Friday, March 12, 2010

Be pro-active in tax planning

Hopefully you take some time at the beginning of each year to review your tax situation and make sure you are having the correct amount deducted from your paycheck each week.Many people fill out their W-4 when they get hired and then never revise it again the entire time they are employed.

This is bad for the obvious reason of deducting too much so that you get that big fat refund check back each year.This simply means you have succeeded in allowing the government interest free use of your money for the entire year.Bad idea!Your goal should always be a zero return,nothing owed and nothing returned.This gives you the maximum amount in your paycheck and allows you to make money on your money and not the government.

However,this year is more important than most to get it right.State budget woes across the country are causing some states to delay tax refunds.So that refund check you may have been banking on to be there right around now may not be there.Next year the stimulus program will be completely done and states that may have utilized it for balancing their budgets may be cash-strapped and go to this step of holding back your refund.You can prevent this now by reviewing your tax situation today and making the necessary adjustments to your withholding so you don't get a refund next year and potentially face having your money withheld.Interest free I might add.

Here is a story concerning this subject from the USA Today.

States May Hold Onto Tax Refunds for Months
(USA TODAY/March 12, 2010) Residents eager to get their state tax refunds may have a long wait this year: The recession has tied up cash and caused officials in half a dozen states to consider freezing refunds, in one case for as long as five months.

States from New York to Hawaii that have been hard-hit by the economic downturn say they have either delayed refunds or are considering doing so because of budget shortfalls.

“It’s an indicator of how bad it is,” says Scott Pattison, executive director of the National Association of State Budget Officers. “You know things are bad when you have to do that.”

New York, hit with a $9 billion deficit, may delay $500 million in refunds to keep the state from running out of cash, says Gov. David Paterson.

Hawaii’s Department of Taxation says some residents may not see state income tax refunds until the end of August, The Honolulu Advertiser reported. It was part of a plan by Gov. Linda Lingle to deal with a revenue drop-off by pushing costs into the next fiscal period, which begins in July.

States often do not have a timetable for refunds because delays are based on cash flow. Most states typically issue refunds within 30 days.

Delaying refund checks isn’t unprecedented, Pattison said, but it is something virtually no politician wants to do, because taxpayers are owed the money and in most cases want it fast. Delays in paying refunds and other state bills can trigger interest on those overdue payments, depending on state laws, he said.

California’s massive budget shortfall of more than $20 billion last year prompted it not only to delay tax refunds but to issue billions of dollars in IOUs to vendors and others who were owed money. State Controller John Chiang called the delayed payments a “shameful chapter in the State’s history” when the IOUs ended last September.

California still faces budget problems, but Chiang said that revenue is running ahead of projections so far this year, lessening the threat of a repeat.

“Californians should expect to receive their hard-earned tax refunds on time,” Chiang said.

The delays come as some states continue to face deep budget holes, even as economists say the nation as a whole has begun recovery. In a recent report, the budget officers group and the National Governors Association said state fiscal conditions “have continued to worsen,” and that state revenues can be expected to lag one to three years behind a national recovery from recession.

This fiscal year, the report said, 36 states have cut nearly $56 billion in spending, and 30 states have cut funding to public and higher education.

More to come...

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