Tax Refund

thedrills

Level 2 Member
Just expressing my feelings of annoyance.
I'm constantly hearing commercials on the radio saying...spend your refund this way or that way. This bothers me. The reason Im getting a refund is that I overpaid this year. Yes I am eligible for certain credits which give me additional money back (because of my kids) but the money isnt a gift from the IRS its my own hard earned money. Why dont you just say...you know that couple of grand you have sitting in the bank? Spend it in our store.
 

Alex1432

Level 2 Member
Just expressing my feelings of annoyance.
I'm constantly hearing commercials on the radio saying...spend your refund this way or that way. This bothers me. The reason Im getting a refund is that I overpaid this year. Yes I am eligible for certain credits which give me additional money back (because of my kids) but the money isnt a gift from the IRS its my own hard earned money. Why dont you just say...you know that couple of grand you have sitting in the bank? Spend it in our store.
Because a lot of people don't have a couple of grand sitting at the bank. I've known people that purposefully get a lot taken out of their paycheck so they can get a large refund. It was like a savings account for a large purchases.
 

Matt

Administrator
Staff member
Because a lot of people don't have a couple of grand sitting at the bank. I've known people that purposefully get a lot taken out of their paycheck so they can get a large refund. It was like a savings account for a large purchases.
But if they didn't have a lot take out they could put that money into a savings account for a large purchases..
 

thedrills

Level 2 Member
There are so many better ways to save some money besides giving the irs an interest free loan. And what happens if they are in need of the money for a big purchase before they file
 

Alex1432

Level 2 Member
I didn't say it was a good idea, I just said some people do it and that is why those commercials are there about "free" money. I think though if giving a free loan to the government is the only bad financial decision you make then its not that bad.
 

BuddyFunJet

Level 2 Member
OTOH, a large refund can also make sense in some cases.

I was traveling during the BBVA all star weekend so I had to do my 5x spend online and made estimated tax payments via CC for a 2% fee for 3% profit.

Also an incentive to file early.
 

OK216

Int'l Disney Park Visitor & WrestleMania Traveler
Not me, I try to bring the numbers as close to $0 as possible.
I do the same, mostly on principal. It's my money, so I want to have as much of it in hand as possible, even if it means I owe a few bucks when I file (but I usually don't). Totally agree with OP that it's frustrating to hear people talk about "getting" money from the IRS. Almost no one knows what they paid in taxes this year because they focus on the refund. And that's exactly why the system is designed the way it is.
 

donuteric

Level 2 Member
We hangout in forums like this already suggest we are likely the outliers.

For others, some have troubles saving money when they have access to it. Some perhaps think there's a difference between getting 12 checks of $100 and one check of $1200. Some probably just don't know their tax situations in advance.

Some probably just don't care. And yes, by principal, it's our money and why let the IRS keep it interest free. How much it's 1% over a few thousands? So in reality, we're talking about small money.
 

AnyNameYouWish

Level 2 Member
I unfortunately also know a lot of people who use the Irs as their savings account because they know they will spend it otherwise
Me too, unfortunately. I've spoken to several friends and family members who consider their refund to be found money, instead of what it actually is, their own money which was taken interest free from them! Those are the same people who take out 10% car loans. :eek: You can't help people who refuse to help themselves.

I gladly pay in each year, as little as possible of course.
 

MickiSue

Level 2 Member
Supporter
Are you aware that, for many people who have families and, perhaps, a lot of irregular expenses (kids who get sick, copays and Rx medicines, anyone?) getting a refund is the only safe way to have a sizable chunk of money.

Knowing that you have X amount of money to live off each month, and not having the luxury of holding funds in a savings account at .02% interest, it suddenly seems reasonable to get a $1000 or more chunk, every year.

I think that people in this forum, isolated as we are in many ways from the realities of life for those below an average income, tend to tsk tsk at the spending habits they see there.

For a good long time, I was there; divorced, four kids, ex who lied about income and then stopped paying child support at all. It took me a good ten years after my divorce to climb back above the average, and it was not due to laziness, drug use or any other vices. It was because once you have fallen, no matter the reason, our society makes it damned hard to get back up on your own. And you ARE on your own.

So. back to the topic. Here you are, a single mom, with four little kids. Your gross monthly income is $2500. Do you A) put money in a savings account B) put a little money in a 401K or c) take one fewer deduction than you are eligible for, and get some extra money, once a year?

