“A penny saved is worth two pennies earned . . . after taxes. ”

-Randy Thurman

Another year has passed and it is time to get your paperwork in order so you can file your tax return. It can be an exciting event for those of you who expect to get a refund, or an incredibly stressful one if you are worried about how much you might owe. This year, with the new tax laws in place, a lot of people seem to be feeling more hesitant than anything else, since it can be a bit hard to sort out if the new laws fall in your favor or not.

Talking with your trusted tax consultant will be the best way to sort out those concerns… And, while you are there, make sure that you ask her about the W-4 form you currently have on file with your Human Resources department at work. While many of the new tax laws took effect in the last year (2018), they were not all in full force until now, and some of those changes could have a bigger effect than you might expect. The IRS (anticipating the confusion that these changes would bring) has created an online calculator to help sort out what your new withholding number should be. The webpage where you can find a link to this calculator is . Be sure to read through the page instead of skipping right to the calculator, and then be prepared to set aside about 20-30 minutes for this task.

It seems that, if you do not have dependents, things may not have changed much… but if you do still hear the pitter-patter of little feet running through your home, the new numbers will now look sort of bizarre…. as in, “15 allowances for a single mother of three who files as Head of Household” kind of bizarre….! Because you want to have the right allowance number, having a helping hand from your tax professional will certainly be important. If you think about it, when you send too much money to the IRS every paycheck (by having the wrong number of the allowances selected on that W-4 form you have filed with H/R), you are giving the government an interest-free loan for up to, or more than, an entire year… Just imagine how many people do this year after year, and how many earned American dollars are “loaned” to the government in this way! Would the government be willing to give you a loan with the same 0% interest terms? I doubt it.

It seems irrational, then, to be excited about a large tax return. In some (rare) situations*, it may be beneficial for you to let the government take your money and hold it until you ask for it back in your tax refund. In every other case, it is better to NOT give the government your money…. but instead, to get every penny of your hard-earned cash in your paycheck and, at your own discretion, work it into your budget or save it in a bank account. Most banks have savings accounts specifically for Holiday Funds, Vacation Funds, and the like. Then, you can control when and for what it is used. At the very least, put it into a CD or a Series I Bond (where the government pays you interest to borrow your money from you) for a year instead… Or, an even better idea could be to invest it in a mutual Bond Fund or (if you’re more daring) a Total Stock Market mutual fund and let it grow.

It may be less exciting next tax-season when you only get a small tax return or owe a tiny bit of money at the end of the year, but it is important to get this part right. You are perfectly capable of managing your household, and having access to ALL of your money is paramount when you sort out your budget. It is a good lesson in controlling your own destiny, and it will be empowering to know that you are saving on your own terms, and earning interest, for the rest of your life.

*This rare situation may be that you will use the extra earned money each month to ruin your life…. Perhaps by digging yourself further into debt because of a gambling problem or by using the funds to purchase illegal substances… Ask yourself “If I have some spare money, will it get me into a lot of trouble?” If the answer is YES, then, by all means, let the government keep your money! Really, though, short of these unlikely circumstances (readers of this blog are very dependable people!) there is no reason to let the government hold your money for free!

The IRS notes the following:

IMPORTANT NOTE: This Withholding Calculator works for most taxpayers. People with more complex tax situations should use the instructions in Publication 505, Tax Withholding and Estimated Tax. This includes taxpayers who owe self-employment tax, alternative minimum tax, the tax on unearned income of dependents or certain other taxes, people with long-term capital gains or qualified dividends, and taxpayers who have taxable social security benefits.  (The calculator won’t determine the taxable portion of your social security benefits, but if you estimate the taxable amount (e.g., using the worksheet in the Form 1040 instructions), you can enter that into the calculator as other nonwage income so that the calculator can take it into account.).