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Tax Refund

Money Management

Why a Smaller Tax Refund is Better

Why a Smaller Tax Refund is Better

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Tax season is upon us, friends! Being a personal finance nerd, I love this time of year. I love getting my documents together and seeing where I am at in comparison to where I was at the end of the previous year. It’s awesome to see how I have progressed on my big money goals.

Normally, I get a pretty large refund and it’s nice to get that big check to apply to debt, but the reality is that it just doesn’t make sense! The money you get in a tax refund check is just the money that the government took from you throughout the year. This is money that should have been in your back pocket throughout the year, it’s the money that you overpaid.

However, you should make sure that you get some sort of tax refund each year, this way you don’t have to owe taxes. You should figure out what you need to claim in order to get a small tax refund. This will allow your paychecks to be larger throughout the year and you still won’t owe at tax time.

There are a few things you can do when it comes to tax refunds to make sure you are prepared to file.

1. Check out the withholding calculator and fill out your W-2 correctly to get a small tax refund.

The truth is that sometimes it’s easier to just claim 0, just a big refund and call it a day. But the reality is that there are resources out there for us to use, so we don’t have to do this. Plus, like I said before, a large refund just means that you overpaid every single month. This is money that can be in your pocket every month!

This is why my first suggestion is to head over to the IRS website and check out their withholding calculator this will allow you to quickly see where you stand. After you finish the withholding calculator, you will have a better idea of what you should be claiming on your W-2 so that you get a small tax refund and more money in your wallet every month!

2.Organize your documents as you receive them.

The best thing I ever did for myself was create a specific place for my finances. I have everything in a folder for my taxes and add to it as my documents start rolling in. This makes filing my taxes so much easier. When I have all my documents ready, I can easily sit down and file them.

I used to be a hot mess with my tax stuff. Things would be everywhere and it would take me forever to find everything to file. It honestly was something I dreaded doing every single year, until I started keeping my paperwork organized. Organization is definitely key in filing your tax return.

This is especially important if you have complicated taxes or something that you need to keep track of throughout the year. For example, as a teacher I would be able to claim $250 I spent for my classroom, I’d need to keep my receipts throughout the year for this. Organization made this super easy for me!

3. If taxes aren’t taken from your pay, make sure you create a sinking fund for this!

I can’t stress this enough! If you have a profession that does not take taxes from you, you absolutely NEED to create a sinking fund for this. Taxes are not an emergency, we know they happen every single year, we need to prepare for our taxes. Tax time should not derail our finances, it should be a simply file and pay, if we aren’t paying taxes throughout the year.

By creating a sinking fund, tax time will be a breeze because you will already have the money in your account to pay your taxes. My suggestion is to take at least 30% out of any pay you receive and put it into a sinking fund for taxes. If you don’t need this much at tax time, then you can choose what to do with this money.

The easiest way to do this would be to budget for it every month, this should be a line item in your budget. If you need help with this, you can subscribe to my email list to get a PDF of my budget template, or you can purchase my Google sheets template that has the math formulas already inputted for you.

Remember a smaller tax refund means that you are claiming the right number on your W-2!

I feel like a lot of times people brag about their big tax refunds when in reality, it just means they are giving their money away each month for that big check. By changing your number on your W-2, it will allow you to get that money throughout the year, instead of in a large check once a year! Have much are you getting in your tax refund?