Wednesday, January 18, 2012

Tax prep for 2012

So, I just filed my taxes yesterday, and already know what my estimated return is going to be. And now it's time to think about this year's taxes. Some people think it might be too early, but it all depends on how you look at taxes. Sure, it's nice to have this big check come to you once a year, it's like free money, right?
No, it's lost money. By getting money back from taxes, you are in essence giving the federal government a free loan. The money would do you more good if you reduce your withholdings and put that extra money into a savings account. As an example, if I were to pay the exact amount I owe in taxes every paycheck instead of the amount I have been, I would be getting at least $100 more per paycheck. If I then take that money and put it into my Roth IRA, I'd be nearly maxing it out each year. Or I could take that money and put it into a vacation fund, and have a few really nice getaways every year. Alternatively, you could take the money and put it into a savings account that you'll never touch except for emergencies, and then you'd be prepared for a lot of life's pitfalls.
Personally, I plan to adjust my withholdings, and max out my Roth IRA contributions. The amount of money I'll be getting from the change won't quite cover the contributions to my retirement fund, but the difference will be minimal and I'm certain I'll be able to handle it.
The one hurdle I have right now is making the actual change. I have to get in contact with human resources at my employer, and so far my luck with that isn't very good.

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