First Person: We Pay Higher Federal Taxes on Purpose

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The number of people who say they are expecting tax refunds fell from 64% last year to just 59% in 2013, according to CNNMoney. The article also said that 7% of the people planned to use a credit card to pay the taxes they owe, while the others plan to use money from their checking or savings accounts.

My husband and I receive a federal tax refund every year, and that is exactly the way we like it. I can't tell you how many times I have been told that our tax with-holdings are setup wrong because if they were right we would not receive a refund; and that that is how it should be. Many people believe paying extra federal taxes is just an interest free loan to the government. While that may be the case, it does not change my decision to continue with our current plan because this system works well for my family.

This is how we ensure we receive a refund, and how we use the money.

How we ensure we get a refund

My husband earns the majority of our income, and he is the only one that works a traditional job that takes out taxes regularly. He has held the same job for the past 10 years, and when he was hired he was single with no dependents, so his taxes were setup for the maximum deduction allowed. When we got married ten years ago, we decided leave all his deductions the same, which means we can claim all of our deductions at the end of the year, leaving us with a refund every year.

How we use the money

A lot of the people I know use any tax refund they receive as "free" money, so they go on a spending spree the moment they have the money in-hand. My husband and I have a different strategy for our money.

For the past two years we have used our refunds to pay off large debits like our auto loan and a long-standing credit card balance, which more than offsets the higher tax with-holdings because it frees up nearly $400 a month. We've also made plans for our 2014 refund. We've decided to use that money to install a second bathroom into our basement, which will in turn raise our home's resell value.

The bottom line is, my husband and I would rather pay more now and get it back later, then not pay enough and have to scramble to make up the difference at the end of the year.

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