Tax refunds are bad

[bjl584]

This issue comes up from time to time. This article explains why getting a refund on your taxes is bad.


Why I hate income tax refunds - IRS & tax returns - MSN Money

[creditcardfree]

Good article.

[SnoopyCool]

And refunds are bad when you have a zero tax liability but receive a ginormous refund due to refundable credits, like EIC. Not bad for the person getting them so much as for those who are paying for them to get that refund.

[GREENBACK]

Those who pay attention to these kinds of things know refunds aren't a windfall you're getting from the gov't. I'm all for noboby getting a refund and all of us paying a flat rate but I guess that will never happen. It's amazing to me how simple minded people are in terms of these things.

[disneysteve]

Originally Posted by GREENBACK

Those who pay attention to these kinds of things know refunds aren't a windfall you're getting from the gov't. I'm all for noboby getting a refund and all of us paying a flat rate but I guess that will never happen. It's amazing to me how simple minded people are in terms of these things.

I was listening to a Disney podcast the other day. They had asked people to write in with ways that they save money throughout the year to afford their Disney vacations. One listener wrote and said that they have taxes over-withheld so they get a big refund and use that to pay for their trip. Comments like that make my head explode.

[nmboone]

DisneySteve- Did the podcast person in charge tell them, "Go away, think about what you just said, and then come back to us later, because you're an idiot."

[disneysteve]

Originally Posted by nmboone

DisneySteve- Did the podcast person in charge tell them, "Go away, think about what you just said, and then come back to us later, because you're an idiot."

Nope. It wasn't a personal finance podcast so a few people on the panel actually agreed that it was a good idea for people who have trouble saving money to do a forced savings like that.

[GrimJack]

Some of the people who use the IRS as an interest free bank is they are one step from using payday loans. Of course there are better ways, but there are way worse mistakes to make.

[baptiste.tyrell]

I made my SO read this…it will hopefully change his perception of refunds!

[disneysteve]

Originally Posted by GrimJack

Some of the people who use the IRS as an interest free bank is they are one step from using payday loans. Of course there are better ways, but there are way worse mistakes to make.

Getting a tax refund is far, far better than taking a payday loan. One is just putting your own money away in an "account" earning 0%. The other is borrowing money at 200% or more interest. No comparison between those two options.

[Tonyall]

It was interesting to see all the comments on that article. People were hot!

Of course, it is silly to give the government an interest free loan. On the other hand, with interest rates they way they are, and if you get hit with a penalty (a pretty sick and unfair system but that is another story), you lost your interest on the money and a lot more.

[scfr]

In defense of people who get refunds:

- For the self-employed, they may not have a choice. Estimated taxes are paid based on prior year's earnings. Some years you get a refund, some years you don't.

- Well, yes, some people really are "financial fools" (the author of the article's words not mine) and a tax refund may be the only way they are capable of saving. My brother who is developmentally-disabled uses his tax refund to pay for a trip or make a major purchase each year. Money that he has access to is going to get spent. Sad but unfortunately true. We could pressure him to have his withholding adjusted so that he got more money each paycheck, but then he would never save up enough to take a trip or buy a new bicycle.

Everything is relative. Tax refunds may not be the very best option, but sometimes they are the lesser evil.

[irmanator]

Originally Posted by disneysteve

Nope. It wasn't a personal finance podcast so a few people on the panel actually agreed that it was a good idea for people who have trouble saving money to do a forced savings like that.

on the bright side, they didn't use a credit card.

[SteveBlissLaw]

I read this thread title and pite out my drink. I don't know about you but I love getting my tax refund lol

[steveaz67]

The only thing it's good for is when it acts like a forced savings plan. Otherwise.... it's just a free loan for Uncle Sam. Sad but true. Everyone I know is grateful when they get their check.

[jteezie]

I'm not a fan of refunds either. I prefer to pay the govt and make every effort to each year, although my income taxes persistently are lower than what I expect (overall good though). However, you should not pay more than 3 years in a row as it red flags you as some sort of tax evader even if you pay on time .

The one positive side of refunds is if the money is indeed FREE money from the EITC program. You'd have to be fairly low income for that.

[KiwiJo09]

I don't mind the tax refunds. I know the government is taking my money and not giving me any interest back for it, but since we don't have much of a choice, I'll just enjoy it. I don't know what I'll do with next year's refund, but since I won't know exactly how much I'm getting, it'll still be a nice surprise in February when I file my taxes.

[disneysteve]

My goal is to get as small a refund as possible. The problem is that virtually every year something happens - a medical bill or some other one time deductible expense - that results in a larger refund than anticipated. I don't fret about it. I just make sure to put the refund to good use by either boosting our savings or paying down debt. Last year I used it to help max out our Roths early in the year. This year, I sent most of it to the mortgage as an extra principal payment.

[SteveBlissLaw]

A very good choice steve. You use your money wisely

[shanecurran]

Originally Posted by scfr

In defense of people who get refunds:

- Well, yes, some people really are "financial fools" (the author of the article's words not mine) and a tax refund may be the only way they are capable of saving. My brother who is developmentally-disabled uses his tax refund to pay for a trip or make a major purchase each year. Money that he has access to is going to get spent. Sad but unfortunately true. We could pressure him to have his withholding adjusted so that he got more money each paycheck, but then he would never save up enough to take a trip or buy a new bicycle.

Everything is relative. Tax refunds may not be the very best option, but sometimes they are the lesser evil.

I agree. Some people simply don't have the discipline to save if they are not forced to do so. For them it is not stupid for them to do so, and in the end the amount of money they could have potentially earned in interest is insignificant compared to the value of some sort of planned savings.