I have a tax confession to make

[snarlingcoyote]

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.

I haven't addressed you OP, because others have done it, but I'm going to chime in.

I work in a field where I am SURROUNDED by accountants. Tax Accountants, Finance Accountants etc. About 2/3rds of the people I work most closely with have CPAs. They are not any better or any worse at managing their own money than normal people are. I think a lot of people on this board only know about personal finance advisors who have accounting degrees and don't realize that most accountants are working in corporate America.

Your professors are spouting outdated advice that is true at some times and not true at some times. The best advice I can give you is to just nod your head, agree with them, and think your own thoughts. You won't change their minds with the facts.

Right now there really is no benefit to putting money into a savings account vs. getting a refund. There have been times when there is a benefit. In fact, at one point I used to pay with vouchers to the feds once a quarter because I made money by dumping all my tax money into my savings account and taking the monthly interest! Right now, it is not true.

I've heard the argument that you're losing money because you're not getting use of that money in the months the government has it. That's true, actually, if you are going to spend the money or invest it. If that money would be earmarked for your savings account there is no functional difference unless you are a high enough earner that you have enough of that money to play with effectively in the markets - and most of us do not have those kinds of extra $$ to play with!

Whether your put it into a savings account or have the government take the extra really doesn't matter fiscally at this moment in time. (And the fraud argument. . .are people aware that the same sort of fraud occurs to savings accounts?)

Honestly, I love the fact that we don't miss the money coming out of our paychecks because we've never seen it and then in late Feb/early March there's this big horking check deposited in our account. Also, DH is NOT a real saver; I've had to convert him over the years. For him getting that check is like getting the high score on a game at the end of a quest or a level.

There will always be people who will sit in judgement of you because you don't do things the way they would. They're easily ignored. Even the college professors! Just smile and nod and put the answers they'll like on tests.

 

[IDoDis]

In 2012, we decided to have the money withdrawn monthly to pay for stocks since the company we own stock in had previously dropped to an all time low, but was now on the rise and doing much better. So we still didn't see the money at all in our take-home pay. I just did the math on what we paid for the stocks and how much we made vs letting the govt. keep it and give it back as a refund. We made over $550 in just that "refund" amount that we had invested in stocks. So now our "refund " is $550 more.

Was there a risk? Yeah. If the stocks went down, we'd have lost $$ assuming we cashed out those stocks. However, we would not have done that. We had decided we'd just keep buyin stock at the lower price which is what we've been doing since the market crashed.

 

[gracie1]

I haven't addressed you OP, because others have done it, but I'm going to chime in.

I work in a field where I am SURROUNDED by accountants. Tax Accountants, Finance Accountants etc. About 2/3rds of the people I work most closely with have CPAs. They are not any better or any worse at managing their own money than normal people are. I think a lot of people on this board only know about personal finance advisors who have accounting degrees and don't realize that most accountants are working in corporate America.

Your professors are spouting outdated advice that is true at some times and not true at some times. The best advice I can give you is to just nod your head, agree with them, and think your own thoughts. You won't change their minds with the facts.

Right now there really is no benefit to putting money into a savings account vs. getting a refund. There have been times when there is a benefit. In fact, at one point I used to pay with vouchers to the feds once a quarter because I made money by dumping all my tax money into my savings account and taking the monthly interest! Right now, it is not true.

I've heard the argument that you're losing money because you're not getting use of that money in the months the government has it. That's true, actually, if you are going to spend the money or invest it. If that money would be earmarked for your savings account there is no functional difference unless you are a high enough earner that you have enough of that money to play with effectively in the markets - and most of us do not have those kinds of extra $$ to play with!

Whether your put it into a savings account or have the government take the extra really doesn't matter fiscally at this moment in time. (And the fraud argument. . .are people aware that the same sort of fraud occurs to savings accounts?)

Honestly, I love the fact that we don't miss the money coming out of our paychecks because we've never seen it and then in late Feb/early March there's this big horking check deposited in our account. Also, DH is NOT a real saver; I've had to convert him over the years. For him getting that check is like getting the high score on a game at the end of a quest or a level.

There will always be people who will sit in judgement of you because you don't do things the way they would. They're easily ignored. Even the college professors! Just smile and nod and put the answers they'll like on tests.

Very well said!!!

 

[ruadisneyfan2]

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.

Plus, when it comes right from my paycheck to my retirement account, we don't owe fed taxes on that income. Overall, it reduces taxable income & tax owed. I surprised how fast it grows, even in this economy!

 

[4luv2cdisney]

DH typically has some self employment income every year. We find it easier to have extra withheld from our paychecks every week to cover that. It is a variable amount, so we usually overestimate and get a decent size refund.

We don't escrow our taxes in our mortgage. I figure it balances out! It's funny, because I never hear anyone making a big deal about people giving their mortgage company an interest free loan....

 

[ruadisneyfan2]

DH typically has some self employment income every year. We find it easier to have extra withheld from our paychecks every week to cover that. It is a variable amount, so we usually overestimate and get a decent size refund.

We don't escrow our taxes in our mortgage. I figure it balances out! It's funny, because I never hear anyone making a big deal about people giving their mortgage company an interest free loan....:confused3

Yes, this sickens me!! Our property taxes are ridiculous too, $8600/yr for a little 3Br/2Ba rancher. Our escrow amount is more than either principal or interest. I'll be so happy to tell them where to go some day!

