Big tax refund (aka free loan to the gov't) - is it such a bad thing?

[LeeH]

I sometimes question the conventional wisdom that having too much money withheld from a paycheck is a bad thing. If you consider the current interest rate on savings and the fact that most people tend to spend a high percentage of their available cash, it seems like using the Federal Gov't like a bank where you have a non-interest bearing/invisible savings account that only allows annual withdrawals could work to the advantage of some people.

If you give most people a couple of hundred extra dollars each month, they'd probably spend it. If you give them $3000 in April, seems like there's some chance they may take that lump sum and invest it. Thoughts?

[The Gaijin]

But then the refund advance loan folks come along and take half in interest and fees..

[Rick Lee]

I'd rather burn it in my fireplace than let the gov't. keep it for a year. People who are too dumb to know the difference between using the US Treasury as an interest-free savings account and getting at least some ROI from a bank deserve to be poor.

[look 171]

There you go thinking for us again. You mightbe correct that many will spend it, but there are thousands of us know when to spend and when not to spend. I like to keep my money please. I really dislike paying quartley tax. I love to save it and pay it at the end.

[GG Allin]

I like my big tax returns. Can you even get 1% on your money these days?

[lukeh]

Of course giving the government an interest free loan is silly. I mean would you keep your money in a bank that didn't pay any interest? Would you loan your money to some big company interest free. Would you loan money interest free to some stranger?

Just think logically for a second. I can earn interest on my money or I can let the government hold my money and earn no interest on my money. I can't imagine why a person wouldn't want to earn interest on their money. No matter where rates are at, something is better than nothing. Besides, what do those people that can't control their spending do with their big refund...spend it right away. Only now they have less to spend because they haven't been earning any interest.

[TechnoViking]

Considering inflation, you actually lose money on a 0% interest "account", in real terms.

[gtc]

I reduced my income tax withholding when I heard about California writing IOUs for tax refunds.

[RWebb]

self-discipline obviates the need for a 0% "loan"

[VaSteve]

LeeH, aren't you an accountant? I'm disappointed.

[Hugh R]

Originally Posted by gtc

I reduced my income tax withholding when I heard about California writing IOUs for tax refunds.

You may want to do it again. From 11/1 to 12/31/09 the state will be increasing your withholdings by 10% and give it back to you when you file your 09 tax return. Just another way for them to short term borrow without paying ANY interest.

[G50]

Originally Posted by lukeh

I mean would you keep your money in a bank that didn't pay any interest?

Pretty much everyone is doing that right now. The interest being paid on any liquid account at a bank is de minimis and insignificant.

[TimT]

I'd rather burn it in my fireplace than let the gov't. keep it for a year

Pretty much agree...

I used to get large refunds..... Well to me they were large 8-10K... and I realized what the eff am I doing letting the nit-wits in Washington, D.C. and Albany have an intersest free loan from me?

So I changed my withholding amount, and after a few years I managed to get everything right and now get a refund of a few hundred bucks...

[LeeH]

Originally Posted by VaSteve

LeeH, aren't you an accountant? I'm disappointed.

Disappointed... for posing a question? Really?

I'm not suggesting that the population of the country should start having extra money withheld as an investment vehicle. However, I do think that the "out of sight, out of mind" aspect could work for some people.

People here seem to have their financial acts together for the most part. This is not the norm. I gave a presentation to my local Chamber of Commerce about my business and one of the things I discussed was reconciling bank accounts. This is one of the most basic accounting functions and several people admitted that they don't reconcile their business or personal accounts and just count on doing good math - and this was a room full of business owners.

[Rick Lee]

Originally Posted by TimT

So I changed my withholding amount, and after a few years I managed to get everything right and now get a refund of a few hundred bucks...

If you're getting a refund, you ain't doing it right. Tis better to owe than to be owed when it comes to taxes.

[TimT]

If you're getting a refund, you ain't doing it right. Tis better to owe than to be owed when it comes to taxes.

Don't agree...there is no way I want to cut a check..and send it to DC or Albany..

I pay a staggering amount of income tax already.. SWM making a very good salary

If it is a wash at the end of the year I'm ok with that.. getting a small check as a refund is some mad money..

Having to pay on top of what I have already paid is unacceptable...I'd rather pull my fingernails out than write a check for any difference found

And thinking of the tax return as a savings account is nuts...

[gr8fl4porsche]

You pay either way, now or later. I prefer to pay later, much later.

If I get money back then I have failed in my tax plan.