Tax season. For some, time to celebrate. For others, time to let out some steam. As single parents, we tend to qualify for tax breaks that result in a huge reduction of our tax liability, often leading to substantial refunds. But consumer beware! If you are receiving upwards of $1000 in refunds, then you’ve probably paid too much. How? Let’s explore.
Receiving a small refund due to tax breaks such as the Child Tax and Earned Income Credits is usually expected for single parents. Why? Because their tax liability is significantly reduced, often meaning they aren’t responsible for any tax payment. In some cases, a combination of credits and deductions may qualify the person for a refund of all monies paid plus some. Nice, right? Not so fast.
If the refund measures in the thousands, then you’ve probably overpaid. How so? Simply put, you are allowing the IRS to take too much money out of your check. The purpose of tax deductions each pay period is to make sure you pay Uncle Sam what you owe him, nothing more. If you find that you get a large refund every year, then you need to reduce how much is deducted from each check. Why do that? In a nutshell, the more you take home each pay period, the more buying power you have throughout the year. As single parents, we can definitely use the money we earn now, instead of waiting until tax time. So, if you know that you usually get all that money back, why deny yourself the cash? OK, I get it. So how do I do that? It’s simple. Just do a withholding checkup in order to make sure you are sending in the proper amount of cash. You can find out much should be witheld by using the calculator here. (Links to http://www.irs.gov)
I realize that some people argue that getting a refund is a way to feel good come tax season. It’s like a bonus! When the check comes, many use it to take a trip, buy something they’ve always wanted, or pay down debt. But why wait until January when you can use the money now? You earned it, so you should enjoy it. Additionally, when you allow extra money to be taken out of your checks, you reduce your ability to pay off an outstanding balance, treat yourself, or take a trip during the year because you want to have an emotional high in the spring. Not the best plan.
Any tax professional will tell you that to truly win when it comes to taxes is to neither owe money or receive a refund. If you owe, then you need to have more funds deducted. If you get a refund, then you’re letting the government have a free loan funded by you.
So what needs to be done to make sure that you make the best decisions possible when it comes to taxes?
- Contact a trusted and licensed tax professional. I am not a tax professional and do not know the new tax laws. Please do not do anything without speaking to someone that can personally guide you through the tax process.
- Once you contact that professional, contact another one for a 2nd opinion (as long as its free.)
- Find out if there are local programs that will help guide you through your personal situation.
- Ask questions, be your own advocate, then make an informed decision.
So, how do you maximize your tax savings each year? What’s the best advice you ever received? Share with the community in the comments below.
Happy Saving! Live Well!