How many of you get a big refund from the IRS every year? This is one of my biggest pet peeves. People complain they don't have enough to be investing, but they all get so excited in the spring about their Tax refund - well, you could have had that money all year, instead of waiting for the government to give you YOUR money back. Interest free loan to our government. If you are getting more than $400-500 back in your tax refund, you are OVERPAYING!! You could have been investing it all year...
Now, before you go messing with your withholding's, you have to PROMISE yourself that you are going to set up an AUTOMATIC savings/investing plan EACH month or paycheck with the extra money that you will be getting. It MUST be automatic, so you don't see that extra money, and therefore spend it! Have it automatically taken out of your paycheck/checking account and go into an account without any thought from you and it will be like you never had that extra money and you will be saving with no effort! (if you can afford it, do the same thing with raises, if anyone even gets those anymore :P)
There is a calculator on the IRS website to calculate the amount of withholding's you can safely claim without having to pay them. You can then go to your company's HR and change your withholding's (we can do it online with our company) and you'll have more money in your next paycheck (just less refund each year - but if you are good about AUTOMATICALLY putting that extra money into an account, you will already have what you would have gotten for a refund sitting in YOUR account, plus any increase you will have made over the year :) )
Unfortunately, at least for the State of Oregon, we can only claim 10 withholding's. So, at least for us, we are guaranteed a large (over $1000+) refund every year :P Especially with this new baby/deduction coming.. and yes, it irks me alot! We also usually get a large refund from the feds each year because Joseph often gets a bonus at the end of the year - unfortunately it is not a guaranteed bonus (and we never count on it) and then they tax it at almost 50%, so there is no way to plan for it :( (otherwise, we would be closer to even with them)
If you own a home, have kids, pay property and state tax, pay tithing/charities, and don't make a fortune, you probably don't actually pay that much in federal taxes. We make a comfortable living, but we have kids, own a home, pay high property taxes and state taxes, pay our tithing, etc. so we hardly pay anything in federal taxes (state is a whole other thing - we do have to pay them a bunch). I used the calculator for what we hypothetically will owe next year, with this new baby/deduction/tax credit, and we will owe almost nothing in federal taxes (according to the calculator, we are already overpaying, when we consider the new baby as a factor). So try the calculator out and see how much extra you can have in your paycheck to invest/save - just make sure, I'll say it again, it put that money AUTOMATICALLY into an account!!