With tax season coming to a close, most people rely on large tax returns like it’s a past due Christmas present! During tax season, everywhere you look, people are telling us that we all should be expecting large tax returns. However, is that really the best strategy for you?
For some, getting large refunds seems great and can really come in handy, especially if you have spent more than your Christmas budget on presents and Superbowl parties! While receiving a large refund may be considered great, there are 2 major disadvantages of waiting to receive large refunds during tax season, which are:
1. You are giving the government an interest-free loan for 12-16 months!
Throughout the year, it may be difficult to manage and maintain a budget, which means that many taxpayers may need additional money throughout the year. Meanwhile, the Internal Revenue Service has access to your money and can use it for 12-16 months interest-free. Wouldn’t it be great to be able to have access to your refund money throughout the year? If you are wanting to inquire about this option, you will want to speak with a tax preparation company, such as Clarifying Tax Solutions, who also provides tax planning so that they may help you to adjust your federal withholdings on your W4 so that you can have the right amount of withholdings for the following year to minimize a large refund for the tax season. That way, you will have access to most of your refund when you really need it, which is ALL YEAR LONG! Please keep in mind that your tax planner will need to know about any other financial changes or situations throughout the year that could affect your tax filing to ensure they are providing you with accurate advice.
2. You don’t have access to that money for 12-16 months!
The IRS has been delaying refunds depending upon the type of credits you are eligible for on your return. Therefore, for taxpayers with Earned Income Credit, Child Tax Credit, Additional Child Tax Credit, and American Opportunity Credit, the earliest you can expect to receive your return for the 2017 filing season is February 28th. It appears that this deadline keeps getting pushed further and further into the tax season. I would not be surprised if it eventually gets delayed until closer to the tax due deadline in April. Therefore, many taxpayers are waiting an additional 2 months, if not longer (if additional documentation is requested) to receive their refund. Do you really want the Internal Revenue Service to control when you receive your money? If not, you will want to speak with a tax planner that can help monitor your tax situation throughout the year to ensure you can have access to your money when you need it.
Otherwise, if you can’t wait, you may be tempted to get a Refund Anticipation Loan. While those are beneficial and can help you out in the short term, the downside is that you are essentially paying to have access to your own refund money. Do you really want to have to pay to use your own money?
Figuring out how to have access to your money when you really need it can be a challenging task, especially when it comes to tax planning. The interpretation of the tax laws and knowing how many exemptions you should take can be very confusing. However, by working with a tax planner to create and properly execute a well-planned tax strategy throughout the year, you can keep more of what you earn and have access to your money when you need it. Planning will help to remove a lot of the guesswork at tax time as you will be able to better gauge your refund amount and adjust your withholdings periodically during the year to ensure you will have access to most of your money during the year.