IRS bills can sometimes be a shock, but Yahoo Finance reporter Rebecca Chen joins Wealth! to help filers manage their tax withholdings, avoid surprises, and save money in the process.
Chen explains that a tax withholding is a prepayment Americans make throughout the year to the government for their expected tax liability. At the end of the year, a W2 tallies up all the prepayments, and if the total amount is less than needed, the filer will have a tax bill. The trick, Chen explains, is to think about your withholding goal.
"Having a refund isn’t always a good thing; it just means you gave the IRS an interest-free loan throughout the year," Chen says. A more profitable strategy might involve setting your withholdings aside in a high-yield savings account and earning interest on your tax liability.
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