Don’t Fall for a Tax Refund – Tips to Even the Tax Scale
- Pay off debt: When you receive your check, don’t blow it! Forgo the shopping spree or fancy dinner and use your tax refund to pay down credit card balances, student loans, auto loans or other debt.
- Pay down your mortgage: Pay a little extra toward your mortgage principal. Just one extra payment each year can shave considerable interest off your mortgage.
- Boost your savings: If you’re debt-free, direct your refund to your emergency savings account, 401(k), IRA or college savings account.
- Adjust Your Withholding: File a new W4 to increase your allowances and pay the right amount of taxes throughout the year. Use the IRS withholding calculator and aim for the number of allowances that satisfies 100 to 110 percent of last year’s tax payment.
- Use Direct Deposit: After you adjust your withholdings, set up an automatic deposit to direct the money you would have spent on excess taxes into an interest-bearing savings account. You won’t notice the difference in your paycheck – it’s money that would have been withheld for taxes – but your cash will work for you, not the government.