Is it Good to Receive a Tax Refund?
Most tax payers believe that it is better to receive a refund than to owe the IRS additional money. While this may be a common belief, it is not exactly the truth. Generally speaking, you should strive to reach a break even point in which you do not receive a refund or owe any money. If you can locate this point, it means that you are paying the correct amount of taxes throughout the year.
Why don’t you want to receive a tax refund? If you receive a refund, it means two things. First off, you were paying too much in taxes during the year. The excess money that you were paying in taxes could have been used for other items such as funding an IRA or anything else that would make your life a bit easier. To go along with this, you are more or less loaning the government your money, interest free, if you pay too much in taxes. Sure, you will get the money back in the form of a refund, but this does not change the fact that you let the government use these funds for several months.
If you have consistently received tax refunds in past years, it is time to change your paycheck withholding amount. You can do this easily enough by speaking with your employer’s human resources department. They will be able to supply you with the proper paperwork needed to change your withholdings.
It may feel good to receive a tax refund, but reaching a break even point will feel even better.
