Homeforward thinkingShove it tax man.

Shove it tax man.

I’ve been doing a bit of financial spring cleaning lately (yea, I know spring is far gone). I’m quite proud of myself honestly. We are in the process of rolling $4,000 of forgotten retirement funds in to a traditional IRA for Girl Ninja. My last post was an update on how we are doing in regards to our 2012 personal finance goals. So today, I thought we’d keep the ball rolling and check in with our friends enemies at the IRS.

If you’ve been around PDITF for a while you’ll recall last year when I did my mid-year IRS check I was shocked to find out that we were going to owe about $4,000 come tax time. 2011 was our first full year as a married couple and, while dual income is definitely sexier than David Beckham in a Calvin Klein underwear shoot, it does have one drawback….it puts us in a higher tax bracket.

At the beginning of this year, I made some adjustments to our withholdings hoping we would owe (and be owed) nothing this go around. Turns out, I must have overcompensated. Instead of owing a few thousand dollars like last year, we are actually set to get a refund check of about $1,500 come next tax season.

If you are thinking “That’s awesome!”, I have some unfortunate news for you…

You might be dumb.

Or at the very least, you don’t understand that a tax refund is really just the government giving you back your own money. Money that you loaned to them for free. Last time I checked, I’m not in the business of making interest free loans to anyone, so why the heck would I start now? You bet your lumpy bottom as soon as I saw we were scheduled to get a refund, I submitted a witholdings adjustment form to my employer. I’d way rather owe The Man $1,500, than be owed $1,500. It’s simple math.

You almost had me IRS….almost.

p.s. for those that are curios we are supposed to owe about $13,000 in federal income tax by years end…think about how many california burritos I could have gotten with that money 🙁

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  1. You’ve gone in a year from filing singly to filing jointly, and from living in a high-tax state to a no-tax state. Under the circumstances, it could be difficult to estimate the withholding accurately.

  2. I checked mine at the end of last month and it said we were going to owe $6k….ouch!! I changed my husband’s and my witholdings and when I checked last week it said we were going to get back 3000. Seems like I cannot win 🙁 Part of the problem is we are not paid salary so when it asks for an estimation of our wage for the year, I take what we have made so far and extrapolate that out. Last time, I figured we were going to make more money than this time when I ran the numbers. Also, I doubled the extra amount we were supposed to be withholding, cause I forgot there were two of us paying extra. Oops! I am going to keep checking every pay period for a while now so we stay on track, probably until the end of October. I will probably check again right before we get our year end bonuses and if we owe a lot, have them take it out of our bonuses.

    PS- I really hate it when people say it is dumb to get money back. Wouldn’t you say that it is dumb to owe someone money that you cannot pay? Yes, I would be fine if I owed $500 or less, but if i owed more, I would probably freak out. Best to just receive money then stress out about where am I going to come up with 6k.

  3. Most employers now allow you to change your w4 online and have it take effect for the next paycheck. At my last checkin in June I saw we’d be owed a refund of approx 1200. I just lowered the tax taken out of our paycheck until January to even it out. So instead of a refund in March, we are just getting 200 back a month. Its a fairly simple fix. So I’m surprised that this is the first its coming across your mind.

  4. Simple math is often beautifully irrelevant compared to human psychology. People use those low-interest savings accounts specifically marketed as ‘vacation funds’. At a certain income level (where you don’t need the money *right away*) this is basically the same as overpaying on taxes throughout the year- it’s a way that makes it easier for people to save, even if the math suggests it’s not an ideal way to save. It’s like calling people ‘kinda dumb’ for paying down a slightly lower interest-rate loan first, even if it’s much smaller than another loan. Mathematically, bad call. Psychologically, may be good call.

    “we are supposed to owe about $13,000 in federal income tax by years end…think about how many california burritos I could have gotten with that money “
    That’s ok. I think of how many experiments I can do for that money, and how they can help keep Listeria out of your California burritos.
    Even if you’ve got a good immune system, one outbreak and the California burritos place is gonna get sued so fast they won’t be selling California burritos for any price.

    • I guess for me “human psychology” would mean doing things that are the best for me. It’s probably “easier” to pay the minimum amount due on a CC, but that doesn’t mean it’s the smart thing to do. It just seems to me people would feel more rewarded knowing their money is working hard for them (i.e. paying down highest interest debt first).

      I see your point, and it’s obviously valid as many other commenters have echoed your sentiment. Perhaps I am out of touch on this one.