 

[Colleen27]

We don't escrow our taxes in our mortgage. I figure it balances out! It's funny, because I never hear anyone making a big deal about people giving their mortgage company an interest free loan....

Probably because that is, in many cases, unavoidable. I know our lender required it when we had a mortgage, and I'm sure many others do as well.

 

[OhioDisneyDad]

After reading this thread it's very clear to me why this country is in such bad shape. Wow.

 

[MomToOne]

We don't escrow our taxes in our mortgage. I figure it balances out! It's funny, because I never hear anyone making a big deal about people giving their mortgage company an interest free loan....

Because it's not an interest free loan - I've always received interest on my escrow accounts. It's not a high amount, about the same as a standard savings account gets, but it does earn interest.

Check your escrow accounts - usually the interest for the year is deposited on Dec. 31st, but I've also recieved it on different dates when my account was involved in various bank mergers etc.

 

[4luv2cdisney]

Because it's not an interest free loan - I've always received interest on my escrow accounts. It's not a high amount, about the same as a standard savings account gets, but it does earn interest.

Check your escrow accounts - usually the interest for the year is deposited on Dec. 31st, but I've also recieved it on different dates when my account was involved in various bank mergers etc.

Haven't had an escrow account in a very long time, but when we did, they did not pay interest. No one I know of receives interest on theirs either (this has been a topic of conversation with friends/neighbors in the last year because of so many of us refinancing). A quick google search tells me it is required for lenders to pay interest in some states, but not in ours. Learn something new everyday!

I really don't care what anyone does one way or another. Just found it interesting (even IRL) how many people get so bent out of shape about income tax refunds, but not this. We have a very good reason why we overestimate our tax liability and know that it is not a bad financial decision for us.

 

[Arielle22]

When my daughters were young we got back around $3,000 each year. That was enough to pay for their summer camp so it worked out great.

I would prefer to get some money back rather than owing. Last year we got around $1,000. However we have lost the deduction for my younger daughter but gained a tuition deduction for my older daughter. So I have no idea if we will owe or get a refund.

OP, I have worked with a lot of accountants over my career. I know some who were fabulous with their money and others who spent as soon as it came in. None of that changed how they did their job.

I don't think, if I had a personal accountant, it would ever come up whether they preferred a refund or more take home weekly.

 

[Lehuaann]

Yes, this sickens me!! Our property taxes are ridiculous too, $8600/yr for a little 3Br/2Ba rancher. Our escrow amount is more than either principal or interest. I'll be so happy to tell them where to go some day!

I will never complain about our property taxes again...

 

[StitchesGr8Fan]

Everyone makes it sound like it is so easy to get your withholdings right so you end up with no refund and not owing at the end of the year. Maybe it is if you are a single person or married with one job, but if you both work or have investment properties it is complicated. And don't tell me to use the IRS withholding calculator. It is no help unless your situation fits in one of their boxes.

I'd rather give them a little extra and not have to worry about owing or getting hit with a fine if I owe more than $1k.

 

[StitchesGr8Fan]

And there is a reason tax accountants make so much. Taxes are complicated!!!!

 

[snarlingcoyote]

And there is a reason tax accountants make so much. Taxes are complicated!!!!

Preach on! I'm always when I take a look at how complicated keeping track of taxes is for a company

 

[angwill]

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.

Don't feel bad we pay taxes at the end of the year and save the percentage in a savings from every paycheck through out the year. I think we earned $14 in interest last year on the tax savings account. The government isn't getting that much in interest from you. lol

You do however have the option of having a certain amount automatically deposited into savings every time you get paid too though.

 

[richkaryn]

We also do it this way and prefer to get back a big refund vs. having a little more on each paycheck. We've paid off bills, paid for vacations, bought<used> vehicles (managed to have no vehicle payments for last 8 years!!), and bought used RVs at tax time. It's kept our debt lowered and allowed us to have alot of fun without putting us in a bind financially. Getting a few dollars more each check would just get shuffled into everyday life and we'd never be able to pay cash for vehicles that way.......so, if I have to loan it out for free for a year in order to do that, then so be it

 

[johde]

I teach Business Math and Accounting at a local community college. When we get to the section on Income Tax withholding, I mention the "interest free loan" idea and how from a purely mathematical prospective you would be better off breaking even or even owing a little bit. But I also mention that from a practical perspective, letting the government save the money for you is better than not saving the money at all.

Me personally, I save a little bit on my own as well as shoot for a moderate size refund of $500 to $1,500. Frequently my income is right on the border for the Saver Credit so I need to wait to make my IRA contribution until I file my taxes to see if it's better to do the traditional or Roth IRA. Frequently, the years I get a big refund it's because I need to make a big IRA contribution into the proper type of IRA.

 

[drcmk]

we always get a really BIG refund. I know that is not advisable because it is giving the government an interest free loan. I am so ashamed of my big refund but I don't care anymore once we see the Welcome to Florida sign.

So, I guess you are not one of those people who are opposed to "BIG GOVERNMENT" since you trust the government to manage your money more than you trust yourself.

 

[angwill]

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.

Hey you gotta do it the way you gotta do it. It doesn't really matter if someone else doesn't do it that way or says not to because it's not good. The measly interest is not a big loss anyway. This is coming from someone who owes this year.