how to always get a tax refund (in one simple step!)

Photo Credit: Morgan Sessions

Photo Credit: Morgan Sessions

I’ve said it before and I’ll say it again:  I hate preparing my tax return.  Hate it, hate it, hate it. I think I’ve been jaded ever since I worked at the CPA firm, where I’d have to slave away for 10-12 hours a day staring at tax return after tax return after tax return…yeah, it’s just as unglamorous as it sounds.  And they didn’t even concede and let us wear our pajamas to work or give us the 6 pm beer cart we requested on those long days.  How rude. 

On top of that, my personal return used to be SO EASY – I’d have a W-2, a little interest income, and I could prepare it for free and within about 15 minutes using the software my firm had.  Fast forward to 2015, and now I have to use Turbo Tax like the rest of America and deal with rental income, which also makes my return so complicated that I have to pay more to file it.  Ugh.

Okay, now that I’ve vented about how much I dread logging into Turbo Tax every year, here’s the good part:  I’ve always gotten a refund.  Every.  Single.  Year.  Do you know how wonderful that is?  I love the feeling of seeing the government deposit money straight into my account every spring – it’s like I’ve gotten richer in one day by doing absolutely nothing.  All of a sudden, I’m able to afford that plane ticket to visit a friend in Denver or buy that new mattress I’ve been needing or, usually in my case as I am boring as hell when it comes to money, padding my retirement or savings account.  Either way, it’s a nice little gift from Uncle Sam, and one I wish for you as well.

So how do I do it?  Very easily:  I don’t claim any exemptions on my W-4. 

Now, let me first explain what exactly a W-4 is.  This is a federal form you normally fill out when you start a new job where you state how many exemptions you will be claiming on your tax return. Remember, the IRS offers you these exemptions as “free money” each year.  For 2014, the exemption amount is $3,950, so if you and your significant other file jointly and have no children, you will have $7,900 deducted straight from your income just for being alive.  Add a child in the mix, and you’ve upped it to $11,850.  These exemptions lower the overall tax amount you have to pay on your return, which is a big win for you, me, your crazy cousin Albert, and the rest of the USA come tax-filing time.  I know – feel free to do a happy dance about it.

IRS Form W-4.  You fill this out when you start a new job or switch payroll providers at work.

IRS Form W-4.  You fill this out when you start a new job or switch payroll providers at work.

Now, when you state your personal exemptions on your W-4, you are basically giving the government a better estimate of how much tax you will truly owe when you get around to preparing your tax return at the end of the year.  Your payroll department will factor this into how much income tax is taken out of your paycheck:  the higher amount of exemptions you claim, the lower the amount of taxes that are taken out each paycheck.  This all makes sense when you think about it: if the government knows you’ll be claiming an almost $12,000 deduction on your return for your 3-person family anyway, why would they waste time taking out taxes for it?

Now, giving the IRS the best estimate of these exemptions is what you’re supposed to do, but sometimes we all just want to rebel a little, right? Thus, I claim zero exemptions on both my federal (W-4) and state (WH-4 for Indiana) exemption form.  Why?  Because I would rather have a refund coming my way each spring than have to potentially pay all those beautiful (cough, cough) politicians on Capitol Hill.  Yes, I’m tricking the government into believing I will be claiming none of that free $3,950 they offered to throw my way so that they will take more taxes out throughout the year.  That way, I’ll have paid in more than I owe, resulting in a nice chunk of change refunded to yours truly just as the weather starts to turn around.  It’s always a bright spot on those otherwise cold and gloomy late winter days. 

Now, many people think it’s a ridiculous concept to essentially give more of your money to the government initially (through the larger tax payments within your paycheck).  Why have less money come to you each month and get it on the back end?  Why not get the money upfront through your paycheck and settle up the difference at the end of the year on your return?  I’ll tell you why:  because I’d spend it. 

You see, if my paycheck increased the maybe $100 each month it would if I claimed the proper exemptions, I would assume each month that I had more disposable income, meaning that I’d most likely buy more clothes, eat out at more restaurants, and go to more concerts/movies/comedy shows.  Would I siphon that extra cash into savings?  Probably not.  And if I, the queen of saving (seriously, it’s an addiction), wouldn’t do it, I highly doubt that you or the majority of people would either.  Don’t be ashamed – we are who we are and we like nice things.  Like gourmet pizza.  And ankle boots in 3 different colors.  And champagne to celebrate not crying over old boyfriends anymore. 

However, by allowing the government to hold that extra cash for me each month, I essentially am providing myself with another savings vehicle to hoard my moolah.  As stated previously, once that refund hits my bank account, I usually send it straight to either my savings or retirement account, getting me farther along towards my goals than if I had been receiving that money each month through my paycheck.  Would it technically be better to get that money straight up and put it in an investment account that earns interest?  You betcha.  But would I do it?  Heck-to-the-no.  Sometimes money is a mind game, and you have to learn how to trick yourself into getting to your goals.

If you can, make sure to check with your HR or payroll department to see the amount of exemptions you are currently claiming.  If you can afford to (AKA you aren’t already living paycheck to paycheck as it is just trying to get by on the basics), I would highly suggest you lower yours as well.  It will help you retire earlier or get you on that European backpacking trip a year or two ahead of schedule.  And that’s worth missing out a nice pizza or two, right?

Questions or comments?  Would love to hear from you!

Photo Credit: Stephen di Donato

Photo Credit: Stephen di Donato