  5. It’s always good to point out the free loan to the government aspect of a tax refund but in the end it comes down to the comfort of the individual. If they know they will spend the money instead of saving it for tax time, then a free loan to the government might be a better choice. Just like rewards credit cards, everyone could be making 2% but if you don’t have the discipline, you’re better off without.

  6. Whats up with all the jocular name calling lately? If I think this, I’m kinda dumb. If I don’t set my goals right, I’m a lazy idiot.

    • You’re right, I probably need to refrain. I was probably too focused on the shock value of using the words “dumb” and “lazy” that I didn’t really think about the impact those words could have on someone. Will do my best to think about any sarcastic remarks in the future before I hit “publish”.

      • Even though you could argue that you’re giving the governments (federal and state) an interest-free loan, and that the ideal tax situation is one where you owe nothing and get nothing back on your return, the net amount you get back or have to pay remains the same. My feeling is that the tax code is sufficiently complex that I don’t feel I can estimate my withholdings with any assurance. What happens, for instance, if I get my withholding “right” at some point but later in the year I make a large donation that gives me an unexpected refund?

        Personally, I don’t worry about this. I have found over the past few years that I always get a small refund from the fed but then I have to pay New York. If I withheld less, my federal refund would decrease but my state would increase. Six of one.

  7. It’s just so hard to predict what’s going to happen throughout the course of the year that I’d rather get a refund than owe a big amount. There are several deductions that have fallen away in 2012 as well as a significant change to the AMT exemption. Congress can still bring those deductions back and switch up the AMT exemption to match 2012. I don’t think it’s dumb to be unable to predict what Congress will do in the next six months.

  8. Saying “Don’t ever get a tax refund” sounds like sage advice for everybody, but quite frankly, it often isn’t. Many people lack the discipline to save every dollar that they’d be getting if they adjusted the withholding, and would instead spend it. Once you spend even a fraction of it, you’ve gone ahead and made yourself worse off than you would have just letting the government hold onto it, interest free.

    • “Many people lack the discipline”

      If what you say is true, then it sounds like the issue is discipline and getting a large refund is just a way to mask the true problem. It’s like putting a bandaid on a broken leg, when really you just need to get the leg fixed, isn’t it?

  9. I would rather get $1500 back than to owe the IRS more than $1000. Now you have to pay them a stupid penalty. With savings rates as low as they are, an interest free loan to the government is really no worse than holding it yourself. Now I know I can invest for the potential of a larger return, but most people who get a refund don’t invest at all, so that really doesn’t matter.

    Also, if you have a lot invested in taxable accounts it can sometimes get a little tricky figuring out the correct withholding amounts, so sometimes it is just better to over withhold.

    • False. I owed over $1,000 last year and paid no penalty. The penalty for owing more than $1k only hold true if you don’t pay as much in taxes as you did the previous year. You could owe $10,000 and face no penalty.

      • You are correct I should have been more specific. and quoted the IRS rules. I concede that you can not owe a penalty, but I stand by the rest of my statement.

  10. I get a ridiculous amount of money back on my income taxes every year. Around $10k last year ridiculous (I had about $19k withheld).
    With the IRS projections off my raw numbers, if I file Standard it says I’ll owe about $2,100 instead of getting a refund. With rough itemized numbers, it says I’ll owe about $400. With my husband’s occupation and our work-related write-offs, it’s just hard to tell where you’ll end up from year to year. Like Brianne said, you never know what to expect when the government is screwing with your finances. SOMEBODY has to pay the tax cheat’s fair share. Yes Geithner, I mean you.
    Five years ago I was making over 5% on a white bread savings account. Now I get .60-.65% on a good day. When I can get a decent rate on a short-term savings account I’ll consider changing it. For now, I haven’t lost any sleep over the (potentially) $60 I’m missing out on, and I like having that large chunk of money magically appear every spring.

  11. Until I was comfortable with budgeting and keeping my spending and savings in check I was always fine with getting a refund that I’d put directly into savings. Now that I’ve learned to handle my money wisely getting a refund doesn’t make sense. Of course, I still get money back every year because of the tax credit for having 2 kids.But that isn’t money I’ve given the government so its not really a refund.

  12. I rather get back 1-2k than owe anything. I mess around with my withholdings each year and optimize our weekly paychecks. To me it is a mental thing to get some money back.

    13k for the year for FICA.

    My wife and I are already around 30k.

    Think of that Mexican Fiesta!

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