Are you one of the many Americans eagerly awaiting a hefty tax refund each year? Experts say, hold on a minute! While it might feel like a nice bonus, that big check from Uncle Sam might not be as beneficial as you think.
Why Your $3,200 Average Tax Refund Might Be Too High: Experts Urge Smarter Money Management All Year
Experts Urge Smarter Tax Withholding for Increased Paycheck Power
IRS data indicates that the average tax refund in 2023 was approximately $3,200; however, some analysts contend that this amount may be excessive. You see, receiving a sizable refund indicates that you overpaid taxes all year long, effectively lending the government your hard-earned money on an interest-free credit.
Experts advise modifying your tax withholding to keep more money in your pocket with each paycheck rather than waiting for a sizable refund. By doing this, you can avoid waiting for a large payout around tax time and instead have extra money to invest, save, or pay off obligations throughout the year.
Many consumers are unaware that they can change their withholding at any moment by sending their employer a fresh W-4 form. You can change details on this form, including the number of dependents you have, your filing status, and other tax-related information. By making these adjustments, you may make sure that you don’t overpay all year long.
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Experts Warn Against Drastic Tax Changes, Advocate for Better Money Management for Your Average Tax Refund
However, experts caution against making drastic changes without considering potential consequences. Life changes like marriage, divorce, or having a child can impact your tax situation, so it’s essential to adjust your withholding accordingly to avoid penalties or unexpected tax bills.
Ultimately, while a big tax refund might seem like a windfall, it’s often a sign that you could be managing your money more effectively throughout the year. By adjusting your withholding and keeping more of your earnings, you can take control of your finances and put your money to better use, whether it’s paying down debt, saving for the future, or simply enjoying a little extra breathing room in your budget.
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