Tax time is coming, and if you haven’t done your taxes yet — you definitely need to get on the ball! Some people tend to wait until the last minute, even if they know that they’re getting a refund. A refund is simply an overpayment from the IRS, and that ultimately means that you simply paid too much into the system. Do you really want to give the IRS an interest-free loan? They’re not your friend, so there’s no need to be friendly to them. On the other hand, there’s no need to act like you’re an enemy — the IRS has a way of dealing with enemies, and it’s not fun.
You just need to think about how you will handle your taxes. There is a debate going on right now in the finance world that simply boils down to one question: is getting a tax refund worth it? These days, many people are weighing in on both sides. Here’s what you need to know.
The people who say that you should get a tax refund are primarily looking at all of the things that you will be able to do with the money. Generally speaking, this is usually the time of year where people buy a lot of impulse and luxury times with their tax refund. If you’ve been dying to buy a new car, you will have to use your tax refund as a down payment — or if it’s large enough, the whole thing to buy the car. Some people decide that they’re ready to move, and hence go ahead and move with their new tax refund.
The problem with all of this is that it’s focused on things in the short term. Impulse and luxury times won’t always be long term items, and that means that another year will pass and there will be other things that catch your interest. If you only think about what you can out of the deal, you will not be growing your financial future properly. It’s a lot smarter and easier to think about your financial goals, and then take most of the tax refund and put it towards those goals. This can mean anything from the retirement account all the way up to making a charitable donation. Either way, these events will help you during tax time.
Now, you do have the other side that believes a tax refund is grossly unnecessary. It’s better to take that money and put it towards next year’s actual taxes — that will take the sting out of them. After all, you’ve gone 12 months without the money, so it’s not like you need the money in order to maintain your status of living.
However, people counter these points by saying that for a lot of middle-to-low income families, that tax refund is a time where things get better. Food and other day to day expenses can be bought in larger quantities, which means that the family can stretch things out during more lean and harsh times. It’s just a matter of looking where your family is and devising a way to get things back on track in a way that doesn’t have anyone feeling deprived.
When you feel like you can’t spend money, you tend to go overboard when you finally get money. If you stop and think about the real things that you and your family want, you might be able to find a compromise. You can always say that you will do a 60/40 split of your tax refund, or you will just use the tax refund for the bills.
Paying down credit card debt is a great way to really get the most out of your tax refund, but this isn’t something that a lot of people think about. If you really want a high return on your money, paying down your debt really is the best way to go.
Overall, there are a lot of arguments on both sides of the coin. We think that a tax refund is definitely worth it if and only if you already have a plan in place to use the money. After you file your taxes, you generally have to wait about 2-3 weeks to receive your refund via direct deposit — why not use that time to really sit down and think about your wants, needs, dreams, and goals? You’ll be glad that you did!