and form from the IRS website and after reviewing it thoroughly, filed it promptly with her Payroll department the next day. 

Just one more example of why we need to improve financial literacy in this country.
5
pearlbrownpearlbrown1,431 posts since
Nov 2, 2010
Rep Points: 6,248
5. Wednesday, February 27, 2013 - 2:46 PM
Pearl:"  improve financial literacy in this country."    Why do you think because some people don't do things your way that they are "financially illiterate"?   "Peace of Mine" can be worth more to some of us than holding on to every last dollar.  It would blow your mine and you would probably put me in the class with the financially illiterate if you really knew how I handled my finances and taxes.  It's what works best for me and hasn't put a damper on my savings goal. So I am not concerned with how others reach their goals.  I am only concerned with reaching mine and doing what helps me sleep better at night.   "To Each His Own".

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3
paoli2paoli21,367 posts since
Aug 10, 2011
Rep Points: 5,992
6. Wednesday, February 27, 2013 - 4:21 PM
Paoli2, not sure where your comment is coming from nor why you seem so eager to (mis)interpret my remark about the state of financial literacy?  
2
pearlbrownpearlbrown1,431 posts since
Nov 2, 2010
Rep Points: 6,248
7. Wednesday, February 27, 2013 - 6:56 PM
Pearl:  I like and respect most of your posts but it was something about the post I responded to that seemed to be so critical of the way the person was doing their finances.  If I misunderstood what you were trying to get across, I apologize to you.  I know I had to get years of financial education to reach my goals but how I do things would not seem to fit into how you seem to expect us to behave financially. I think I took your post personally and overreacted to it.  After all, I am Paoli and maybe I need  to go to "Overreacting Anonymous". :)  I do hope you understand a bit more why I posted what I did.  
1
paoli2paoli21,367 posts since
Aug 10, 2011
Rep Points: 5,992
8. Wednesday, February 27, 2013 - 8:07 PM
I've always been on the minimum withholding level, for ages. And it worked out just fine, a zero-sum game between Federal and State taxes. However, now that I'm a home owner, this is all topsy-turvy because of all the deductions my accountant finds for me. So last year (my first year of home ownership, thus, lot's of points, etc., to deduct) I got over 2k back. This year, I'll find out in a couple weeks when I have an appointment with my accountant. I suspect it'll be lower, but probably not by much, mostly due to home improvement deductions and the mortgage interest that is tax deductible - not much I can do about those.
1
darkdreamer4udarkdreamer4u174 posts since
Jun 11, 2010
Rep Points: 632
9. Wednesday, February 27, 2013 - 10:54 PM
Paoli, indeed you misunderstood. 

As you say, some of us (myself included) value peace of mind highly. 

But it wasn't "peace of mind" about having the extra money once a year that kept her getting that large refund year after year.  It certainly wasn't that she wanted to splurge it on a vacation when she got it.  It wasn't that she was going to use it to invest in herself or her family.   

My point was that she had not made a conscious decision to get a large refund.  She was getting a large refund by default, simply because she had no idea that the amounts being deducted from her paycheck could be changed.  The W4 that she had signed when she was hired was a distant memory and she had never seen it as other than "just another form". 

In fact, she explained that each February/March she was using the large refund to pay off debt (with interest) that she would have been able to avoid incurring had she had the almost extra $270 /month all along.   Make no mistake, the decision to change the withholdings was entirely hers, and she made it immediately once she understood that it was even possible and how to go about it.  We also discussed that next year she would probably have to slightly adjust the exemptions downward so she wouldn't potentially owe money at tax time. 

I had no vested interest or opinion one way or another in how she managed her family's finances, nor was I going to judge her decision, whatever it turned out to be.  If she had chosen to leave things as they were, that would have been fine too.  I have always held her in high esteem and it would take something unimaginable for that perspective to change. 

If how you handle your money works well for you, that's great.   We may all do it differently, but as long as we are making informed decisions, acting in the best interests of our families, and meeting our goals, I think that's all that matters. 
3
pearlbrownpearlbrown1,431 posts since
Nov 2, 2010
Rep Points: 6,248
10. Wednesday, February 27, 2013 - 11:02 PM
Darkdreamer4u, congratulations on your home purchase and on being savvy enough to take advantage of those home improvement deductions.   Every bit helps. 
2
pearlbrownpearlbrown1,431 posts since
Nov 2, 2010
Rep Points: 6,248
11. Saturday, August 3, 2013 - 2:56 AM
Tax refunds are treated by most people as bonuses even though they actually are not. So, when they receive their refund, they usually blow it on new gadgets, parties, etc. I think refunds should be put away—to pay off debt, to be deposited in a savings account, or to invest. So, if you are getting a tax refund, I suggest you check your credit reports and take a look at where you could make the best use of your refund. If you have debts to repay, use the refund to pay some of those. If not, add the money to your savings or investment account.
1
joymalijoymali16 posts since
Apr 6, 2013
Rep Points: 23
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