Big Refund This Year? Plan Ahead to Earn More Next Year
Written by guest columnist: Eric J. Johnson, MBS, MS, CPA
Tax season is over, so now you must be watching your savings grow on that large return you received. Surely you didn’t splurge when you received the funds. Guess what? You could have actually earned more money by not giving Uncle Sam an interest-free loan.
A March 23 article in USA Today reported that through March 12, the average refund was a record $3,036. That’s $253 per month, on average. If you had been saving the $253 in a dividend-bearing checking account, like TFCU’s Click Checking, or a saving’s account, you could have made a little extra money.
You could also have used the extra money to decrease personal debt. For example, if you have a credit card with an 18.9 percent interest rate and a balance of $3,036, an additional $253 per month could reduce the amount of money you pay in interest and the amount of time it would take to pay off the debt. Assuming you continued to pay a 4 percent minimum monthly payment of $121, $253 more per month would reduce the interest paid from $1,880 to $238 and the amount of time to pay the debt from more than 11 years to just nine months.
Even if you paid the minimum amount for 12 months and paid the remaining balance with your income tax return, you still sent $938 to the credit card companies that could have instead been yours. Choosing the optimal amount for federal tax withholding can be a challenge. A CPA can help you adjust your monthly withholding to closely match your projected tax liability for the year. For additional information or to get a free CPA referral and free consultation, visit www.KnowWhatCounts.org.