https://www.usatoday.com/story...TZG33PwqQ0A0&irgwc=1


When I file my tax returns for the 2021 tax year, I'm going to owe a little bit of money to the IRS. This isn't very common, as most people end up getting a refund that's worth a few thousand dollars each year. But, for me, it's standard; I end up having to send in a tax payment every year.

While this may not sound fun, I actually prefer to owe money rather than get a refund. And I've set up my tax payments throughout the year in order to make that happen. Here's why.

While you want to make sure you pay in at least 90% of what you owe to avoid penalties, you definitely don't want to get a refund – and if you owe a little bit each April as I do, then you'll have avoided giving the IRS any extra cash that could've been used during the year to improve your financial situation.

The big benefit of owing money to the IRS
I prefer to owe the IRS money rather than get a refund for one simple reason: I want to keep my cash for as long as possible rather than give an interest-free loan to the taxing agency.

The reality is, if you are getting a refund, it's not the windfall that it may seem to be at first glance. All that's happening is you are getting back money that you overpaid and didn't actually owe. You're getting your own money returned to you after you've been without that cash for months as you waited to file your tax return.

When you pay the IRS more than you owe, there's an opportunity cost. The money you sent in can't be invested in a high-yield savings account or in other investments. That means you miss out on receiving the interest or the returns that the cash could have earned if you'd kept it and invested it throughout the year.

That money could also be used for financial emergencies or paying down debt
The money also isn't there for you if you really need it. If you have a financial emergency, those funds could potentially have been used to cover your costs. Unfortunately, the IRS won't send you back the money you prepaid early just because you need it. As a result, you could be forced to put expenses on a credit card to cover the emergency.

If you have debt you're paying off, sending in extra money to the IRS also means you won't have that cash to make extra payments on your debt during the year. Even if you use the lump sum tax refund you get to pay down your balance, you'll have missed out on the chance to save on interest since you'll have been making higher monthly payments the whole time.

There's little reason to incur the opportunity costs associated with overpaying your tax bill – especially when it's easy to adjust your withholding with your employer to avoid having too much taken out. The best tax software can help you figure out what you'll owe and how much to have withheld.

quote:

Originally posted by Flash-LB:
I prefer to owe the IRS money rather than get a refund for one simple reason: I want to keep my cash for as long as possible rather than give an interest-free loan to the taxing agency.

And this gives you (or whoever wrote the piece) a great feeling of 'sticking it to the man?' I get the concept, but it's so overblown.

I think the only advantage to owing the IRS at tax time is that you don't have to worry about somebody filing a fake return and stealing your money.

While it's generally true that it's better to break even or owe the IRS a little bit than to get a refund, there are a couple situations with some benefits to getting a refund:

1) For some folks with certain personalities, they prefer having a windfall like a tax refund as a means of annual savings. Basically, they can't trust themselves to be responsible throughout the year, so prefer Uncle Sam to babysit their excess money for the year. While yes, it'd be better to be financially responsible week-to-week/month-to-month to set money back a little at a time themselves, some folks just aren't wired that way, and end up frittering away their excess money rather than saving towards their upcoming responsibilities. However, when tax refund season hits, they're at least responsible enough to know they need to put that big chunk towards those outstanding bills, or that car maintenance, or those house repairs, or their kids braces, or whatever. (Yeah, it's not ideal, but realistically a large tax refund could be the best "annual savings plan" that some people are able to stick to, and it's therefore better than nothing.)


2) Tax refunds allow you a means to circumvent the normal $10,000 yearly cap on federal I-Bond investments. Normally, you can only purchase $10k in I-Bonds in a year. However, you can also separately invest up to an additional $5k of a federal tax refund into additional I-Bonds, meaning up to a total of $15,000 in I-Bond investments each year. So if you have I-Bonds as a portion of your investment portfolio, it can sometimes make sense to set up your tax withholdings so that you'll have a ~$5,000 tax refund in order to be able to increase your annual bond investments.

quote:

Originally posted by Paten:
I think the only advantage to owing the IRS at tax time is that you don't have to worry about somebody filing a fake return and stealing your money.

Not quite. They can still file a fake return with fake numbers to generate a large fake refund, even if your real numbers on your real return wouldn't have resulted in a real refund.

quote:

Originally posted by Keystoner:

quote:

Originally posted by Flash-LB:
I prefer to owe the IRS money rather than get a refund for one simple reason: I want to keep my cash for as long as possible rather than give an interest-free loan to the taxing agency.

And this gives you (or whoever wrote the piece) a great feeling of 'sticking it to the man?' I get the concept, but it's so overblown.

That's not my main motive at all, my main motive is to use the money to make money for me. Sticking it to the IRS is purely secondary.

quote:

Originally posted by Paten:
I think the only advantage to owing the IRS at tax time is that you don't have to worry about somebody filing a fake return and stealing your money.

So you don't see any point to using that money to make money for yourself and your family instead of just throwing away the opportunity?

quote:

Originally posted by Keystoner:

quote:

Originally posted by Flash-LB:
I prefer to owe the IRS money rather than get a refund for one simple reason: I want to keep my cash for as long as possible rather than give an interest-free loan to the taxing agency.

And this gives you (or whoever wrote the piece) a great feeling of 'sticking it to the man?' I get the concept, but it's so overblown.

It's not sticking it to the man. It's doing what you want with your own money rather then it being in someone else's hands all year. I don't think this is that much of an unpopular opinion. Most people understand that it would really be best to break even every year.

