I have a tax confession to make

[PatMcDuck]

I'm with you. Last year my refund was huge. But I am worse.

The worst part about it is, I had no idea it would be that huge. I thought maybe we'd owe. Our income and situation fluctuate so much I will fully admit I have no idea when it comes to taxes. This year, we may owe. We may get a big refund. I admit it. We're idiots.

Ha, this made me laugh! Back to the OP, for many years, we got huge refunds too. I mean $7000-8500 sometimes. I would use it to smack my CC balances back to about zero. I know, stupid, but saving seemed hard for us, and it sort of worked.

Now, it is complicated, with DH retired from one job, collected some unemployment (which you have to pay taxes on!!), working another job, my 2 PT jobs, etc. Various dedcutions, like college tuition, rebates for new furnace, medical bills. We will see what happens, last year we thought we might owe (!!) but we got a small refund and just owed state about $75.

 

[gracie1]

Um...if you need the money to pay bills, then get the money back to pay your bills so you aren't paying interest and can pay your bills off faster.

That's what the poster did, they changed their withholdings because they needed the money to pay their bills

 

[mrsklamc]

That's what the poster did, they changed their withholdings because they needed the money to pay their bills

No, if you read the rest, he said he changed their withholdings so they get a big refund to pay bills and take a vacation.

 

[Colleen27]

The real issue isn't about taxes or refunds; rather, it's about self-discipline to commit to a savings plan. If you can't save for a relatively small expense like a vacation, how will you save for your kids' college costs or your own retirement? If you say you'd end up using the money for bills throughout the year instead of saving it, the question may be whether you're living beyond your means.

The same way they save for vacations - direct paycheck deductions or automatic checking withdrawals that make the money "invisible" because it never really comes home in the first place. The tax refund-as-savings plan basically does the same thing with vacation/large purchase savings. It is the same reason retirement savings rates are higher for those who have access to 401Ks compared to those of us who actually have to take money out of the checking account to put into the IRA.

Would it be better if everyone had the self-discipline to save without that element of "force"? Sure. But human nature being what it is I just can't fault people who find a way to make it work even if it isn't the method I'd choose.

 

[Colleen27]

There is no penalty for underpaying your quarterly taxes if you owe less than $1K or if you paid 90% of the taxes owed for 2012 or if you paid 100% of the tax shown in 2011, whichever is smaller.
http://www.irs.gov/taxtopics/tc306.html

If you find that your income is down drastically from the prior year, you can always adjust your last quarterly payment to reflect the reduced income.

Academically I know that, but we were a two-man operation and I did all the books so I tended to err on the side of caution. DH's income was extremely unpredictable too and I just didn't want to get caught owing extra because a big job popped up out of nowhere and messed up my estimates. That's one thing I really don't miss about him being in business for himself.

 

[gracie1]

No, if you read the rest, he said he changed their withholdings so they get a big refund to pay bills and take a vacation.

I did see that. I understood it that the poster changed their withholding to pay their bills, yet they still get a $1500 refund that they use for vacations.

 

[padawans]

Why not just have the same amount of money direct deposited in a bank account that isn't easily accessed?

One day those refunds aren't coming back. Someone said the federal government doesn't have to balance its budget- at some point it's going to have to. Eventually there are going to be consequences even though the politicians like to pretend there aren't. It's happening right now in Europe and it's naive to think it's not headed here. See also:Scarlet O'Hara.

I have to agree with you. I think at some point in your life you have to learn financial discipline. I find it sad that an adult does not have enough impulse control to save money.

 

[mefordis]

In some cases a large refund cannot be prevented. For example, if you live in NJ and work in NY, NY State withholds taxes from your check, but you get them back every year when you file. That is a tidy sum of $$.

 

[okeydokey]

I have to agree with you. I think at some point in your life you have to learn financial discipline. I find it sad that an adult does not have enough impulse control to save money.

Thank you so much for your concern for my financial welfare. Our house is certainly in order, retirement accounts growing, college savings for the kids, extra on the mortgage each month, plus regular savings accounts growing. The tax refund check is just another place to stash some cash for a spring purchase. Works very well for us, but go ahead and assume that I have no financial discipline and should be pitied for not doing it your way.

 

[ilovemk76]

Thank you so much for your concern for my financial welfare. Our house is certainly in order, retirement accounts growing, college savings for the kids, extra on the mortgage each month, plus regular savings accounts growing. The tax refund check is just another place to stash some cash for a spring purchase. Works very well for us, but go ahead and assume that I have no financial discipline and should be pitied for not doing it your way.

If you are so good at saving into different accounts then why not do the same for the "spring purchases"?

 

[okeydokey]

If you are so good at saving into different accounts then why not do the same for the "spring purchases"?

