Turning Next Year’s Tax Refund into Cash in Your Pocket Now

Dec 16, 2019 | Tax & Accounting

Each year, millions of taxpayers claim an income tax refund. To be sure, receiving a  payment  from the IRS for a few thousand dollars can be a pleasant influx of cash. But it means you were essentially giving the government an interest-free loan for close to a year,  which isn’t the  best use of your money.

Fortunately, there is a way to begin collecting your 2018 refund now: You can review  the  amounts you’re having withheld and/or what estimated tax payments you’re making, and adjust them to keep more money in your pocket during the year.

Reasons to modify amounts

It’s particularly important to check your withholding and/or estimated tax payments if:

  • You received an especially large 2017 refund,
  • You’ve gotten married or divorced or added a dependent,
  • You’ve purchased a home,
  • You’ve started or lost a job, or
  • Your investment income has changed significantly.

 

Even if you haven’t encountered any major life changes during the past year, changes in the tax law may affect withholding levels, making it worthwhile to double-check your withholding or estimated tax payments.

Making a change

You can modify your withholding at any time during the year, or even several times within a year. To do so, you simply submit a new Form W-4 to your employer. Changes typically will go into effect several weeks after the new Form W-4 is submitted. For estimated tax payments, you can make adjustments each time quarterly payments are due.

While reducing withholdings or estimated tax payments will, indeed, put more money in your pocket now, you also need to be careful that you don’t reduce them too much. If you don’t pay enough tax during the year, you could end up owing interest and penalties when you file your return, even if you pay your outstanding tax liability by the April 2019 deadline.

Recent Posts

One-Time Thing: IRA to HSA transfer

One-Time Thing: IRA to HSA transfer

Did you know that you can transfer funds directly from your IRA to a Health Savings Account (HSA) without taxes or penalties? Under current law, you’re permitted to make one such “qualified HSA funding distribution” during your lifetime.   Typically, if you have...

Is Disability Income Taxable?

Is Disability Income Taxable?

If you may be eligible for disability income should you become disabled, it’s important to know whether that income will be taxable. As is often the case with tax questions, the answer is “it depends.”   Key Factor The key factor is who paid it. If your employer...

Withdrawing ERC Claims

Withdrawing ERC Claims

Recently, the IRS halted processing of claims for the Employee Retention Credit (ERC), due to a high volume of fraudulent claims. The moratorium is through at least the end of 2023. ERC claims already filed are now subject to longer processing, including heightened...

Call Now ButtonCall Now