I have a tax confession to make

[pocomom]

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.

My dad's company built multi-million dollar homes for famous/wealthy people. Beautiful award-winning homes. We always had deck boards that needed replacing, other repairs around our house that always waited months. It's the old cobbler's kids saying... You can know the right information and not use it. We even had a family doctor who was a friend ask my mom what he should do about his upset stomach one night.

 

[Marionnette]

We always owe - I never want to be in the position of a big refund. The way the politicians are running this country I would be too fearful that the government doesn't have the money to pay the refund.

They can just add it to the national debt. Unlike states, who have had to issue IOUs to taxpayers in past years, the federal government does not have to balance its budget.

 

[angierae]

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.

If someone was paying high interest on a credit card, then yes, I'd say they should change their withholding and make extra payments on the card monthly with that money.

It's all a moot point for me anyway, since I haven't seen a tax refund since I married my husband six years ago.

 

[Colleen27]

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.

I'm right there with you. DH was self-employed for so long that I took the "overpay just in case" approach - overpaying will never get you hit with penalties and interest, while underpaying certainly can. Since tax season lines up with slow season in his line of work I'd rather get a nice surprise than an unpleasant one when we file.

Besides, what is that extra money in the paycheck getting right now? I'm earning .75% interest on my "hands off" (vacation/large expense) savings account and counting myself lucky to get that because our regular household savings is getting a whopping .2%. It isn't as though people taking the "interest free loan to the IRS" route are losing out on much interest benefit.

 

[Marionnette]

I'm right there with you. DH was self-employed for so long that I took the "overpay just in case" approach - overpaying will never get you hit with penalties and interest, while underpaying certainly can. Since tax season lines up with slow season in his line of work I'd rather get a nice surprise than an unpleasant one when we file.

Besides, what is that extra money in the paycheck getting right now? I'm earning .75% interest on my "hands off" (vacation/large expense) savings account and counting myself lucky to get that because our regular household savings is getting a whopping .2%. It isn't as though people taking the "interest free loan to the IRS" route are losing out on much interest benefit.

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.

 

[mefordis]

My dad's company built multi-million dollar homes for famous/wealthy people. Beautiful award-winning homes. We always had deck boards that needed replacing, other repairs around our house that always waited months. It's the old cobbler's kids saying... You can know the right information and not use it. We even had a family doctor who was a friend ask my mom what he should do about his upset stomach one night.

Don't forget the doctors who are overweight. Doesn't mean the are bad doctors. Some of them are the best surgeons you can find. It' not like he's mismanaging his money and deeply in debt. He is just allowing a little extra withholding.

 

[wdw71]

We do it too! We would earn next to no interest on the money or we would just absorb it into our daily expenses. For us it is how we have vacation money every year. If the way you handle your refund makes you happy who cares what anyone else thinks about it.

 

[MomToOne]

We always owe - I never want to be in the position of a big refund. The way the politicians are running this country I would be too fearful that the government doesn't have the money to pay the refund.

That actually happened in California just a few years back - the state held refunds because of budget/cash flow issues. I was definitely glad I owed that year.

 

[ssawka]

Well, at least your not a finance student.

 

[Jeff_G]

Think about this, a $5000 refund would equate to an extra $445 in your paycheck each month. That is a car payment...

Invest that same money inside your Roth Ira in a good mutual fund for 30 years and you would have $1,570,811.63 to retire on.

 

[ICF]

Think about this, a $5000 refund would equate to an extra $445 in your paycheck each month. That is a car payment...

Invest that same money inside your Roth Ira in a good mutual fund for 30 years and you would have $1,570,811.63 to retire on.

It's actually $416 / mo -- but that's not the point.

You still get the $5K in either situation -- and can still invest that into a Roth IRA. The only advantage to your situation is taking advantage of dollar cost avg on your investments --- vs putting it in as a one-time lump sum.

 

[MomToOne]

It's actually $416 / mo -- but that's not the point.

You still get the $5K in either situation -- and can still invest that into a Roth IRA. The only advantage to your situation is taking advantage of dollar cost avg on your investments --- vs putting it in as a one-time lump sum.

Actually, the is another advantage, that can be just as big or bigger than dollar cost averaging: you also have any growth on the investment during the year. If you have it in the stock market, over this past year you would have gotten a nice return. Over the course of 20-30 years, you can actually miss out on a fair amount of money by postponing your investments for 12-14 months.

 

[mrsklamc]

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.

 

[MrsPete]

I think I'm going against the grain here, but I disagree with the OP. Giving the government an interest-free loan has never been a good idea, and that hasn't changed. Interest rates may be down on passbook savings accounts, but my investments are still moving upward. Regardless, even if it's a small amount, why would you choose to give it away? If you saw a $20 bill on the ground today, would you walk right by and say, "Nah, it's not worth my effort?" Why is this different?

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.

 

[davedmaine]

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.

There's different kinds of interest than just from a savings account. There's a lot of different things you could be doing with the money rather than just let the government sit on it.

 

[crashbb]

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.

That doesn't really make sense. If you need the money to pay bills, wouldn't it make more sense to reduce your withholding so that you have the money to pay your bills earlier?

I'm another who does my best to end up neither owing nor receiving - and the extra money goes into my investment accounts - starting with my RRSP and TFSA (Canadian retirement account and tax free savings account, respectively) until they are full. That way, I start my tax free savings earlier in the year than I would if I had to wait for my refund.

 

[hsmamato2]

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.

I know quite a few people who struggle with debt,and get a large refund check. I personally feel it's smarter to bring home your income,and utilize as needed. If you don't have enough to save for a vacation throughout the year,then I guess you needed other things more. Like paying for your food clothing and shelter.

 

[mrsklamc]

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.

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.

 

[edk35]

I think I'm going against the grain here, but I disagree with the OP. Giving the government an interest-free loan has never been a good idea, and that hasn't changed. Interest rates may be down on passbook savings accounts, but my investments are still moving upward. Regardless, even if it's a small amount, why would you choose to give it away? If you saw a $20 bill on the ground today, would you walk right by and say, "Nah, it's not worth my effort?" Why is this different?

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.

 

[preschoolmom]

I don't like getting a large refund, because I don't trust that the government is always going to return the money...

I honestly wish they would just stop doing withholding at all. If people had to pay their taxes like a monthly bill = they would feel the impact of it more.

Doing the withholding/refund game prevents people from really feeling the burden of paying taxes, IMO.