Tax season has come and gone.
Some of you were probably surprised by the size of their tax refunds and others…were shocked by the size of your tax bills.
In either case, you need to take action (now!) to make sure you’re maximizing or correcting your tax liabilities (as well as your cash flow).
If you work for an employer, the culprit was probably your tax elections (your Form W-4).
You were either withholding too little, or too much, from your pay checks – therefore not correctly accounting for your taxes in your monthly cash flow.
Why Update Your Form W-4 For a Tax Refund?
You are giving the government an interest free loan!
Unless you treat your tax refund as “free” money and apply it towards your financial goals (and not spend it on new clothes), you are missing out on regular, monthly income to help with your cash flow.
By updating your Form W-4, you can take home more money on your paychecks and use it to cover your immediate financial needs. This is key if you’re struggling to pay your monthly bills but receive a huge refund every tax season.
Why Update Your Form W-4 For a Tax Bill?
If you have great cash flow, and save up a portion of your monthly income to pay your tax bill every year, then ignore this. But if not, take action now!
If you didn’t have the money set aside and you had to pull from your financial priorities (or use a credit card), then update your Form W-4.
This will lower your monthly income, but you still need to do this to account for all of your bills – you were previously missing a major liability, your taxes!
Factoring in your taxes when analyzing monthly cash flow will give a realistic picture of your finances.
Don’t be surprised at tax time! Be proactive and be in control of your finances (which includes taxes).
The IRS has a great Form W-4 withholding calculator to help guide your elections – use it. Then reach out to your HR Department to get your tax withholding changed.
What did you do with your tax refund? If you had a tax liability, how did you pay for it?