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Old 01-25-2013, 12:26 PM   #1
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I have a tax confession to make

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.
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Old 01-25-2013, 12:28 PM   #2
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Done it before myself! Hey how ever you manage to save, right! Now I rely on autodraft to savings out of my checking account- like paying myself!
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Old 01-25-2013, 12:37 PM   #3
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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.
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Old 01-25-2013, 12:42 PM   #4
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Those who preach that are stuck in a time warp. The amount of interest you would collect on a sizable refund (say 5K) would be wiped out going out to 1 nice dinner with the family. A person has to know their limitations.

BTW I would not admit this to potential clients if I were you .

I pay every year so this isnt an issue for me
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Old 01-25-2013, 01:30 PM   #5
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Personally, I don't want a huge refund, but I don't want to have to pay either.. its a fine line!

However, my In-Laws could not save a nickle if you somehow pried it out of thier hands and put it in a valut they could not acess... yes, its that bad! so them changing withholdings around so that they get a big refund helps them.. thing is you have to know when to time things with that family. If you get married/have an accomplisment/baby etc in Oct, your not getting much from them, but if it happens during tax season, who-hoo!

I agree w/ the prior poster - you have to know your limitations and work with those! (now don't tell your CLIENTS )
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Old 01-25-2013, 01:32 PM   #6
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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.
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Old 01-25-2013, 01:55 PM   #7
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On a show not too long ago, Suze Oreman even said that since interest rates were so low right now, if it helps you save then go ahead and overpay taxes and get a big refund.

Of course, that is her advice only as long as interest rates stay low.
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Old 01-25-2013, 01:59 PM   #8
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I figure giving the government a interest-free loan is one of the few civic-minded things I do. I've done it for most of my working life. Ain't I patriotic?!?

Looking forward to getting a refund. And yes, since I have little other debt, half will go to savings and the other half will go toward a vacation. What others folks do is their own business.
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Old 01-25-2013, 02:06 PM   #9
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Even though interest rates on savings are low, it doesn't make sense to let Uncle Sam have that money if you are paying interest on credit card balances. Sure, 0.75% on a passbook savings account means very little at the end of the year but 13.99% on a credit card balance does.

I hate giving the government a loan. They take enough of my money in the end, so I'd rather pay whatever I owe in April than get a big chunk back. Considering how they waste the money, I feel that I'm already doing my civic duty by paying taxes at all.
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Old 01-25-2013, 02:09 PM   #10
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Your confession is mine too! I know we should change our withholdings so we basically break even but we utilize this $ as our savings account, and if it was in a savings account it would hardly earn any interest at all plus we would dip into it and use it! We are not very disciplined with savings This year's refund is ear marked for our house roof and next year it will be a Disney vacation!!!!!

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Old 01-25-2013, 02:15 PM   #11
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I have changed our witholdings so that we should break even, but with TurboTax, there is always something that helps us get a large refund.
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Old 01-25-2013, 02:26 PM   #12
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Originally Posted by cmwade77 View Post
I have changed our witholdings so that we should break even, but with TurboTax, there is always something that helps us get a large refund.
If you use the withholding calculator on the irs website you will break pretty close to even. I have found it to be the most accurate way. It is down at this time every year but it should be back up before too much longer.
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Old 01-25-2013, 02:28 PM   #13
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I make a post similar to this each year, so apologies to those of you who have heard this from me previously.

I'll start by offering that if the "big refund" approach works for some people, and they understand (at least generally) that it's theoretically sub-optimal, but they are happy anyway, then great... whatever works for you and makes you happy.

That said, I do think it's worth painting the whole picture. The whole argument about "interest free loan" vs "interest rates are low now" is a very tired argument, and only looks at the issue in a very superficial manner.

First, the question of low interest rates. If you're only looking at the 0.2-0.5% you're getting from a basic savings account at your local bank, then sure, they're low. If you start considering other investment vehicles, like decent mutual funds, then one can still realize higher returns (yes, with increased risk, of course).

Apart from just interest, however, it's worth a quick look at inflation and the purchasing power of the money. Keeping in mind that tax overages are held by the government an average of 8 months from payment until refund (remember that those taxes paid in the first check of the year are held for about 14 months, and by the end of the year, about 2 months), the purchasing power of those same dollars declines by as much as 2%.

Though it's different for everyone, the situation may be further exasperated if there are debts, like a car loan--or worse yet a higher interest credit card-- that could be paid off sooner, or would be paid off by the refund anyway. Then we are not only talking about foregone interest earnings, but also unnecessary interest paid, which may be 10% or even higher in some cases.

One other issue I like to point out, is that there is no guarantee of exactly when one will get the big "lump sum" back from the government. The
ability to file, or more importantly, to have a refund processed, is often delayed by any number of circumstances. Without fail, every year, these very boards see a handful of people freaking out that their refund is taking longer than expected. In the worst cases, that's accompanied by a comment about how they were "counting on" that money for whatever purpose. State taxes are even more frequently at risk in this same manner (although there is often less flexibility with withholdings at the state level).

Okay, now that I've gotten all of that out of my system, I'll say again that really, there is nothing wrong with anyone doing what works for them and makes them happy. I also realize that frequently income and circumstances change in an unexpected way that can't easily be planned for. I get that, and find myself in that boat often. My only gripe is that the "interest rates are so low it doesn't matter" line of thought is often short sighted, and is far from a conclusive evaluation of the issue.
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Old 01-25-2013, 02:31 PM   #14
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I'm not disciplined enough to save out of each check if we adjusted things to get a smaller/no refund.
If I used an accountant and they shared that with me I would fire them immediately. That's just disturbing.

I know I'm saying it harsher than the others, but seriously, that's just weird. The only accountants I know in real life are INCREDIBLE savers, and hold on to every cent they can. That's the only kind of accountant I could even think about trusting.
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Old 01-25-2013, 02:36 PM   #15
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I didn't change my withholdings because of interest or interest free loan or investing or anything. I changed mine because we needed the money to pay bills.

I could care less, I like getting a nice chunk of cash in March to pay for vacation. I have a lot of exemptions and still get $1500 back. I'm not like the others at work though who get $8000 refunds. That's a bit much.
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