Ding! Ding! Ding!

Announcer: Oooh, immediately Dr. Thrift takes a jab to the head. That’s immediately followed-up with an uppercut. Now a few body blows, oooh, and down goes Dr. Thrift. He stumbles to his feet after a seven count. The referee is looking at him. And it looks like the referee is going to stop this bout! It’s over! The IRS has won this battle. Dr. Thrift will live to fight another day but today, he took a major beating.

That’s how I felt yesterday. I’m sure many of you probably felt the same. For others, you had the privilege of not having to fight any battle. Well, I wouldn’t consider it a privilege as you let Uncle Sam take some extra punches throughout the year. You might feel that getting a large refund is a blessing but in reality, it probably isn’t as great as you might think.

Are you living paycheck to paycheck? Do you find yourself struggling to pay debts? Do you wish you could start an emergency fund but can’t find any extra money? Today I want to encourage you to look at how much of a refund you received and consider getting it during the year instead of in a lump sum next year.

According to Tom Anderson of CNBC, as of April 9, 2015, the IRS had paid 77 million refunds already for the 2014 tax year. The average refund was $2,815. Some quick division reveals that on average, those receiving refunds this year could have pocketed an extra $234.58 per month. That would have been helpful to those who are struggling. It’s best to not receive or owe anything when you file your taxes. I know it feels nice to get a large check from the IRS each year but think about how much that extra money each month could help. I am not going to beat you up on this as I’m still feeling a little sore myself, but think about what you do when you get that large refund. If you are like most people, you use it to buy something. Let’s begin today to use that money throughout the year to help us get traction in our financial lives.

So today’s tip is for you to go to your Human Resource officer, boss, or manager and request to complete a new W4 form. Here is a link to it if you want to complete it ahead of time. Increase the number of dependents by one and turn it in to have the amount withheld for taxes reduced. Next, divide your tax refund for 2014 by the number of paychecks you receive annually. This is the amount your taxes can decrease per paycheck and still break even when you file your next tax return. On your next paycheck stub, look to see what the difference is in federal taxes withheld or look at how much your paycheck increased. Compare that number to the amount you determined you can gain each paycheck to break even.

• If they are close, you are done. Put that money to work for you by paying debts, saving for emergencies, etc.
• If it decreased too much meaning you are now getting back too much per month, complete another W4. Leave everything the same except line 6 where you will write the amount needed to break even. Feel free to add a little extra to this amount if you want to be sure you don’t owe. It’s okay to get a refund of a few hundred dollars but you don’t want to get back more than that.
• If it didn’t decrease enough, complete another W4, add another dependent and repeat the process. You might find on the next check that too much is taken out in which case you can then use the bullet above.

Put a plan in place to use that money to pay down debt or save for emergencies. As for me, time to start training for next year’s fight.