Do you owe or get a refund?
Since we've taken control of our finances and started paying attention to every single dollar (thanks to Dave Ramsey!), we've realized that our typical $6000 tax refund is silly. We are basically lending the government $500 a month. We've realized that we should be putting that money to work for ourselves. So we are in the process of changing our W4.
I was listening to Dave Ramsey and he said that basically you can claim as many allowances as you want and pay nothing toward federal income taxes from each paycheck. The lady he was talking to (they get a similar refund as we do) was nervous that they would end up owing, so he told her to put a specific dollar amount on the W4 to be withheld from each check to use as a buffer.
I think this is the direction we are going. I'm thinking to have them withhold $40/month. So at tax time, if we owe, we have a $500 buffer, or we could possibly get a small refund.
What are your thoughts? Do you prefer to get a huge refund, or would you rather have your money in your pocket and be able to control as you wish?
i want mine now...
We are doing the same thing as you... it seems when you have control the large tax refunds don't matter anymore. You can put it to better use through the year...
tax refund
I was just thinking the same thing recently about changing our w2 about how much we claim, etc. I'm waiting to see what happens this next year ('09) and if we get $$ back, then we'll change our w2 form. This year ('08) we received a very large refund due to our adoption credit (we finalized our daughter's adoption in '07).. so that won't be typical. I am all for us to have our money throughout the year, NOT the government. It really doesn't make sense to get a tax refund.
Patty
Refund
We have always had a huge return at the end of the year also-but as we have been following Ramsey and his recomendations-we also should make a change. My fear is then we might owe at the end of the year.
I'm not sure if I understand the "buffer" though. In setting the money aside-is that just on your own, in case you owe at the end of the year????
buffer
Well, you could either set that money aside in your own savings account. What I was referring to was at the end of your W4, there is an option for a specified amount to be taken out of your paycheck. So instead of contributing, for example, $600/month to federal income tax, you claim lots of allowances and bring that number basically to zero. Then have an extra $ amount taken out (this option is at the bottom of the W4). So if you had $40/month(or in our case $20/paycheck), that would give you a $500 "buffer" at the end of the year in case you did end up owing. From what I've heard from listening to Dave Ramsey, to do this you either need to sit down with a CPA and have them tell you exactly what you should be contributing to federal income tax in order to get the smallest possible refund at the end of the year. OR if your taxes are fairly simple to do and you have consistently gotten the same refund year after year, you can basically do what I described above and be pretty safe in not owing anything, but rather getting a very small refund.
Jessica
~ Mommy to Luke and Shawn