Getting a tax return early in the year is great! If you’ve got big expenses you know come around once a year, it’s perfect to get a big tax return and pay it off in one go. However, there are other options for doing similar things with your own money that don’t involve giving the federal and state government interest-free loans. One such option would be to tune your withholding so that you don’t overpay taxes and require a refund.
If you do this, you’ll have to get used to not receiving a tax refund going forward. However, it also means you’ll see more money on your actual paycheck. The difference is when you see this money. With a high withholding, you’re allowing the government to use your money first before paying you back for it. Here’s what you could do instead.
Invest the Difference
So, if you tell your employer to adjust your withholding so that you don’t overpay on your taxes, you’ll see a difference in your paycheck. Our advice would be to take the difference, the money you originally weren’t getting anyway, and invest it. Find a fund you feel is a good, stable investment and put the difference in that fund. This way, you’re not just giving out a free loan to the government. Instead, you’re making money with your money!
This allows you to, essentially, save for yourself, instead of for someone else. When February rolls around, if you really want a “tax refund,” you can just cash out some of that investment you made and enjoy the fruits of your money working for you.
Or, Invest the Tax Return
If you’re not comfortable with the idea of cutting your paychecks closer to potentially owing taxes, then you could leave it how it is as far as withholding goes, and, instead, invest your tax return itself. Whenever your money comes in from your taxes, you can turn around and invest them in the stock market and get that money working for you.
This assumes you don’t need that money for a pressing financial matter. However, should you be financially sound when you receive your refund, this is a great way to save for the future. You could also consider dropping that money into your retirement savings, making it that much more likely that you’ll be able to retire comfortably when it’s time for you to stop working.