Have you done your 2018 taxes yet? Are you one of the unfortunate people who are seeing a smaller tax refund this year? If you are, I hope that it won't impact your finances in a negative way. Thankfully, we were able to avoid a smaller tax refund this year.
How We Avoided A Smaller Tax Refund
When we got our tax forms back, we were happy to see that we're getting a little more back than last year. While many people think getting any sort of refund is bad thing, I actually welcome a refund. We don't count on the refund. For us, it's just nice to have money that isn't a temptation to spend during the year. The removal of that temptation is worth the small interest we're foregoing.
So, how did we avoid a smaller refund? There were two main reasons.
We Ignore Our Kids
Wait! What? You don't pay attention to your kids? Scandalous, right?
Well, that's not true. We give our kids lots and lots of attention. They're awesome.
But, where we ignore them is how it comes to our withholding. My W-2 indicates that we have just two allowances. My employer withholds as if it's just my wife and I.
That's the thing about withholding. You can put anything you want on your W-2. It doesn't impact the tax you end up having to pay. All it does is change what your employer sets aside. At the end of the year, you'll end up with the same amount of tax paid on your tax forms.
So, our strategy basically means that my employer deducts tax as if it was just the two of us. If we included our kids in our withholding, each paycheck would have been bigger. And, my tax return would have been smaller.
Most people claim the actual number of dependents they have on their W-2. We didn't, and it helped us out when it comes to our refund amount.
Our Deductions Were Timed Properly
Up until this past year, we always itemized our deduction. Between state tax, mortgage interest, property tax, and chartitable deductions, we always deducted a higher amount than the standard deduction.
With the new tax law, the standard deduction basically doubled. No way would we have come anywhere near that amount.
But, the thing is that we weren't going to be itemizing any longer anyway. It just so happened that our gap was getting smaller and smaller. This happened for two reasons:
- The standard deduction amount increased – Every year they had been raising the standard deduction amount by a few hundred bucks.
- Our deductions were shrinking. Our mortgage interest had declined as we've paid more and more of our loan. We'd actually been working to maximize our deductions by timing some payments.
People who were claiming a few thousand dollars more than the standard deduction still no longer got to claim it. That has a meaningful impact. But, for us, who were only a thousand dollars or so over during the previous tax season, it didn't hurt us.
What We're Doing With Our Refund This Year
So, now that we're one of the lucky people who aren't seeing their refund shrink, the question is: What next? How are we spending it?
We have our refund allocated to a few different categories. Some of these need little or no explanation.
- Car Fund And Repairs
- Home Repairs
- Kids Sports, Camps, and Activities
- Christmas Gift Fund
- Birthday Gift Fund
- Camping Trips
- Family Spring Break Trip
- Couples Trip – My wife and I went to Cancun a couple of years ago. We'd like to go again soon while the kids are young and easier to watch.
- Clock Repair – I have an antique clock in need of repair. I have put this on the list for several years but it usually gets bumped. Hopefully I can get this repair done this year.
- Mower / Snowblower Maintenance – One or the other of these machines seems to need repair every year.
That's it. That's how we plan to spend our money on our refund this year. Honestly, this is pretty similar to what we have allocated in the past. In fact, I have a spreadsheet with a ‘Tax Refund' tab. Each year, I open it up and use previous budgets as the starting point for the allocations.