Is it smart to get tax refund?

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.

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Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®

Co-CEO and Founder oXYGen Financial, Inc.

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About the author  ⁄ Ted Jenkin @ Your Smart Money Moves

Ted Jenkin @ Your Smart Money Moves


My friends and family all think I’m a workaholic, but I say I’m just a guy that loves to help people do better in life.

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One Comment

  • Avatar
    March 23, 2010

    I understand there are reasons people want a refund. Forced savings.
    Me, I’d like to pay, just enough that I have no penalty. That way I know I had the use of the most money all year, and an interest free loan from uncle Sam.

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