It’s that time of year in the United States when Federal law requires employers to send all employees theirs W-2 statements no matter how low earning or wages are. It’s a great time to ask yourself are you ready for the tax man? The W-2 reports taxable wages paid to an employee during a one-year period, along with employment taxes withheld from paychecks for that year. It’s really the key document need to start income tax preparation. Law requires that W-2s be received by employees no later than January 31 of the following year, which is just a few days way.
Big or Small Return
For many years we received big tax returns, and often the money was gone in a few weeks. What it was spent on I could not begin to tell you now. What I can tell you is after we began to educated ourselves about our finances we examined our taxes and our large returns.
We changed our withholding to lower the amount of taxes be taken out of our paychecks and increased take home pay. This allowed us to have more money within our budget for things like our debt snowball. Someone gave me a great layman’s explanation of changing our withholding and basically stated we are loaning the Government our money and they are giving it back to us each year in the form of our tax return. We could continue to do that or change our withholding, having more money in our pockets each paycheck and less of a tax return. I liked the idea of having more money throughout the year.
I’m far from a tax expert, but found the best withholding numbers for our income and tax bracket to increase income during the year and have a small return. It also helped that we changed our behavior with money and now had a budget in place.
Like most things with money having a plan will serve you well. The folks over at Community Tax has put together a great infographic to help outline the steps to be successful during tax season.
Do you file your taxes yourself or hire an advisor? Do you normal have a big or small return? What do you spend your return on?