The Good and Bad Ways to Spend Your Tax Refundshttp://www.fool.com/how-to-invest/personal-finance/2014/05/03/the-good-and-bad-ways-to-spend-your-tax-refunds.aspx Amanda Han
May 3, 2014
A tax refund can be a sweet reward to working hard all year, or so the IRS would like you to think.
The sad truth is that if you are receiving a large refund year after year then you have been giving Uncle Sam atax-free loan.
Rather than continuing to do that, make sure to work with your tax advisor on ways to avoid this "problem" in the future by adjusting your withholdings and/or your estimated taxes.
There are a few different ways to calculate your withholding and estimated tax requirements, so your tax advisor should be able to tell you which method can help you to keep more of your money throughout the year.
For example, if you are on payroll and also need to pay quarterly estimated taxes, you may be able to avoid paying estimated taxes if you can pay yourself a bonus or be able to increase your W-2 withholdings in the last quarter of the year.
In an ideal world, you want to pay just enough of what is required by the end of the year so that you don't get hit with any penalties.
The math is simple. For example, if you usually receive a refund of $2,500 then you can divide that by 12. ($2500/12=$208) So generally, you would want to reduce the amount of taxes you pay each month by this number. The IRS website also has a withholding calculator that is easy to use to calculate by how much to change your withholdings.
It would be much better to have an extra $200 a month vs. getting it at the end of the year, right? If you do find yourself with a large refund coming your way, then be sure to look at some of the "good" and "not so good" ways to spend those tax refund dollars.
Let's look at some "not-so-good" ways you can spend your refund money.
The Luxury Vacationer
The Speedy Investor
Mr. or Mrs. Lotto
Let's now look at some positive ways you can spend your tax refunds that can benefit your financial well-being.
The College Planner