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5 Reasons You Do Not Want a Federal Tax Refund

5 Reasons You Do Not Want a Federal Tax Refund

While many tax payers rely on the thought of a high tax refund every year to pay off bills or fund a treat, having a high tax refund status isn’t necessarily the best case scenario. In fact, there are several reasons why you may not actually want a giant refund status. Here are some reasons why.

1. More Money Through the Year
You could get a huge tax refund at the end of the year, but on the other hand you could also just keep more money throughout the year. A huge federal refund status usually means you’re having too much of your paychecks held in taxes throughout the year.

The best scenario involves breaking even at tax time. This means you had just the right amount held for your taxes. Often this will result in more money for you throughout the year.

2. You’re Not Earning Interest
Consider your federal refund status a loan to the government. They borrow your money throughout the year and use it for various projects. Then, when you request it back during tax season, they hand it over.

The thing is, when you make a loan to most people, you are able to charge interest. There is no charging interest to the IRS. So why are you letting them borrow your federal refund status money? There’s nothing in it for you, so figure your tax withholding properly so you get your money all year.

3. It’s Easy to Mishandle It
Throughout the year, you’re constantly keeping up great records on all your spending. Budgeting out food, and bills, and whatever else comes up. After you get the funds from your federal refund status, though, you’ve suddenly got several thousands of dollars. Inevitably, everything in your house looks like it needs to be upgraded!

A large refund status can just lead to more problems. Instead of saving it, most people just spend it, usually foolishly. They don’t call it ‘burning a hole in your pocket’ for no reason!

4. You Have Outstanding Debt
You may be counting on that money from your federal refund status for various bills and groceries. However, you may not be getting it at all. If you have any outstanding late debts like student loans or alimony, the IRS will garnish these from your refund status. This could mean you didn’t have the money through the year and it’s unavailable come tax season, too.

5. You Treat It Like a Savings Account
Many people have this problem. Instead of spending time on financial planning, they want to treat the money from their federal refund status as a savings account. They figure it’s easier to save money if they have a big check from the government.

However, this isn’t really safe. Often your employer can help you save a little at a time. They can put money into a savings account each check. This way, you don’t trust your future savings to on a huge federal tax refund that may or may not materialize.

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