To Owe or Not to Owe? Tax is the Question…
As tax season continues, and the deadline for filing taxes approaches, many people are finding out where their finances for last year netted out. While some people are getting the pleasant news that they’re getting a refund back and can plan accordingly, others are coming to the realization that they may owe a (potentially large) sum of money.
If the results revealed by your tax return come as a surprise to you it may put you in an uncomfortable financial situation, particularly if you owe money. We’ve often said on 22Dollars.com that no plan is a plan to fail, and it seems that this saying holds true in this case as well. Rather than scrambling to find a fast financial fix, it’s certainly going to be better for you both in the long and short run to do whatever you can to plan ahead for this type of expense.
One possible way to do this, is by having extra taxes taken out of your earnings throughout the year. In this way, you’re planning a sort of “forced savings” for yourself so that you don’t come up short at the end of the year and might even get a refund. In some cases, you are even legally required to do so (i.e., business owners).
Some people may not want to go this route, however, preferring to have their earnings up front to do with as they please. For various reasons, they might feel that they can earn more by saving/investing this extra money on their own, or need the extra income for expenses earlier in the year, and choose not to have it taken out of their paycheck in advance. Choosing this method, though, means that they must be disciplined and think ahead to tax time so that they have the right amount of money in their savings to make up for anything they may owe at the end of the year.
Certainly, as with most finance-related questions, there is no “one size fits all solution. But what pros or cons do you see with each of these options? Do you prefer to have extra money taken out for taxes so you get a larger refund at the end of the year? Or, do you have the minimum amount taken out so you can invest/spend it on your own and then potentially owe money at the end of the year?