Government Red Ink - Check Your Withholding

As you read this, more and more of the state governments are running deficits. I have seen various threats around the internet to withhold the tax refunds from taxpayers.

As you are in the process of getting your tax return completed or at least shortly thereafter, you may want to consider doing some type of tax projection. This will give you the information you need to plan your withholding properly.

Ideally, you should break even or owe just a little. Many people do like the idea of getting a large tax refund. They treat this withholding and subsequent tax refund as a forced savings. Some people have told me this is the only way they can save for vacation or pay that big car insurance payment.

If this is the only way you can save, then no matter what anyone says, you will continue to operate this way. However, what happens when the government is weeks late refunding your money? What happens if you have a dire or unexpected emergency? Once the money is withheld, you have absolutely NO control over it.

An alternative might be to have an automatic deduction from your paycheck which is deposited directly into a bank account or brokerage account. This would allow you to save, but you would have access to the money in the event of an emergency whether it is your personal emergency or at the state level.

It is really a good idea to sit down with you accountant and take a good hard look at your withholding situation. The bottom line is that at some point, we will all need to handle and understand the details of our own finances. By withholding too much from your paycheck and waiting for a large refund, you are essentially letting the government handle your finances. If you let the government run your savings, who knows what could happen? Please make 2010 the year you step forward and resolve to get your finances under control.