So you've been reading my blog for a while now, learning ways to save money. You can save money thousands of different ways. But the number one way to save money is to take a look at your tax return. Yep, you read that right. LOOK AT YOUR TAX RETURN! Don't be afraid of it. It is about YOU. Carefully, study where the numbers from your W-2 go on the tax forms. Most people get a huge tax return. It could be from a number of different sources:
- Earned Income
- Making work pay
- Additional child tax credit
- Federal income tax withheld from your paycheck
While the first 3 bullet points you have no control over you do have control over #4 - Federal income tax withheld from your paycheck. Do you know that most people never change their filing status? Do you know that you're in essence giving the government a loan for FREE? They don't add interest into the calculation for your refund. Why give them more money than you need to.
Check out the IRS website for their withholding calculator to see if you are paying too much. If you are, indeed withholding too much, get a new W-4 form from your HR department. In addition, you should check out your state's website in the event that you are paying too much to federal you may be paying the right amount to your state and we don't want a unexpected tax payment when you file your taxes.
Now comes the hard part, saving that money. I read a lot of finance books. I love Suze Orman, David Bach & Dave Ramsey. They all say the easiest way to save that money is to make it automatic. Go into the HR department get their form for an automatic deduction. You can choose to send to a saving account, IRA, etc. The less time you have that extra money in your checking account the less likelihood you'll spend it.
As with any tax issue, check with your tax preparer whether you can benefit from a change withholding status.
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