The Importance of Proper Income Tax Withholding

The Importance of Proper Income Tax Withholding

Would you rather have a dollar today or a dollar tomorrow? What about one dollar every month or twelve dollars at the end of the year? The majority of us would take the money as soon as possible. This is based on two old economic principles; opportunity cost and the time value of money. We know that having a dollar today rather than some time in the future is more valuable because it means we can use that dollar immediately. This could mean saving, paying off debt, or even investing it for the future. Therefore, as we evaluate something of equal value received in the future, we discount its worth and prefer that same value now. This is relevant to us as taxpayers as every month we are given the option to receive more now or more when we file our taxes (assuming we are withholding too much).