Tax Refunds--Whatcha gonna do with it?

[disneysteve]

Originally Posted by Radiance

I hear my coworkers hoping for a huge refund and the plans are typically buying stuff they wouldn't be able to afford otherwise..

Yep. Same here. This time of year, I hear many of my patients talking about how they plan to spend their refunds. These same folks also invariably get rapid refund loans when they have their taxes done at one of the pop-up tax places that opens every January. So not only are they blowing their refunds, they are paying 150% or higher interest to get that loan 2 weeks sooner.

[GREENBACK]

Originally Posted by disneysteve

Yep. Same here. This time of year, I hear many of my patients talking about how they plan to spend their refunds. These same folks also invariably get rapid refund loans when they have their taxes done at one of the pop-up tax places that opens every January. So not only are they blowing their refunds, they are paying 150% or higher interest to get that loan 2 weeks sooner.

I think many folks honestly don't understand that they aren't being given money. They truly don't realize that it's their money they are getting back. I've heard this in a number of places. I've heard of many people getting thousands back from the gov't. They then proceed to blow the money as if it's some wonderful windfall.

This isn't just from poor, uneducated people. I've also seen the quick loans....duh! you could have got that money up front thru the year.

Makes me scratch my head.

[disneysteve]

I really don't understand the refund loans. If you e-file, it only takes 10-14 days to get your refund. Is it really worth paying upwards of 150% interest to get the money faster?

[Beppington]

Originally Posted by Radiance

I have to admit until I read this thread I thought a big refund was a good thing.

Back in the 90's when I first read the advice about trying to make sure you get as small a refund as possible, I thought, "God, are they trying to take the fun out of everything??"

Now that I understand why, along with getting the rest of my financial life in order, I am more happy to get no refund knowing that I'm about as stream-lined & efficient as I can be.

[Beppington]

Originally Posted by disneysteve

I really don't understand the refund loans. If you e-file, it only takes 10-14 days to get your refund. Is it really worth paying upwards of 150% interest to get the money faster?

Some people really do live day-to-day. Several of my friends are exactly that way. I get comments like, "What if I die tomorrow?" Like their dead body is gonna look back and say, "Man, what the heck was I saving for?? I shoulda lived it up!"

[disneysteve]

Originally Posted by Beppington

I get comments like, "What if I die tomorrow?"

Well then it won't really matter if you've gotten your tax refund yet or not.

[Beppington]

Originally Posted by disneysteve

Well then it won't really matter if you've gotten your tax refund yet or not.

Ha-ha! Or maybe they think their dead body will look back & say, "Crud, if only I had gotten my tax refund back sooner, I coulda bought some more bling-bling."

[GREENBACK]

Originally Posted by disneysteve

I really don't understand the refund loans. If you e-file, it only takes 10-14 days to get your refund. Is it really worth paying upwards of 150% interest to get the money faster?

I know people who really should know better that do this for bills, small emergencies, vacations etc.. I've explained this to a few and I almost get a deer in the headlights look. Are we americans really that financially ignorant? Don't respond, I think I know the answer.

[Thriftina]

Well, I am getting several thousands back. Due to my career, I always feared that if I don't allow the government to take out a lot on the front, I will end up owing. I really believe that due to my deductions,ie, property taxes, mortgage interest, and charitable contributions, I end up getting a lot,too. I don't like the idea of uncle Sam holding my money throughout the year so I recently changed my exemptions from 0 to 2.

[Beppington]

Originally Posted by Thriftina

Well, I am getting several thousands back. Due to my career, I always feared that if I don't allow the government to take out a lot on the front, I will end up owing. I really believe that due to my deductions,ie, property taxes, mortgage interest, and charitable contributions, I end up getting a lot,too. I don't like the idea of uncle Sam holding my money throughout the year so I recently changed my exemptions from 0 to 2.

Isn't that backwards? I don't have a W2 in front of me, but I was thinking you want to enter 0 to get the least amount withheld from each paycheck, i.e. to get the lowest tax refund?

[Radiance]

If you enter zero, but were entitled to 2 exemptions you get more money back, no?

[Thriftina]

Originally Posted by Beppington

Isn't that backwards? I don't have a W2 in front of me, but I was thinking you want to enter 0 to get the least amount withheld from each paycheck, i.e. to get the lowest tax refund?

No. The more exemptions claimed, the least is taken out. For example, if I had 3 kids, I could claim 3 or 4 exemptions so that I could keep more money in my check.

[wnlbutterfly]

I work in an office that does the rapid loans and I agree 100%. We are very up front and honest about what these loans cost, in fact, it is very clear....$29.95 bank fees, $xx, INTEREST ON LOAN. I point out "if you can wait the 8-15 days you don't have to pay interest".