The pot is right every year on April 15th. This is not that big of a deal.

It depends on your lifestyle and spending habits. My CPA tries to get the quarterly estimates as accurate as possible. Does not matter to me one way or the other.

I try to owe the IRS a little every year. That way they do not get to use my money for free. This year, I miscalculated and will get a small refund.

Before when money was a lot tighter for me, I would mail my bill payments at the very last minute. And if it went past, I would simply call them and ask to remove the penalty or interest. I also manage my paystub deductions so that my net taxes owed or refunded was close to zero.

With electronic bill paying and with low interest rates, I just do things electronically.

In the last few years while I was still working, I really didn't care that much whether I get a refund or pay a little. What I didn't like is paying a lot. I had bigger fish to fry and to worry about.

Now, in the last few years, my focus isn't on the taxes but on how much taxable income I earn as that's what I control in terms of capital gains or IRA withdrawals. I control my earnings to be inside of $400 under my target and not more.

I do a preliminary count on October and make last minute adjustments in November or December. I may have to increase my margin though to make it less stressful.

I won't look down at anyone who prefers to get a tax refund. It's not like they're taking any money off my table or that they're a lesser person than me. I'm sure every person has an area where they are better at it than me.

That I happen to be good at my numbers is the same way that someone else may be good at singing.

quote:

Originally posted by RogueJSK:

Not quite. They can still file a fake return with fake numbers to generate a large fake refund, even if your real numbers on your real return wouldn't have resulted in a real refund.

But then it wouldn't be my money, it would be the governments. I would just pay what I owed and not worry about it.

quote:

Originally posted by Flash-LB:
So you don't see any point to using that money to make money for yourself and your family instead of just throwing away the opportunity?

I don't make that much money that it would make a difference. But thanks for rubbing it in.

quote:

Originally posted by Flash-LB:
a high-yield savings account

What’s that? (At least for the last many years.)
I understand that I could be making more money from my money if it were more sensibly invested, but a savings account? I would have to overpay the IRS a heck of a lot of money for it to be earning anything other than a tiny amount of interest in any savings account I’m familiar with.

Yes, I am being lazy by not learning how to manage my money better and going to the trouble to do that, but then I pay a lot to be lazy as it is anyway. And what am I missing?

^^^^^^^^^^^^^^
During the Carter years maybe. Maybe he is taking about Bonds in Developing African countries.

I bet a lot of people "Think" they're getting something from the government vs getting their own money back.

Well he did say it was an unpopular opinion.

He is right though. There is no other situation where someone takes money from you that you don't owe, keeps it all year, and then when they give it back to you it feels like a win.

Yes, certain "personalities" benefit from this behavior because it can be a built in savings plan. If there isn't a stupider reason for rationalizing poor financial sense throughout the year though it would be tough to find one.

If you spend every penny you make and a refund is a good way to get some instant savings then financially you are an idiot. Fix the problem, which isn't your tax return or no tax return, it is your behavior throughout the year.

Arguing he is wrong is silly. Of course he is right. Getting back nothing or owing a small amount that doesn't trigger a penalty is of course the smartest course of action. Saying you would just spend it if the govt didn't keep it for you doesn't make him less right, it just makes you sound incapable of making good choices.

Edited to add to the above poster: It doesn't matter how much you make or don't make. Smart financial sense works for everyone. Using a small paycheck as an excuse to not make wise choices kind of solidifies his point. People are wildly short of financial sense, even the most basic kind. Take his advice, use that money to put into any investment vehicle of your choice that doesn't start with visa, mastercard, etc. lol

This message has been edited. Last edited by: pedropcola,

"High yield savings account " ...

I ended up owing $15 this year. So I guess I accidentally figured it out better this time.

We work our taxes so that we either break even or owe a little (under $1k). This works for me as it means that the govt hasn’t been diddlying with my money all year when I could have put it to work for ME.

So I get what the OP posted. And I feel that you’re not a true American if you aren’t trying to screw over the taxman.

If the dot gov have to spend within their means all of us would be a lot better off. A flat five percent tax on income would reel in the out of control spending those bunch of idiots in Washington.

Right now, the money you're getting back is worth less than when you "gave" it to them. That's a losing deal.

I would say I am probably as out there on the unpopular side as anyone. A few years after I started my home-based consultancy business I decided that it was too much trouble to calculate quarterly tax payments. As my income and expenses varied widely from quarter to quarter, it was not far off from what it took to complete a full year's return in terms of time spent. Realize that when you have a home office on a Schedule C, you have many alternatives for where to take certain deductions, and you have to figure it every way to calculate the lowest tax possible. I just found it too burdensome to do four times a year, actually five as I usually filed an extension in April and the final return in October so I stopped. For my lack of taking trouble, I always had what to most would seem a huge (five figures) payment in April, that always included penalties and interest (an additional four figures), but in terms of cost/hr. saved in calculating quarterlies, it was well short of my billing rate.

I count myself exceedingly fortunate that in the 26 years I was working for myself, I was never short of the cash needed to make this payment, even without expressly putting money aside to make it. When people ask me how I will spend my "tax refund," I usually just chuckle.

And to be clear, it isn't filling out the tax forms that is particularly burdensome, it is assembling records and receipts that justify business expenses and deductions, making sure that they occurred in the "right" quarter, and completing spreadsheet after spreadsheet of supporting schedules, cross-referencing and double-checking each to ensure that there was no crossover from period to period, etc.