Millions of Americans file their taxes each year, this year the IRS is expecting to receive nearly 155 million tax returns. Most of those tax payers, 7 out of 10 will be receiving some money back as a refund. Some people file their taxes as early as the tax season opens on January 29. Most of the time these are people who know they won’t be owing taxes and will instead get a refund.
Getting the extra money from refund is good and much of the money is used for good purposes like paying down debt or making investments. Some people look forward to tax time because it is when they will get all this free money back from the government. These people believe a big refund is better.
So why isn’t it a good thing to get a big refund? Well as most of us know, nothing is free, and no one gives away anything, especially the government. That refund you’re getting isn’t free money, it’s your own money. If you get a big refund, it’s because you’ve been overpaying on your taxes throughout the year.
The government doesn’t tell you when you’re overpaying because they end up getting the benefit from the extra money until they refund it to you. In reality, you are giving the government an interest free loan with your money. Instead of giving that money to the government every year it’s better to withhold less and use the extra money yourself throughout the year. You can use it to pay down debt, make an investment or just put the extra money in the bank and get the interest.
Of course, it takes discipline to use the extra money wisely and many people will just waste it. The bottom line is that it’s your money and you should be taking advantage of it, not the government.
If you’re not sure what to withhold or how to adjust your withholding, see a professional who can answer all your questions and get you on the right path.