For the 2010 tax filing season, the IRS reported they received more than 142 million individual tax returns. The average refund was approximately $3,003, a 5% increase from the previous year. The IRS expects these numbers to increase again this year.
So where does this money come from? It does not grow on trees, and it certainly does not appear by magic. It comes from us, via the instructions we give our employers regarding deductions from our paychecks, or estimated payments we submit to the government on four designated dates during the year.
The government tax system has been described as a “pay-as-you-go” system. The trouble is we “paid” more than we “went”—approximately $55 per week too much for the average taxpayer.
Many taxpayers view this overpayment as a forced savings. They like having a “nest egg” to look forward to in the spring before vacation time rolls around. What they do not consider is that this money has no interest paid on it. Regular deposits into a savings account, or using the extra money each month to pay down debt, would generate a far more positive change in their financial status. Rather, they allow Uncle Sam to hold the money interest free for the entire year. The greatest irony: Taxpayers want their refund immediately, yet they allowed the government to hold their money for the whole year interest free! So many taxpayers repeat the same process year after year.
Still, many fall on the other side of the coin. When people prepare their taxes, they find that the IRS wants more than they paid. Many taxpayers not only have to pay additional money to the government but a penalty, too. How does this happen? Changes in exemptions and deductions can cause unexpected increases in tax liability. Income that must be reported, but does not have withholding tax paid on it, can cause a shortage when estimated payments are not accurately computed.
Since it is early in the tax year, now is the time to assess your situation and adjust if necessary. If the government is holding more of your money than you wish, complete a new W-4, Employee’s Withholding Allowance Certificate, with your employer to decrease the amount withheld from your paychecks. If you owed more than you could comfortably pay, consider adjusting your withholding or estimated tax payments now. There is still time to pay your tax liability without much pain.
As always, if you have any questions, please contact Henssler Financial at 770-429-9166 or experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
