Updated at 10:49 p.m. PST on April 8, 2021
There was a great deal of chatter from the accountants in regards to their clients not being about to meet the April 15th tax deadline for 2021.
You would think a year later, there would be no need for one. I think all of us have adapted to the Covid way of life, even if we didn’t want to in the first place. However, important documents were delayed so here we are. Let’s hope things go back to business as usual in 2022.
Thanks to their chatter, the IRS answered and now the American Taxpayer has an additional month to pay their taxes. That’s right, the new deadline: May 17th, 2021. That’s the good news. * Please check your state for the deadline.
Now that we got the formalities out of the way, it is time to address the bigger issue at play here. Any guesses? I’ll give you a hint: people wait for one each year.
Bingo! I’m talking about the tax refund. Why is this the bigger issue? Well, we shouldn’t want one in the first place. I know, I know. Some people are put off by that sentiment.
Is it Better to Get a Tax Refund?
I have had a great many discussions with people who do not understand my viewpoint on this matter. Their argument is but I get a lump sum each year. Yes, that is correct but that lump sum represents the amount you loaned to the government.
It is your money. Your tax liability does not change unless you have a new life experience such as a new baby or you bought a house. Other than that, things are status quo.
I am single. My taxes are boring which may explain why I wait until the last minute to do them. I take the standard deduction and call it a night. Done. In less than twenty minutes. The small refund I will receive will hit my account in less than seven days but the majority of it resides in my account every two weeks on payday.
Why you should not want a tax refund
The number one reason is that it increases your monthly cash flow. Think about it. If you are one of those people who receive a $1,200 refund each year, you are in essence reducing your monthly cash flow by $100 per month. You could use that money to pay for other personal expenses rather than adding more money to an already balance-heavy credit card.
The increase in cash flow should be used to your advantage. Do not take it as a means to increase your spending. If you are strategic, you will be able to chip away at your debt and save hundreds of dollars in interest. Now that sounds like a goal.
How to Handle Future Tax Refunds?
If you are ready to take a step in the no refund direction, the first thing we must do is to complete our 2020 taxes. Once that is done, take your amount and divide it by twelve. This is for both your federal and state taxes.
Get a copy of your W-4 form and adjust it accordingly. I am conservative. Since I receive approx. $200 back as a refund, I do not adjust it. I believe one should do so only if they receive a huge amount of a refund.
Now if the $100 per month increase doesn’t sound as appealing to you as the $1,200 lump sum refund, believe me, I get it. You would not be the first person I failed to convince the former is the ultimate play. Take your time. Taxes are the one thing in life that is a certainty.
* This article originally stated that state taxes were due on April 15, 2021. Most states have now followed the delayed IRS date. Please check your state to see if it has a different deadline..