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Why A Tax Return Refund Is Stupid

Money-IIIt’s funny when people get excited about getting a refund on their tax return.  Sometimes it’s an excitement because they don’t owe money, but a lot of times it’s because they get one every yearand depend on that refund to pay off credit cards or buy stuff.

Many people know this, but when you get a refund from the IRS it simply means you gave your hard-earned money to the government interest free for the year.  You are no more better off getting a refund because it was your money to begin with.

Some people use the excuse that it’s their way of saving money throughout the year, but this doesn’t hold water, again, because this is a very poor way to save money.

So, if getting a refund on your tax return is such a bad idea, how do you avoid it?

The easiest way, if you work, is to adjust your withholding by changing your Form W-4.  This is easy to do through your HR department or on your own if you are self-employed.  The more exemptions you claim on your W-4, the less that is withheld.

If you are self-employed and don’t pay a wage to yourself, then you would have to adjust your estimated tax payments.  You can simply adjust these throughout the year by proactively planning your income and making adjustments accordingly.

So, before you get too excited with a refund on your tax return, keep in mind that it is not the smartest thing financially.

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