Reasons,Why,You,Should,NOT,Get finance, share, loan 5 Reasons Why You Should NOT Get A Big Tax Refund

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I will never forget the day one of my tax clients came to pick up his personal income tax return. "How's it look?" he asked."Well," I said, "You're getting a refund.""Great! How much?""Oh, it's a big one," I said. "Over $5,000 dollars."Mr. Taxpayer couldn't have been happier. He face lit uplike a light bulb. He was ecstatic -- he sincerely believedthat he had "beat the tax man" by getting such a largerefund.I was not so happy. I couldn't understand his thinking.So I asked him if he really meant to get such a bigrefund. Mr. Taxpayer was a W-2 employee and so I wonderedif his payroll department made a mistake -- were theydoing his withholdings wrong? Did he really want tohave so much tax taken out of his paycheck each week?Mr. Taxpayer went on to tell me that he has atremendous fear of having a balance due on his return. Forsome reason, he just assumed that if he ended up owing moneyto the government at the end of the year, somehow hewould get in trouble with the IRS. So he went to theopposite extreme.In addition, he thought that getting a big refund wasa great way to save money during the year, so that at theend of the year he got a nice little "bonus" from thegovernment. You know, a forced savings plan.I can think of at least 5 reasons why Mr. Taxpayer's thinking is flawed.REASON #1: When you get a big refund, you are loaning your money to the government.My biggest objection to getting a large refund is thesimple fact that you have given the IRS an interest-freeloan of your hard-earned money. Mr. Taxpayer's $5,000 could have been earning interest overthe course of the year. So by letting the government keephis money, he was actually losing money!Sure, with rates so low, maybe we're not talking abouta lot of interest income here, but why give the governmentyour money any sooner than necessary?REASON #2: Getting a big refund does not mean you are payingless tax.I know how complicated are tax system is. It's crazy,convoluted, chaotic and inconsistent. I deal with our taxlaws every day, and there's stuff in there that will driveany sane person over the edge.But on this point, there really is a lot of misunderstandingon the part of innocent (but misinformed) taxpayers: Getting a large refund does not mean that you somehow paidless tax than if you got no refund.I'm serious here -- there are taxpayers out there who thinkthat getting a refund means that you somehow "beat thesystem." This is nonsense. Think about it -- all you did wasget your own money back! It was your money all along,all you did was postpone getting it.REASON #3: Having a balance due does not increase the chanceof audit.If you have a balance due, you do NOT end up on some IRS"hit list." But for some reason there are many taxpayers whohave this unfounded fear of owing money to the government.This fear causes people to unnecessarily go to the oppositeextreme -- "I've got to make sure I never owe, so I'll justhave way too much withheld to be safe."Safe from what? This fear of an audit is pure hogwash.REASON #4: Getting a large refund is usually a sign of poor(or non-existent) tax planning.Many folks do not realize how easy it is to get out ofthe "big refund rut". You have control over how much you pay in to the IRS duringthe year. If you or your spouse are W-2 employees, you canchange your withholdings very easily. Just file a new FormW-4 with your employer and you won't have to wait so long toget your money back.If you are self-employed and making quarterly estimated taxpayments, the same principle applies. With a little number-crunching you can determine the minimum amount of estimatedtax payments you are required to make.Whether you are self-employed or work for someone else, ifyou're not sure how to do these calculations, get help fromyour local tax professional.REASON #5: Getting a large refund is usually a sign of poor(or non-existent) financial planning.My client insisted that he needed a large refund so he couldhave a nice nest egg to look forward to every Spring. He wasusing the government as his short-term savings plan. I told Mr. Taxpayer this:"If you want to save $5,000 dollars over the course of theyear, just authorize your employer to deposit $100 per weekinto your savings account. Then at the end of the year,your $5,000 will be sitting in your own bank account insteadof at the U.S. Treasury.And you won't be in such a frantic frenzy to get your taxreturn filed."So I urge you to reconsider such an approach to money-management. Why let the government have your money? Don'twait until the end of the year to get your money back. Witha little planning and self-discipline, you can take controlof this part of your life. Article Tags: Large Refund