This post is from new staff writer William Cowie.
How do you approach your income tax withholding? Do you opt for a higher withholding in order to get a refund, like 85 percent of all Americans (according to a recent survey)? Or do you go for the minimum and pay in when you file your taxes? Most articles you read on this topic appear in April, but isn’t that a little late to do something about it?
Instead, let’s look at the issue before tax time is upon us again.
Skip the refund
Several personal finance bloggers, like Luke Landes at Consumerism Commentary and J.D. Roth at Get Rich Slowly, say opting for larger withholding to get a refund is not the smartest choice. Although there are some who say it’s neither good nor bad to over-withhold, a casual survey of the personal finance blogosphere shows most say the refund way is a bad way to go, and here’s why:
You don’t earn any interest on money you give the government before you need to. Why would you let someone else sit on what is really your money when you could be putting that somewhere and earning interest on it?
2. Out of reach
The future hasn’t stopped being uncertain. What would happen if something unforeseen came up and you need the money? Your government is not going to have an sympathetic ear and let you have that money back.
3. You can save properly