Just don't feel like keeping track of another account. My refund amount changes a bit year to year, it is just easier to leave things as they are. I don't miss the few dollars in interest and I like getting a deposit in the spring for a special project or whatnot. Like I said, works for me.

 

[foreUT]

I too think that "it's an interest free loan!" is advice for bygone days. Savings account interest right now is so minimal, if it is helpful for you to get the $ all at once, you might as well. You aren't missing out on hundreds and hundreds of dollars in interest.

We almost always owe because my husband has a large amount of self-employment income, so we pay both halves of social security.

Good advice. Don't think getting a small amount is very beneficial, even if it is weekly.

 

[ZoeBell]

It's nice to get a decent amount of money delivered to my bank account this time of the year. My home owners insurance, county taxes and my kid's reg fees for school are all due around this time of year.

Also it's not like I have tons of extra money taken out. But you add in student loan interest, college credit and credit for my kids and that all gets deducted from my taxes. My older kids are at an age where it's up in the air if I'll be able to claim them. I need to see what their income is. So I need to plan and be prepared.

 

[snarlingcoyote]

Thank you so much for your concern for my financial welfare. Our house is certainly in order, retirement accounts growing, college savings for the kids, extra on the mortgage each month, plus regular savings accounts growing. The tax refund check is just another place to stash some cash for a spring purchase. Works very well for us, but go ahead and assume that I have no financial discipline and should be pitied for not doing it your way.

I could've written this!

 

[Jeff_G]

Just a little something to be aware of. Identity fraud is becoming a major issue with the IRS. If another person gets ahold of your SSN and files a fraudulent tax return this could hold up any refund due to you for months.

On another message board a user reported it took 16 months to get their refund after someone filed a fraudulent refund in their SSN. Now the IRS did end up paying a small amount interest for that 16 months but it was a major hassle for that user.

A close retaliative of mine was hit last year as well, it only took 5 months for his refund...

 

[mrsklamc]

Also, if you do intentionally get a refund, make sure you do get it. According to this article, $153.3 million in returns were unclaimed last year:

http://money.cnn.com/2013/01/24/pf/unclaimed-money/index.html?source=cnn_bin

 

[Sheaboys]

First, I will admit I did not read all the responses.

We do get a hefty refund every year. We have 5 kids, dh is the only worker. We do not need the money in our weekly paycheck. We use our refund for when DH gets laid off, which is always the week of Christmas and for as long as he needs, usually takes 4-5 weeks off. During his time off, is when we do household projects. In the past, they were, new bathrooms, remodels, new siding, windows and metal roof on our house. We pay cash for it all and he does it himself.

Can we set up an account separately, sure. But usually we get the large refund, put the money in a money market account or 6 month CD to earn a higher interest, then take the money out the following January or so. And it all depends on what remodel we will do. This year it our refund will to, kitchen remodel, with the half bath, and new wood flooring. We still have cash from last years refund, too.

 

[dalayney]

Thank you so much for your concern for my financial welfare. Our house is certainly in order, retirement accounts growing, college savings for the kids, extra on the mortgage each month, plus regular savings accounts growing. The tax refund check is just another place to stash some cash for a spring purchase. Works very well for us, but go ahead and assume that I have no financial discipline and should be pitied for not doing it your way.
******************************************************

I totally agree w/the above.

Bravo.

 

[gracie1]

Thank you so much for your concern for my financial welfare. Our house is certainly in order, retirement accounts growing, college savings for the kids, extra on the mortgage each month, plus regular savings accounts growing. The tax refund check is just another place to stash some cash for a spring purchase. Works very well for us, but go ahead and assume that I have no financial discipline and should be pitied for not doing it your way.

Love it


And OP, you have nothing to be ashamed of!

 

[Suz D]

I am an accounting student (adult). Between my wife's good job, deductions for three kids and my school expenses, we always get a really BIG refund. I know that is not advisable because it is giving the government an interest free loan. Every class I take always has at some point a lecture about the evils of big refunds. I just sit there and nod my head in agreement as I think about my vacation being paid for out of our refund. I'm not disciplined enough to save out of each check if we adjusted things to get a smaller/no refund. Even if I was, invariably some of that money would disappear into general household needs. That disappearing money would negate any interest I could have earned by sticking the saved money into something that would earn a small interest rate. I am so ashamed of my big refund but I don't care anymore once we see the Welcome to Florida sign.

We always love to get the big refund too. It's like Christmas in April (because of course I always wait until the last minute to file ).

I will say, however, if it's truly something you are so ashamed of (in your words, not mine ) then one suggestion is to change your witholding and send the $$ to Disney each month to pay towards your vacay. I know it's giving Disney a free loan instead of the government, so it isn't a money saver, but it might allow you to feel less uncomfortable and reconcile your professional advice with your personal habits.