Overpaying taxes is a common way for people to save money during the year and avoid having to write a check to Uncle Sam at tax time. According to Bloomberg, nearly half of Americans overpaid on taxes for the 2022 season and are expecting, or have received, a refund check of $3,000 on average. But paying too much in taxes during the year means the Government gets to use your money interest free, while you have less to live on per month. This may not be the best tax strategy for everyone.
Enrolled Agent Steven J. Weil, Ph. D. and president and tax manager of RMS Accounting in Fort Lauderdale, Florida says, “In most cases it’s better to owe than to receive a refund.” In an article from FinanceBuzz.com he went on to explain that when a person receives a refund, they’re essentially getting their own money back.
Instead of waiting for a yearly check from the United States Treasury to improve your quality of life, work with a tax professional to create a cash flow that allows for savings throughout the year, and then some. With this strategy you’ll have more money to spend during the year and to save towards retirement, and still be able to pay any taxes owed. But just because you don’t overpay taxes doesn’t mean you’ll owe at tax time.
The IRS has a tax withholding tool to help taxpayers choose the perfect deduction from their paychecks in order to avoid either a big tax bill or a large refund. The “breaking even” on taxes ballpark is around $1000 or less. So, if you owe a small amount at tax time, that’s okay. And if you receive a small refund, that’s fine too. But during the year you are the one in control of your money, not Uncle Sam.
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