How much will you get back from the IRS this year? If you don’t know, than it’s a good time to begin your tax planning. Most people don’t plan their taxes and then hope for the best. If you get a larger refund than expected, you’re happy, but if you’re forced to pay taxes, you’ll be disappointed. Tax planning gets rid of these surprises.
The truth is, when your taxes are prepared, you are merely documenting the past. There is not much that can be done to save money, when compared to early tax planning. With tax planning there is so much more you can do to dramatically reduce your tax bill.
I agree it’s exciting to get a big, unexpected tax refund, but what do you normally spend it on? It’s human nature to spend unexpected sums of money. If you have not mentally accounted for the money, it’s easier to view it as a surplus and spend it frivolously. Do you remember what you spent last year’s refund on? Was it something you’re still glad you bought?
Many argue this works as a forced savings account and enjoy the large refund. While I understand, I disagree this is the best way to save money. I’ve found that most frustration over money comes when you don’t feel in control of it. It’s common to believe that your employer, credit cards or the IRS are in control of your money. This out of control feeling is what causes stress and arguments over money.
By planning your taxes, you will begin to take control of your finances which is very comforting. You will never again dread tax season because there will be fewer surprises. By going through the tax planning process you will gain better awareness of where your money is going and then be able to direct it toward what’s most important to you.