Would you overpay your cable or telephone bill?
January 25, 2007 · Print This Article
Probably not. So why do so many Americans overpay their taxes every year?
It’s tax season, and that means everyone is eagerly anticipating a tax refund. This is something that I struggle with every year. Everyone wants a refund and clients are thrilled when I tell them they’ve got one coming. But I would rather they did not get a refund, because that means they’re not getting the best use out of their money throughout the year.
When I was a teenager and just started working, I looked forward to getting a refund as much as everyone else. But when I got my first real job (and was supporting myself), I wanted to take home as much money from my paycheck as possible.
The best way to do that was to adjust my income tax withholding so that I only withheld what was absolutely necessary to avoid penalties at tax time. I have only gotten a tax refund once in the last 15 years (the year I started my business). I prefer to owe a balance due on my return so that I have full use of my money throughout the year.
I realize that many people don’t like it when I tell them they need to reduce their income tax withholding (and thus reduce their tax refund), but if you have credit card debt, or if you’re not saving for retirement, you would be much better off by using your money each paycheck to pay down debt or to meet your other financial needs than by giving Uncle Sam an interest free loan.
Just my 2 cents for the day…
Tags: taxes, tax refund
This will be the first year in over 13 years that we will have a refund, and it’s because of some radical changes we made this year that we weren’t sure how to adjust witholdings for (e.g. one income vs. two, lower income rate thus triggering many deductions we are now eligible for).
But in general I do agree with you. If people are getting a refund year in year out, they should consider reducing their witholding.
I am so glad someone agrees with me. I have to fight with clients about this every year. I just can’t understand why people actually want to let someone else use their money all year when they could be using it for their own needs/wants.