I Never Thought Of It This Way : Tax Refunds Are A Bad Thing...

Refunds: They're wrong!

It's hard to get that through to my clients. But refunds are bad.

Sure, it's exciting to get a check from the Internal Revenue Service. Well, actually, it's from the Treasury, but you know what I mean. That misses the point, however.

It's not like you're gaining anything. That money was always yours. The feds are just giving it back. And that's the point.

When you get a refund, what that really means is that you've given the federal government an interest-free loan. You're just getting your money back.

In fiscal 2008, more than 100 million Americans received tax-refund checks, with an average refund of $2,429, up slightly from the year before. No matter how you do the math, that's a whole lot of interest-free dollars.

Source

I'd honestly never thought of it that way. I usually get a few bucks back and we use it for vacation, so I guess I'll look at it that way, it's my vacation savings fund.

What about people who get back more than they pay in?

reply to post by elevatedone
First heard this from a Finance Professor, years ago. In theory, it makes sense to do so. It is what I try to do, doesn't always work out though (last couple years I ended up paying). I think for those who have uncomplicated taxes and who are able to adjust their withholdings such that it breaks even at the end of year, it's doable. Of course, not one tax solution works for everyone, this is highly individual.

ETA: Also need to consider non-monetary reasons for wishing to have a tax refund at EOY.



[edit on 20-1-2010 by LadySkadi]

No matter how you do the math, that's a whole lot of interest-free dollars.

For every $1 withheld this year we are getting $59.41 back.

Quite the interest on that loan.

[edit on 20-1-2010 by watcher73]

reply to post by watcher73


How on earth are you doing that?!

I'm getting like 40 cents on the dollar.

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Good way to look at it, EO, but at the same time that interest-free loan that you're giving the IRS is making interest in their accounts, I'm sure. :shk:

This year for some reason my return plummeted, so I'm not too happy with the IRS, especially if they made money on me.

I'm of two minds about this, although I'm fundamentally against any form of income or national sales tax.

On one hand you're correct.

On the other, very few American's would have that much money to throw around or save/invest with at any one time. Most piss it away like they do with the rest of their money so it really doesn't matter but still.

They are not always bad though. If you are considering those people who get more back in refund than they pay into the system, they are not bad at all.

Originally posted by niteboy82
reply to post by watcher73

 

How on earth are you doing that?!

I'm getting like 40 cents on the dollar.

It's called being poor.



[edit on 20-1-2010 by watcher73]

I know that people do use this as a means of saving. It is not a good policy and I don't believe that some people even know that they are just getting back their "change" after paying their taxes.

These people are not even interested in what they actually paid for taxes, they just want to know how much they get back. It's like they think they are getting a gift from the government.

Big sigh of relief if they don't have to pay extra and squeals of delight when told they will be getting a refund. The government has them happy to be getting change back.

You would prolly blow your top if I told you the actual "refund".

reply to post by elevatedone


You are absolutely right, my background is accounting, mid year when I knew I had paid in enough I stopped withholding Federal and State taxes, at the end of the year it always came out even or within a few dollars. Same reason I don't pay bills early, why should these companies have my money before it's due.

reply to post by elevatedone


Its kinda funny I saw this thread.
I was talking to my boss about owing 40 bucks at the end of the year and was quite pissed because I always got something back.
He laughed and said it was a good thing and gave me a 4000 dollar raise to get me into another tax bracket.
I am scared to do my taxes now!!
(I also refuse to pay now as well)
He is also an accountant so I get he knows the numbers better then I do.
Who knows.

I do go by the rule that if they are bugging you for money then you owe them...if they are leaving you alone then they owe you.


[edit on 20-1-2010 by DrumsRfun]

I get money back due to kids, interest paid on loans, charitable dollars, qualifying home improvements, etc. There is a lot more to it.

yes, it is true that the best way to file your returns each year is to wind up with a minimal overpayment or balance due but, for many, that refund is a means of saving the money. Look at it this way. A refund of $5,000 can be reduced by changing your withholding so that you take back an additional $96 each week. This means that you will receive about $100 more each week on your paycheck and you will pay $100 less towards your taxes.

Sounds great but, for many people, that extra $100 winds up being spent, and not saved. So, when taxes are filed, they have had the use of the money but they have nothing left to show for it.

Of course, this is better than giving the government the money to use for a year, interest free but, for many, the loss of use means an extra $5000 that they, otherwise, never would have saved.

This is something that has always pissed me off.It blows my mind when people claim to few dependents as a form to save money. If they claimed more dependents they could stick that extra cash in a savings account.

reply to post by elevatedone


I won't be paying any taxes this year so I guess im kind of lucky to get a break eventhough I won't get a tax return back.

reply to post by Crakeur



I am with Crakeur on this one. Yes it is interest fee. But even banks don't give you that much interest on savings anymore. It used to be the way to go. Now they give you nothing.

I always would rather have money back, even interest free, then to owe money that I don't have.

Originally posted by elevatedone

In fiscal 2008, more than 100 million Americans received tax-refund checks, with an average refund of $2,429, up slightly from the year before.

Wow, I wish I was average. That's 3 times what my Federal refund is.

Originally posted by Crakeur
yes, it is true that the best way to file your returns each year is to wind up with a minimal overpayment or balance due but, for many, that refund is a means of saving the money. Look at it this way. A refund of $5,000 can be reduced by changing your withholding so that you take back an additional $96 each week. This means that you will receive about $100 more each week on your paycheck and you will pay $100 less towards your taxes.

Sounds great but, for many people, that extra $100 winds up being spent, and not saved. So, when taxes are filed, they have had the use of the money but they have nothing left to show for it.

Of course, this is better than giving the government the money to use for a year, interest free but, for many, the loss of use means an extra $5000 that they, otherwise, never would have saved.

That's just sounds like a silly logic to me. ITS MY MONEY. It is not there money to take for me and hold. I'm an adult I can save my own money. You barrow money from me you need to pay me interest (PERIOD)

reply to post by niteboy82


Yeah, I understand they're earning interest on MY money, but whatchya gonna do?

Ok, so I honestly never thought of my tax refund as getting my own money back. That being said. technology is great.

Filed my taxes on Monday, my refund was in the bank on Friday.

Woo Hoo off to pay some bills ...