I chose B and C. A would not have resulted in a sizable increase in our safety net, as it would have been too easy, when every single month was a struggle to stretch the money AND buy healthy food AND pay for decent clothes for the kids and myself AND allow them to have the very occasional special treat, like going to a movie, to use that savings as a piggy bank for the above mentioned copays and medicine. Seriously. The month that one kid got mono (five copays in a month) and another fell and needed stitches (ER copay--ouch!) was nearly a disaster, because an extra $175 in expenses was a lot at that point.

B got me some peace of mind for the future, and C let me know that if, for example, the car was on its way out, I'd have a way to either repair it or replace it with a newer used car, without starving my kids.

I was not unusual. There are even more "me"s now than there were in the late 80's and early 90's, because the terrible economic policies of the first part of this century damaged so many people.

Keep that in mind, please, before you propose to judge those people and their choices.
 
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BuddyFunJet

Level 2 Member
MickiSue, thanks for the post. My wife and I come from different economic backgrounds and learning her life story has changed my perspective on many life practices. Things that I take as a given are foreign to her and vice versa.

What is a bad decision in one set of circumstances, can be the best decision in another set.
 

GettingReady

Level 2 Member
Confession time. We have also overpaid our taxes but for a different reason than MickiSue. The last few years we have maxed out 401Ks, and I've done catch up contributions. Hubs chose not to as he was paying healthcare costs. We've also maxed out Roths, and contributed an additional 2k+ plus a month to index funds. We're talking nursing wages and leaving below our means. We didn't "need" the money, so we chose to pay extra and get a refund check. Yes, we could have done something else with the money, but it was nice knowing we wouldn't be hit with a tax bill and to get a lump sum back.
 

MickiSue

Level 2 Member
Supporter
Thanks, BFJ.

*I* came from a different background, too. It was a shock to me to be where I was, but, there I was.
 

AnyNameYouWish

Level 2 Member
getting a refund is the only safe way to have a sizable chunk of money.

Knowing that you have X amount of money to live off each month, and not having the luxury of holding funds in a savings
The assumptions you made regarding the people who commented are just as off in left field as you believe their comments were. I have a family, with kids, and irregular expenses. Understanding finances isn't something only the wealthy can do.

I came from a family who struggled financially. We had to eat whatever was left over because there was only $4 until the next payday. I wore hand me downs from other girls in my high school. Not everyone here is living or has lived high on the hog.

It is not a superior attitude or luxury that dictates these comments. And it's even more important for those who struggle with finances to understand this.

No, getting a refund is not the only safe way to have a sizable chunk of money, in fact it's not safe at all. Having that money gone from your finances, tied up with whoever (in this case the government-not that I care but it's tied up with someone who is not you) until a specific date, and at the mercy of having your refund processed quickly and accurately, is not a safe option.

What is your back up plan if one year, your information is one of the thousands that gets used every year and filed before you file? Then you don't get your rebate because some thief already has. And you are the one who has to produce all the info to prove you were the one who was suppose to get that money. And you are the one who has to wait.

What happens if a huge immediate expense comes outside of refund season? You struggle and you potentially suffer because of it. Or, if you had put the difference in withholdings into an account every week, you decide what is truly an emergency expense and how much you can cover with the money in that account.

If your car breaks down in September, do you just wait until Feb or March to get it fixed when the refund check comes? Those months that were tough, you got through them somehow without the money that was tied up in your refund, there is no reason why you couldn't have done that with the money in a 5% savings account. By your own account you made it through without accessing that money. Saying you couldn't have done it if the money was accessible isn't a logical explanation. Of course you could have.

Now if the problem is that you don't trust yourself, you can set up options at your bank to keep yourself from impulse spending of an account.

Giving your money to someone else, for free, isn't smart. And it's less smart when every single dollar counts. People who struggle financially need to make smarter choices for themselves instead of buying into a victim system and dismissing smart money management as a luxury they can't afford. They are the very people who can't afford to not manage their money more intelligently.
 

MickiSue

Level 2 Member
Supporter
What 5% savings accounts are you talking about? The ones available to people who save $25 a payday?

Your beliefs about poverty come from the mindset of a child, because that's what you were when you were living it. They are valid for you. But they are not valid for all.

Once that "bonus" comes in, not all who whose incomes are low spend it on a new TV. Not even most of them. Many use it to pay down their credit card balances, others use it to put into savings at a higher interest than they could get with the pittance they could have saved. Some do both.
 

