Around tax time, we often hear the question, “Is it smart to get a tax refund?” The answer really falls into the ‘it depends’ category.
In general, I am not a big fan of getting refunds. Anytime in today’s world that you give the Government an interest free loan of your money for a year is probably not a good idea. When you get a refund, you withheld too much money out of your paycheck over the course of the year. When your actual tax calculation is done at year end, you will receive the excess withholding back in the form of a refund. This means that you should really sit with your accountant, CPA, or financial advisor and adjust that withholding number for the current tax year. If you are going to put more money back into your paycheck, make sure you have those dollars systematically saved into some type of savings or investment vehicle so you don’t spend it during the year.
Some people like getting that annual refund to pay off credit card bills, do home repairs, or simply take a vacation. It can be seen as a form of forced savings for some individuals which is where the refund can be a good idea. This is only true if you lack the discipline to save the money during the course of the year. This can easily be resolved by having the money come out of your paycheck automatically.
Generally speaking if you owe more than $1,000 or you got a refund more than $1,000, it is probably time to take a closer look at your tax planning and overall withholding strategy. The idea of good tax planning is to get as close to zero as humanly possible. Even though interest rates are low for most banks right now, you would always rather earn some interest on your money than putting it in the hands of the Government for free for a year.
Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Co-CEO and Founder oXYGen Financial, Inc.
Request a FREE consultation: www.oxygenfinancial.net
11680 Great Oaks Way, Suite 175 | Alpharetta, GA 30022
Phone 1.800.355.9318 or 770.777.0427
oXYGen Financial, Inc. co-CEO Ted Jenkin is one of the foremost knowledgeable professionals in giving financial advice to the X and Y Generation.
Securities and Investment Advisory Services offered through NFP Advisor Services, LLC (NFPAS), Member FINRA/SIPC. Oxygen Financial is not affiliated with NFPAS. NFPAS does not provide tax or legal advice. This site is published for residents of the United States only. Registered Representatives and Investment Advisor Representatives of NFP Advisor Services, LLC (NFPAS) may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed. Not all products and services referenced on this site are available in every state and through every representative or advisor listed. For additional information, please contact NFPAS Compliance Department at 512-697-6000. PLEASE NOTE: The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. NFP Advisor Services, LLC makes no representation as to the completeness or accuracy of information provided at these web sites. Nor is NFP Advisor Services, LLC liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.