Statistics provided by the Internal Revenue Service indicate that $3,317 is the average amount of refund for the American taxpayer in 2014.
Have you gotten your check yet? If so, is it already spent? Remember, it’s not really “free money.” It’s the repayment of the interest-free loan you lent to your Uncle Sam last year.
One reason Florida taxpayers may be receiving a refund is that they allowed the government to withhold more than necessary from their paychecks. As a Miami certified financial planner opined recently, “It is better to have that money in your pocket each month than to wait until the end of the year to ask Uncle Sam for it back.”
Visit www.IRS.gov and download the government Publication 15 (on the home page) to compute more accurate withholdings from paychecks. Remember that claiming more exemptions will result in less withholdings. You don’t want to get yourself into a situation where you get no refund and actually owe money next year.
Regardless, some taxpayers enjoy getting that chunk of money each spring. It can pay down Christmas debt or reduce the amount of credit card debt. However, that can be flawed thinking that creates financial challenges and allows consumers to overspend and get themselves into precarious financial predicaments that can sometimes land them in bankruptcy court filing for Chapter 7 or Chapter 13.
Financial planners advise using any refund wisely. Instead of blowing it on an extravagant purchase, spend it conservatively by paying down debt with at least two-thirds of the amount. Put the other third into a savings account for a rainy day emergency.
Then, stop relying on the government as your savings and loan and set up your own savings account at a local credit union or bank. Get used to a culture of saving rather than spending and going into debt.
If your debts have become unmanageable, it may be time to make some hard choices. A Miami bankruptcy attorney can assess your financial situation and offer advice about restructuring debt or writing it off through a bankruptcy proceeding.
Source: Miami Herald, “Expert advice: Use tax refund to reduce your debt” Julie Landry Laviolette, Apr. 28, 2014