AnyNameYouWish

Level 2 Member
I think you are working with the wrong savings accounts. But what do I know, with my childish understanding of poverty and money. :rolleyes:Your continued assumptions are ridiculous. Refresh my memory, how old was I when I started living a life of privilege?
 

Andres

Level 2 Member
I won't judge those who like to get a big refund. It is their life, their choice. But from my perspective, the best option when it comes to taxes is to overpay by a small amount ($100 or less). Granted, not everyone can cut it this close. But if you just have a simple tax form (income from W2), then cut it close and keep your money on your bank account, not the IRS's.

Previously, I liked to cut it close, but owe a small amount. There was a year I sent the IRS a check for $3! The problem with owing is that you can't be sure your tax return was received. This comes from experience. The IRS somehow lost my tax returns in two tax years. Since I always mail my tax return with the payment (check), I thought that once the check was processed, the tax return was received. Big mistake to assume this. The IRS claimed that the tax return was not received (two years after the deadline, if my memory is correct). And that's a fight you won't win. Even if you send your papers with Return Receipt, that in itself is no proof that what you sent on the mail was a tax return.

This whole experience is what made me opt for overpaying from now on. Since the only way you can get a refund is if your tax return was processed, getting a refund guarantees that your tax return was received and processed successfully! Knowing that my tax return was processed is worth the $100 interest free loan to the IRS.

The only exception I can see that makes it worthwhile to give the government a big interest free loan is if you are MS with the tax payments. I would def. overpay by a huge amount if the benefit was good enough, I had the float, and didn't care about the ding on my FICO score.

But I wouldn't recommend using a tax refund as a savings account. This I know from experience too. A family member had to wait till December to get his tax refund because the local government is broke. Too many things can go wrong, so why choose this? Just open an account specifically for your savings, and don't touch it.
 
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BuddyFunJet

Level 2 Member
For the folks that make estimated payments, underpayment penalties also need to be considered.

I see overpayment to safe harbor levels as pretty cheap insurance.
 

GettingReady

Level 2 Member
For the folks that make estimated payments, underpayment penalties also need to be considered.

I see overpayment to safe harbor levels as pretty cheap insurance.
And for those who want to have a decent estimation on their taxes, Turbo Tax TaxCaster is a free program.
 

Matt

Administrator
Staff member
I came from a family who struggled financially. We had to eat whatever was left over because there was only $4 until the next payday. I wore hand me downs from other girls in my high school. Not everyone here is living or has lived high on the hog.
Your beliefs about poverty come from the mindset of a child, because that's what you were when you were living it. They are valid for you. But they are not valid for all.
But what do I know, with my childish understanding of poverty and money.
Refresh my memory, how old was I when I started living a life of privilege?
I think there is a lot to be said about when attitudes to things like money are formed. If they are formed in childhood it is likely that they aren't necessarily as refined as when formed as an adult, and they will pervade our life until such time as we reflect and change. It doesn't necessarily mean that they are 'childish' and to be looked down upon though. They are also more complex than can be explained by numbers. For example, I remember my mother telling me that my father would use the joint savings account (important earmarked money like mortgage) for entertainment (going to a bar etc) which would mean that she wanted an amount of money that was insulated from that. I don't think that would be too unusual to see in other families. So in my parents case, if my mother elected to push money into the refund, it would protect it from squander along the way.. same concept applies to creditor protection for HNW individuals.

The most common one I see (is actually happening in this thread too) is that people don't have a 'perfect' approach to money in terms of efficiency. From a perfect perspective (free loans vs earning interest etc), I think it is clear that holding money as a tax refund is not the answer, but the difference between doing that and not is trivial in comparison to the person who elects to withhold to the penny, and have zero refund, but then squander the money. When I see this being address by the financially unsophisticated they might well do things that seem inefficient, but actually work, it could even be as 'bad' as stuffing money under the mattress. Yes, there is inflation and lost opportunity and risk of loss, but also, there is money under the bed!

Forced savings accounts work really well. The biggest two that are seen would be home ownership via mortgage payments and 401(k) accounts. The naturally bring inefficiency... for example, many people have a 401(k) and a Mortgage, but wouldn't touch the 401(k) money, so pay mortgage interest, and try to balance the budget in other ways. Inefficiency is everywhere, but it doesn't really matter over the long time horizon. The effectiveness of it can be seen by where the 'average' American has wealth. If you look at a balance sheet most wealth (should there be wealth) is going to be showing up in retirement accounts, home equity, and perhaps even the net present value of future social security payments. There might be many other investments that are more effective than some of that (particularly the home equity and social security) but, it doesn't really matter.

