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Some taxpayers even request the government withhold EXTRA money so that their refund check will be even larger.

If you happen to be one of these people, please reconsider this savings/tax refund strategy.  There are better options available!

I have several wonderful and intelligent friends who make the same argument as you may be thinking right now; "I want that big refund check!" Or, "I certainly don’t want to OWE the IRS any money at the end of the year, so I’d rather have them take out more than enough to make sure I'm covered." And maybe even more common, "If I don’t let the IRS keep my money, I’ll just blow it anyways. But if I let them keep it during the year, then when I get that huge refund back I can spend it on something really big!"

For some people, this ‘interest free loan’ they are handing over to the government amounts to hundreds of dollars. But for many others, it’s adding up to thousands every year. 

(And a note to those that are more financial/tax savvy than this, please do not make harsh judgments about the people who are opting for a big refund. I have discovered they are truly sincere in their beliefs that they are doing the right thing for them and it’s just about impossible to change their mind. However, my husband and I both try our best to do just that every time we find another person lost in the refund cycle. It’s a difficult task, but we think we’ve come up with a solution that may convince them, or maybe even you!)

First, you need to fill out a new W-4 with the correct amount of exemptions you are due. You have the legal right to do this anytime you wish. The form will provide information for figuring the correct amount, but you are also free to figure it for yourself. You’ll want to include 1 exemption for every member of your family that will be reported on Form 1040 (as a qualified exemption).  Then, you may be able to safely estimate another exemption for every $3,000 worth of itemized deductions you will have such as medical deductions, mortgage interest, charitable contributions and job expenses not reimbursed by your employer. It is also a good idea to look over last year’s tax forms, figuring in any differences for the coming year.

And don’t forget to include any tax CREDITS you may have coming as well, such as a portion of your childcare expenses, education, and credits for the elderly or disabled, adoption and the child tax credit. If you do not itemize deductions but instead take the minimum Standard Deduction, figure the extra exemptions based on this amount. For example, if the Standard Deduction for a single person is $4,000.00 you may be able to safely add one to two exemptions to your W-4 withholdings because this will be lowering your taxable income even further. Whether you owe just a little or get back just a little, the point is to try and get the difference as close to zero as possible.

Now, with the money you will be getting back on your paycheck where it belongs, you can either add it to your monthly budget if you need it to live on, or set up an automatic savings account through your bank. By having the money taken automatically from your check and deposited to your savings account, the money will STILL be going straight into your (real) savings before you even see it, but this way YOU’LL be earning the interest on your money instead of the government. And not only will you be earning interest on your money, but you'll be earning interest on your interest!

In the 1950’s, American families paid an average of 3% personal income tax per year. It may not have seemed as important to maintain control of that money as it does now; for the average family taxes are up to 30%, making it an absolute necessity to keep track of this large price tag we are paying to support our country, even as wonderful as it is. And, whether you've noticed or not, tax laws change every year so you’ll need to keep informed and adjust your W-4 exemptions as needed.

You do not have to hire an accountant to file your taxes (though many people do and that's okay!), the forms are really not that difficult to figure out--each one comes with detailed instructions--but they can be a little time consuming. Though once you’ve done them a few times they will become somewhat like second nature. Last year I had a dozen forms to fill out and I managed to get through them like anything else in life, one step at a time. We had the normal 1040 with attached schedules, the sale of our home, a new baby, moving expenses (twice), and 3 separate state forms with more attached schedules.

I was dreading having to fill them out at first, but I plugged away at them until they were all complete. Yes, they can definitely be time consuming, especially depending on your particular circumstances, but working on them a little at a time will help. The IRS is also a great resource for help in filling out your forms, and they offer this service for free.  I did have a few questions for them last year and they were very helpful. They can be reached for assistance online at www.irs.gov, or by phone at 1-800-829-1040.

If, even after reading this column you are STILL a fan of big refunds, I hope you will reconsider. At least call your bank and see what type of automatic savings program they might have available and take some time to think about it after you get the information. Sometimes you need to start out with a small deposit to get the automatic savings withdrawal set up, but if you already have a refund coming this year, you can set a small portion of it aside for this very purpose. 

This will also enable you to have access to your money in the case of an emergency, instead of having to use a credit card that charges YOU interest.

If at the end of the year you find you can get by without spending the money and compounding interest you have saved up, you might consider looking into money market accounts or other long-term investments to maximize your earnings. 

Or you can just set yourself up for another big refund next year and buy a new TV instead.  It’s up to you.