Monday, March 30, 2009

It's the money you could be making!

I just finished up my federal taxes yesterday and I am getting back $140.00. I am super glad that is all that I am getting back. Why, because I have adjusted my IRS withholding to make interest on the money instead of the government. This was the first year that I had changed my withholding on my W-4.

The average tax return in 2008 in the US was $2400.00 that’s $200.00 a month. Lets say you put that $200 per month into an investment (401k, Roth IRA) that makes 6% over ten years. You would make $33,532.00 instead of $24,000.00. You just made yourself $9,532.00 and didn’t have to do anything except go to your HR department fill in the W-2 to the withholding you want. Here is a calculator on the IRA site where you can figure out how much to withhold to reduce your tax refund. Here is a calculator for seeing how much money you could be making if you switched you withholdings. Reminds me of those Geico commercials, hehe don't let it sit with the government to waste but grab it and watch it grow with a least a high yield saving account!

Currently I have about $250.00(tax money) a month going into a money market. I did not touch that money because I wanted to make absolutely sure that I was not going to have to pay the government when I filed taxes for 2008. I probably will not put it an anything right now as I am saving up for a down payment on a house and its still making me a little money on side.

I started out last March with around $300.00 in my emergency fund/tax withholdings. I am currently sitting at around 10k plus I have made close to $150.00 in interest while building my small amount of wealth. Along with the $250.00/month tax money and an extra $140.00/month on top of that, my savings have grown so much over a span of one year. Now this money will stay in the same account and I will be putting the same amount in every month. Since I already have my emergency fund in place this money will be going towards my house down payment along with the $140.00 tax return I am getting back from the government.

I know how good it feels to receive a tax return and boy I surely felt it yesterday when I found out that I am getting back only $140 and my girlfriend is getting back $2000.00. I wanted to have a nice big tax return too but I have to tell myself that I am making more money in the long run. This decision cannot be based of emotions but based on what is wise when it comes to the creation of my wealth.

4 comments:

  1. I like the content on your site.
    I agree with the withholding idea.
    Just remember to no over do it, if you do, you will end up owing money and perhaps even an unexpected bill and fine at tax time.

    Keep up the great blog.

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  2. We also get a large tax return. The last 5 years or so we seem to keep having events that change our tax status. 2004 bought a house, 2007 got married, 2008 lost my job, 2009 having a baby...

    I am waiting until we get a more stable tax situation before making a modification.

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  3. Thanks for the comments guys! I am trying my hardest to get this up and running more smoothly and get to a point where I can post daily. Please keep coming back and leaving comments!

    FrugalNYC - Thanks for the comments! Ya I was excited to see that I calculated right. I moved from California and they owed me $5 and North Carolina owes me $19. It was al sitting in my money market if I did over do it but it worked out prefectly.
    Danielle - Ya I foresee my next few years changing my tax status so I am taking full advantage while I can.

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  4. You saved almost 10k in a year? That's amazing, way to go!

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