During the 2018 tax filing season, the IRS issued approximately $148 billion in refunds. With changes to tax laws, the amount of tax refunds for businesses and individuals is expected to increase for the 2019 tax filing season. While many are rejoicing at this news, receiving a large refund is not necessarily as great as it may seem.
Tax Refunds Aren’t a Sudden Windfall
When people file their taxes and see they’re receiving a lump sum of money, they look at it as a windfall. But this isn’t the case with tax refunds. Refunds are just what the name suggests: money you loaned the government throughout the year and are now receiving back. However, unlike any loan an individual or business may take, the government doesn’t pay back interest.
What Are the Benefits of Forgoing a Tax Refund?
Instead of receiving one lump sum at the end of the year, it may be best to receive that money in each paycheck. There are many benefits of going this route.
1. Boost Savings
By taking the amount of tax money added to each paycheck and depositing it into a savings account, you begin to earn money immediately. The compounded interest on that money earned throughout the year will be more than if you just deposit one lump sum.
2. Pay Off Bills
An extra $50, $100 or $200 in each paycheck can be put toward credit card debt, a car payment, or other loans to pay off the debt faster. Additionally, by paying extra each month and reducing the loan term, you will be paying less interest.
3. Increase Retirement Savings
If you aren’t contributing the maximum allowed to your retirement fund, use the extra money in each paycheck to increase your contributions. Even an extra 1% can make a difference.
By adjusting your withholding, you can see each dollar you earned go back into your pocket. More importantly, you’ll see each of those dollars grow by using financial planning strategies, such as those above.
The professionals at TPI Group can help you with financial and tax planning strategies to stretch every dollar you’ve earned. Contact us today to learn more!