Paying too much taxes?

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Each year around this time I start thinking about Christmas shopping and doing my tax return. Two things that I shouldn’t dread, but because of the process involved I always do. Because of online availability I don’t mind Christmas shopping as much as I used to, and with the ever improving tax software that is available, completing my tax return is becoming less of a chore also. Not only does the software walk me through the complex tax code, but as soon as I am done I know exactly what my tax refund is going to be. I have talked to many people who look forward to getting a large tax return each year as if they are sticking it to the government. When you get a large tax return what it really means is that you have given the government use of your money, a loan if you will, for the entire year and they are simply returning it to you, without paying you any interest. Realistically speaking, the government is sticking it to you.

What can you do about it? Well, the easiest thing for you to do is determine how much more you should be bringing home each month instead of having it taken out as taxes. For example, if you received a $3600 tax return last year, then you overpaid in taxes approximately $300 a month. That is approximately $300 each month that you could have used to pay off debt, build an emergency fund, invest for retirement, or save for college. I am sure you can think of several other things that would have made you more happy than giving the money to the government.

There are a lot of calculators that will help you determine if you are paying too much in taxes each month. They range from very complicated like the IRS Withholding Calculator to very simple.The best one I have found is the Kiplinger’s quick ‘n’ easy Withholding Calculator . If your current tax status hasn’t changed from last year, you will be very pleased at how easy it is to use. If things have changed (i.e., your marital status, you have a new baby, your income has changed dramatically, etc), this calculator may not be as beneficial, but for some this is all you will need to start bringing home more of your money each month.