As an aside, this ties into the Dave Ramsey approach to money - a lot of what he says is just plain wrong, inefficient (and sometimes appears to cross over into exploitation of his clients) but by the same token... it works. It doesn't work 'as well' as it should... but it works.
 

gmenrule

Level 2 Member
OTOH, a large refund can also make sense in some cases.

I was traveling during the BBVA all star weekend so I had to do my 5x spend online and made estimated tax payments via CC for a 2% fee for 3% profit.

Also an incentive to file early.
did the same thing!
 

MickiSue

Level 2 Member
Supporter
Matt: thanks for saying what I said MUCH too clumsily.

MY attitudes towards money didn't have a chance as a child, because all I knew was that my allowance ($.35/week) was frequently late, and I didn't know if it was because we were broke, or because Mom forgot--I was one of 6 kids, and she had a lot of plates in the air.

We didn't talk about money at home. Period. The only reason I knew what my dad was making, at one time, was because I worked as his bookkeeper the summer I was 20. I didn't make, in actual dollars, what he was making when I was 20, until I was 46.

Could *I* have made better choices with my money when all that stuff was happening? It's possible, but not probable. I'd never had to juggle so little money for so many people, along with dealing with kids being traumatized by a jerk dad.

It's easy, as I said, to look at people who are struggling, and judge their choices. Having had to make those choices, in my past, I continue to struggle with the attitude that seems to know best.

All that said, my kids all show the mark of financial uncertainty as kids, no matter how much I tried to hide it from them. Two are extremely financially conservative. One of them tried to lecture me about money. I told him that as A) he had no idea what my financial situation was, because it wasn't his business and B)I'd never asked him for money, he had no standing to lecture me.

One has struggled to find a balance, and, as he gets a bit older, is now doing so. My oldest, interestingly enough, despite not making a lot of money (she is an ex-pat) does have enough to do the things she and her family want to. Of course, knowing that medical expenses are accounted for, and that her retirement, while not grand, will be adequate, helps.
 

GettingReady

Level 2 Member
I wonder if certain cultures are better at teaching children financial responsibility or if it just depends on the individuals.

Neither my husband or I were taught about money. My older son was taught some but I was much more financially savvy when the younger one came along 16 years later. It was hammered into him. At 5 years old he had to buy his own shoes because he left his at the beach--after I told him to get them. Yes, he was getting an allowance. At 12 he had his own checking account. At 21 he told me his girlfriend's parents were grossly negligent because they had never taught her about finances and investing. His career path took retirement into consideration and his goal is to be "retirement ready" in his 40's. With the first kid, we didn't talk openly about money. With the second, we did.

I do have to admit, while I feel incredibly blessed, it's hard not to be judgmental of people in financial straits. As I've shared before, we grew up poor, stealing food from grocery stores, etc. I've been there as a kid, but I've chosen not to be there as an adult.

Some circumstances, like MickiSue experienced, are beyond our control. Others are related to poor choices. It's hard for me to feel sympathy for minimum wage earners when they have French manicures, iPhones, eat out all the time, and drive better cars than I do. What? Your house is being foreclosed? What's up with that?

@MickiSue , my expat brother does pretty well. I jokingly (well, half seriously) tell him he's my LT care insurance plan. :)
 

MickiSue

Level 2 Member
Supporter
That's a whole other topic, isn't it? My dad was born in England, and based on UK law, I can have dual citizenship. Assuming that the UK avoids divorcing the EU, we can then move about the EU with ease--Husband can go as my spouse, but not on his own. LOL.

It makes the idea of retirement a little less frightening, as the places I'm thinking of have low cost of living than the Twin Cities.
 

GettingReady

Level 2 Member
@MickiSue , hmm. Forgot about dual citizenship. I can go to Israel if I want to increase our COL. :)

@Matt, the poll doesn't answer the question. :) I don't always do the "smart" thing when it comes to leveraging money. I paid cash for cars and our home. I might have been able to get a low interest rate and invest the money. However, I prefer to sleep at night. Yep, it's a decision based on emotions and feelings.
 
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