I like big tax returns | Personal Finance & Lifestyle | Yakezie Forums

Edward Antrobus said:

There I said it. I know it's an unpopular viewpoint in the PF blogosphere, but I'd rather get a big refund than an unpleasant surprise at tax time. And the "no-interest loan to the government" argument? I find it to be be a red-herring. Is a no-interest loan to the government really any worse than a basically no-interest loan to the bank in the form of a .01% savings interest rate?

At the end of the day, I believe that reducing withholdings to get more money in your paycheck usually gets wasted instead of spent wisely. And even if you do spend it wisely, the return isn't as good as you think it is. To prove my point, I created a calculator to determine how much money you would save if you made weekly extra payments on a debt than if you waited for a tax return and made one big extra payment. The link to this calculator is in my post on Why I Don't Care About Minimizing My Tax Return.

Another approach would be to increase your savings deduction to offset the increased cash.  Whenever I received an increase or promotion I usually increased my savings deduction to save about 50% of it.  Just another thought!

jaicatalano said:

I hate big tax returns. I can make so much more than the government can with my money if I have my money in my hand. Although on the flip side it's super cool to see a large amount come at you at once.  

I ran the numbers, and I can't see any way of making a substantial return with the extra weekly cash as opposed to an annual disbursement.

Edward Antrobus said:

jaicatalano said:

I hate big tax returns. I can make so much more than the government can with my money if I have my money in my hand. Although on the flip side it's super cool to see a large amount come at you at once.  

I ran the numbers, and I can't see any way of making a substantial return with the extra weekly cash as opposed to an annual disbursement.

Edward, we put money into savings accounts so that we have some form of liquidity for emergencies.  Do you have any debt? mortgage, student loans, credit cards, car loan, etc.?  If so, the interest rate is higher than 0.01%, which means that additional money could go towards that.  If you are getting $1,000 refunds then I wouldnt waste your time, since the benefit is minimal…but if you are getting $5,000+ every year then it might be something worth looking into.  The amount that goes into my savings account is usually the same no matter what, it's what I invest that changes with financial windfalls and shortfalls.  I can certainly earn more than 0.01% with my brokerage account, simply by investing in dividend paying stocks…Id much rather carry $5,000 worth of ADP's stock over 12 months than to get a refund from the government at the end of the year.

I've always looked at it that if you have the money, you might be tempted to spend it.  If you spend even 1% you come out behind compared to if you just let the government keep the money.  This assumes that you're just stashing it in an interest bearing account. 

Yeah, I suppose if you can find a guaranteed investment to put it into and it gains 30%, then it's a no-brainer, but that's tougher than it sounds…maybe not recently with the big runup of the stock market, but in a broader historical period, there's a big level of risk involved.

Since we use our tax returns to fund savings that go toward long term goals, it really doesn't matter one way or another, so we have about half coming in throughout the year and the other half coming in as a tax refund.