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Are You Bailing Out the Government?

by Don Current on January 31, 2011

Uncle Sam is Broke

photo courtesy Jeff Sandquist

It’s time to render unto Caesar again. I’d really like to encourage you to take a close look at your taxes this year. There’s a lot of opportunity for improvement in this area for many people.

I Didn’t Pay Enough

Have you had to pay taxes a couple of years in a row? Do you think your situation will remain pretty much the same this year as far as income and deductions?  If you only paid a little bit, you paid no penalties, and you had set aside enough to cover what you owed, then you’re probably okay. If not, that means it’s time to adjust your W-4 to have more tax taken out throughout the year. If you’re self-employed, you need to pay a little more in with your estimated payments.

I Paid Too Much

Have you gotten a large tax refund consistently for two years or more? Do you anticipate your situation will remain the same for this year as far as income and deductions? It’s time to make an adjustment to your W-4 then. I know a lot of times it seems like you’ve gotten a big bonus, but the reality is, you just gave the government a nice interest free loan throughout the previous year. Remember that time the car broke down and you didn’t have the money to cover it? Well, that tax refund spread out throughout the year would have helped, would it?

The first step is to make sure you’ve got a budget in place so you don’t just blow the money each month once you get your taxes adjusted properly. Make sure you are saving that money into an emergency fund, or if you commonly use your refund for a large purchase, and the rest of your budget is already in line, then go ahead and save that extra money each paycheck with a plan for how you’re going to use it. You can even earn some interest on it while you wait.

I Paid Too Many Fees

If you get your taxes prepared by someone, they should be able to help you get your W-4 adjusted. If they can’t, maybe it’s time to find another tax preparer! You can also find online tools at the IRS website.

Another thing to watch our for if you use a tax preparer is your fees. Make sure you get a comparison. You may actually find that a CPA can be less expensive than one of the chain tax preparers. I had a friend that payed well over $100 for a 1040EZ at a major chain preparer! That’s ridiculous! Don’t let them talk you into an instant refund either. That’s a waste of money. With electronic filing and direct deposit, you can have your refund in 1 to 2 weeks. If you’re living on a budget, there is no reason that you shouldn’t be able to wait that long for a return.

Tax time shouldn’t be a major burden if you’ve documented things properly throughout the year. It also shouldn’t be seen as bonus time either. Don’t let Uncle Sam borrow any more of your money than absolutely necessary. You can spend it much more carefully than they can.