Have you filed your 2009 tax return yet?  If so, are you expecting a refund check?  This situation is a double-edged sword.  No one wants to unexpectedly write a check to the IRS on April 15th, but no one should be happy about getting a big refund either.  A big refund is basically an interest-free loan to the government.  Some people argue that getting a refund is just their way of saving, or that the refund check allows them to make a big payment on their debt once a year.  Well, that’s about as good of an idea as taking that money and sticking it under your mattress for the year!  You’re either not earning interest by saving your money, or you’re continuing to pay interest owed on your debt throughout the year while you wait for your refund check. 

It’s not uncommon for someone to receive a refund of at least a couple thousand dollars.  Looking back on the past year, wouldn’t you have liked to have had an extra $200-$300 a month to save or spend, instead of loaning it to the government?  So if you consistently receive a big refund each year, what should you do?  Below are a few tips to help get you started:

1.  Use the IRS Withholding Calculator to determine what your W-4 withholdings should be.  This calculator will give you a good starting point, but it may not be 100% accurate.  I like to err on the side of caution (receive a refund versus having to pay more when filing), so I recommend you compare the number you get from the calculator to the number you currently have elected, and choose a number somewhere in the middle.  Then, when you file your tax return for 2010, see how close you came, and make any adjustments you feel necessary.

2.  The IRS Withholding Calculator can be used throughout the year as well.  Make sure to run it at the beginning of the year, but go back every couple months as well and update it with your earnings numbers for the year so far.  This is a good way to make sure you are still on-track, and you can still update your W-4 withholdings with your employer before it’s too late.

3.  If you don’t feel comfortable using the calculator, it’s not a bad idea to hire a professional.  By hiring a Certified Public Accountant (CPA), it is quite possible that could you end up saving more money than what it cost you to hire the CPA.  The CPA will be able to analyze your situation and give you a recommendation on how many withholdings you should elect on your W-4.  The CPA may even find deductions that you are eligible for and didn’t know about.

Hopefully this information will help you realize that a refund isn’t really as great as it sounds, and you will take the steps necessary to maximize your savings.  If you have any questions regarding taxes and your W-4 withholdings, or would like to discuss your specific situation, please email (jchladek@chladekwealth.com) or call (913.402.6099) me to schedule an appointment.

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John P. Chladek, MBA, CFP® is the President of Chladek Wealth Management, LLC, a fee-only financial planning and investment management firm specializing in helping families and couples who are not yet retired realize their financial goals. For more information, visit https://www.chladekwealth.com.

All written content on this site is for information purposes only. Opinions expressed herein are solely those of John P. Chladek, MBA, CFP®, President, Chladek Wealth Management, LLC. Material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your individual advisor prior to implementation. Investment Advisory services are offered by Chladek Wealth Management, LLC, a registered investment advisory firm in the State of Kansas. The presence of this web site on the Internet shall in no direct or indirect way be construed or interpreted as a solicitation to sell or offer to sell investment advisory services to any residents of any state other than the State of Kansas or where otherwise legally permitted.

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