All they see is how much money that check will be, and they don't care how much it will cost to get it there as fast as they can. I do have some clients that are SMART and actually wait, but most that are getting BIG refunds just want it RIGHT NOW!

Some of these people can't get this money throughout the year, most of the big refunds we see are people under the poverty level that are getting Earned Income Credit and Child Tax Credit. There are a few employers that do give the Advanced EIC during the year, but it is limited.

I personally wish they would do away with early loans. Jackson Hewitt lost their funding to do them so they aren't doing them this year at all. And BTW, the tax office doesn't get any $ for processing loans, all those fees goes to the bank. So there is no incentive for us to "push" loans as some lobbyist claim. OMG, there is so much more paperwork to do the loans, I would rather NOT have the client chose that option.

I wish I could say they do go out and make big purchases, but I see more clients that have already "planned" it into their budget, so it isn't even "extra" money. Some have put off paying bills to buy Christmas knowing they would be getting a refund and play catch up. We have heard "I have to have it NOW because my gas is going to get cut off", and you have to wonder how she pays the gas bill the rest of the year.

[disneysteve]

Originally Posted by Thriftina

No. The more exemptions claimed, the least is taken out. For example, if I had 3 kids, I could claim 3 or 4 exemptions so that I could keep more money in my check.

How many exemptions you can claim has nothing at all to do with how many children you have. You could have no children and still claim 4 exemptions if you determine that would leave you close to even in the tax department.

[wnlbutterfly]

I can't get that across to clients either on the exemptions, they worry the "IRS" will get mad at them. They also don't realize they can submit a new W-4 anytime.

We have 4 actual exemptions, but we claim 9 on my husband's W-4. Even so we are getting back $200 refund from Fed, $200 from state.

[sandrark]

Originally Posted by bjl584

The goal should be to not get a refund. Otherwise you are giving Uncle Sam a 0% interest loan on your money. Change your witholding status and it should get rid of at least most of your refund. But, if I do get anything back it's going into savings,

Yeah, well, that's a great plan. Not always possible with variable income and estimated taxes.

My DH is partially self-employed, but he does some salaried or consultant work through the year. The tax laws require that we pay AT LEAST 90% of last year's tax bill, regardless of income THIS year, to avoid penalties.

So we do. It turns out that I got a pay reduction/furlough this year; I nearly maxed out my 403(b) even with two months on disability; AND he had a real reduction in SE income due to the recession.

I expect we will get a VERY LARGE refund this year. Which will promptly go into an "income smoothing" account for DH, so he can have regular income every month, regardless of his business' accounts receivable that month.

So, not all of us are idiots who give the gub'mint an "interest free loan" due to ignorance or stupidity. For what it's worth.

Sandi

[scfr]

If we have a refund, it will be applied to the first estimated tax payment of the current tax year.

[Thriftina]

Originally Posted by disneysteve

How many exemptions you can claim has nothing at all to do with how many children you have. You could have no children and still claim 4 exemptions if you determine that would leave you close to even in the tax department.

I know, I was using children as an example.

[swanson719]

I changed my with-holdings last year, so without Making Work Pay or the Retirement Contributions credit we would've owed federal of $13. Figure in those credits, and each of our state returns of less than $150 combined, and we walked away with over $2K. So I adjusted our with-holdings again. The Bush tax cuts hit their sunset clause at the end of the 2010 tax year, so I'll have to adjust again in December.

Our basement is half finished, so we're going to finish the rest of it and buy a new couch for the living room because DW doesn't like having a cloth couch that gets covered in dog hair and is difficult to clean. So that will go to the basement. Our subdivision has about 6 different floor-plans in all the houses. They all sell within $10,000 of each other, except the ones with finished basements. Those ones go for $20,000 more. So it makes sense to finish the basement.

[mdcrim]

Originally Posted by sandrark

Yeah, well, that's a great plan. Not always possible with variable income and estimated taxes.

My DH is partially self-employed, but he does some salaried or consultant work through the year. The tax laws require that we pay AT LEAST 90% of last year's tax bill, regardless of income THIS year, to avoid penalties.

So we do. It turns out that I got a pay reduction/furlough this year; I nearly maxed out my 403(b) even with two months on disability; AND he had a real reduction in SE income due to the recession.

I expect we will get a VERY LARGE refund this year. Which will promptly go into an "income smoothing" account for DH, so he can have regular income every month, regardless of his business' accounts receivable that month.

So, not all of us are idiots who give the gub'mint an "interest free loan" due to ignorance or stupidity. For what it's worth.

Sandi

Similar boat to you this year, for better or worse. Getting an enormous refund (not complaining but no way to adjust due to self employment issue).