Question

Mia and Allen, married with two teenage sons, both work. They have read Dave’s books, finished a beginner emergency fund, established a budget, and are working on their debt snowball. Both claim no dependents and take extra money out of their checks. Then in April, when they see how much they’ll get back, they celebrate! It’s like “found” money! They use that windfall for a lavish family vacation every summer. You told them that was all wrong. They asked why. Explain yourself.

Answer 1

Answer:

First of all, they are losing money for claiming no dependents.

• They could claim up to $2,000 per child with the child tax credit (for children under 16).
• The child and dependent care tax credit also allows parents to deduct qualifying expenses up to $3,000 per child under 13, and up to $500 for children 13 to 18.

Besides paying too many taxes, they are also using their payroll taxes as a savings fund. The problem with this savings fund is that it earns no interest. If instead of getting extra money debited from their paycheck, they could invest that money on a savings account or some type on short time deposit and their money would increase due to earned interest.

The fact that they use their extra money for vacations is a personal decision, and they can freely decide what to do with their savings. I can only tell them to save in a smarter and more efficient way.

Answer 2

They didn't claim dependents and they have two sons, so it's wrong and illegal.