Why You Should NOT Enjoy Your Tax Refund

Finished your taxes and counting on a juicy tax refund? Good for you, but you are making a mistake. A big tax refund is a bad sign. Let’s take a look at why.

Consider the following example. You go to a family event. You meet me for the first time since I am your sister’s hot new flame. [If I’m doing the writing, I am damn well going to be hot!] We do the usual small talk and then head off. The next day I call you and ask for a $2,000 loan. Oh, and I can’t pay you any interest on it, but I will definitely pay you back in a year. 

How are you going to react to this? Okay, you’ll probably call and give your sister an ear full, but what about the loan request. Are you going to loan a couple grand to someone you barely know for repayment in a year without interest? Probably not. Yet this is exactly what you do every year when you get back a refund.

A big tax refund might seem nice, but think it through. What happens to that money during the year? The government gets to use it and you don’t. Even worse, the government doesn’t pay you one red cent of interest on the deal. Things can even be worse in states like California where the state tends to issue IOUs instead of actual refunds. 

Let’s put the situation in numerical terms to help explain why you should be unhappy to get a big refund. Let’s say you get a $3,000 tax refund. That is the equivalent of overpaying the government $250 each month. What could you do with an extra $250 a month? How about pay many of your bills such as the cable, utilities or whatever. 

So, what should you do if you are getting refunds? A person getting money via salary should adjust their withholdings to give the government less each month. Your human resources department should be able to help you in this regard. For those sending in quarterly estimated payments, you simply need to send in less. It is as simple as that. 

Giving the government an interest free loan makes no sense, so don’t do it. Enjoy your tax refund this year, but make the necessary adjustments to avoid it next year.