Doing Tax Day Wrong

 
April 15 is here and you’re either getting a refund or sending a check to the government but either way you’re doing it wrong. 

tax_april_15I’m not saying that you can work things perfectly during the year and owe zero on April 15 but I will say that if you are getting more than a few hundred dollars back or sending more than that to Uncle Sam, you’re doing it wrong.

Making a Payment

Let’s start with why making a payment is a bad idea. Beside the obvious, that no one wants to be surprised with a big tax bill, there are other reasons. First, you’re not being aware of your money. You’re not planning well and that lack of planning is costing you now. The other thing is that Uncle Sam doesn’t like it either – he wants his money on time and will hit you with estimated payments in 2015 to make up for your shortfall.

Refund

This one is a little harder because who would complain about getting a nice fat check in April? Nobody! But it’s still poor planning. You just gave the government an interest free loan. They had your money and now they’re just giving it back. Taxes are not a savings account – or they’re a really bad one. It would be much better off to have the IRS deduct less money from your check so you could invest it – not spend it. Contribute more to your 401k, Roth IRA, or invest in index funds in a taxable account.

Balance

The important thing when playing the tax game is to achieve balance. If you are getting a big refund or owe a lot then make adjustments now to your withholding so that you can be in balance.


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