It’s that time of year again, when many personal finance bloggers start telling folks that it’s better NOT to get a big refund when they file their taxes. While I agree with the theory, it’s not my personal preference. I’d rather let Uncle Sam hold onto “my” money and then get it back in a nice, big chunk that’s direct-deposited into our bank account.
But not all personal finance bloggers think getting a tax refund is a bad thing. For those who suck at saving money, it’s a way to automatically keep that money aside, then get it in one big windfall come tax season. Sometimes, you have financial needs that are better met with a little extra in your paycheck each week. Either way, there’s no real right or wrong answer. It comes down to personal preference.
Tax Refund – Pros
If you’re like me and work more than one job, you might want to keep the number of exemptions on your W-4 at “0” — any more than that, and you could wind up owing Uncle Sam come April. I pay my own taxes on my freelance gigs, so I don’t want to get caught short.
Others like knowing that they’ll get a “windfall” each year. Homeowners tend to get the biggest refunds, thanks to deductions on mortgage interest and property taxes. And here in New Jersey, those two costs can really add up. Getting about 1/3 of it back each year is a minor consolation for our high costs.
Tax Refund – Cons
Right now, savings accounts barely pay interest, but on a nice chunk of money, you could get $50-$100 a year on money that would otherwise be held by the government. Some people in this economy really need the extra funds in their paychecks to pay their bills, while hard-core investors prefer to take their chances on the stock market moving in their favor.
And then there’s the “don’t let the government keep your hard-earned money!” argument.
In the End
It’s up to you whether or not you want to adjust your W-4s to minimize (or maximize) your tax refund amount. But before you make a big move, gather some of your financial information and check out the IRS withholding calculator. It’s estimating that we’d get back about $7,000 as a tax refund next year. Since our salaries are holding steady for 2012, let’s see if this year’s refund will be about that much. In the past two years, it’s been a few thousand dollars less because of my freelance work. But I’m not complaining.
Do you like getting a tax refund, or do you adjust your withholding so your refund is minimal?