At tax time, most Americans get refunds. In 2010, the average refund was more than $3,000. But tax refunds come too late for the holiday season. And tax refunds come too late for year-end charitable giving.
It�s a timing problem. So many of us solve the timing problem with plastic. Making Thanksgiving dinner for 40 of your closest friends? Put it on the Visa. Celebration dinner for your staff and their families? Hello, MasterCard! And all those shiny gifts for family friends (and you!)? Discover it is!
Then the bills arrive in January, but you don�t have your W-2 yet, so you pay the minimum. And in February, things get busy at work, so you don�t get your tax return filed. And by March, you can�t quite remember where you put the mortgage statement and you just know you�re missing receipts for your generous charitable giving. In April, you finally file your return, your refund comes in May, and you�ve paid interest for four or five months. You don�t know how much you�ve paid because it�s too painful to look.
Or maybe this year, things are a little worse. Your credit limits have been lowered, your cards are maxed out, you need some breathing room and you still have a few small gifts or contributions that you really want to give. You know there�s a tax refund coming, but it�s still months away.
Whatever the reason for your end-of-year cash crunch, if you�re expecting a tax refund, your paycheck can provide some relief. You can lower your tax withholding for the rest of the year. This will put more money in your paycheck, but will also lower your tax refund by the same amount.
For example, if you usually have a $600 refund, are paid twice a month, and have $200 in federal income taxes withheld from each paycheck, you can claim enough additional allowances to lower the withholding to $75. You�ll have an extra $125 in each paycheck.
It�s OK (and legal) to make this change. Withholding allowances are simply a tool to help your employer calculate the amount to withhold. But do exercise reasonable care. Use one of the many withholding calculators available online, or talk to a tax professional to confirm how much of a refund you can expect based on your 2010 information so far.
And increase your withholding again in January. It would be so easy to get used to spending that extra money and end up with a balance due for 2011.
Kathy Burlison, EA, helps her clients figure out the tax consequences of their decisions at SmartSpot in Prairie Village, Kan. She can be reached at kathy@smartspotkc.com."

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