Do you receive a large tax refund every year?  And by large I mean anything over 1,000 dollars.  If so, why?  I hear some of these statements all of the time.  When my tax refund comes in then I will do x, y or z.  OR I like getting that check in the mail every year, OR I like it because it's like Christmas. 

Here's what I say.  That's a stupid idea.  Do you realize that you've given the government an interest free loan on your money?  I think that we tend to forget that the only money the government has is what they take from us in the form of taxes.  I believe that everyone should pay their taxes and in no way think it's okay to cheat on your taxes.  However, if you believe that giving the government an interest free loan of your hard earned money is a good idea… well then you need to have some stupidity knocked out of you.

Here's the deal, if you're getting back more than $1,000 then run, don't walk to your HR or payroll department and ask them to help you figure out what your allowances should be in order to reduce your tax refund by a certain amount.  Your goal is to get as close to zero as possible without owing the IRS money.  How do you figure it out?  Well, let's take a look at it. 

Here are the questions you need to ask:

1) How much money are you getting back?  $2,000, $3,000 or $8,000? 

2) Divide that amount by 12?  This will get you the monthly amount that you need to work with.

So, if your tax refund is 5,000 dollars, then 5,000 divided by 12 is 416.67 dollars per month.  Now let me ask you a question.  Would you rather have a large "windfall" at the end of the year on which you received no interest, or would you rather have that extra $400 per month to help pay your bills and invest for your future?  Remember, even the banks don't loan money without expecting fees or interest.  Oh and by the way, have you ever noticed how banks tend to own some of the nicest buildings.  Maybe they are on to something… like charging you interest for the money you borrowed.

Anyway, I digress.  Take that $400 amount to your payroll department or HR and ask them to help you determine what your W-4 allowances should be in order to allow you to bring home that $400 dollars per month. 

By the way, I've noticed that at least a few payroll departments claim to be unable to help you do this.  If you find yourself in this situation then try out the withholding calculator on the IRS Website.  The calculator is currently unavailable, so visit once a week until it's back online.

Thought for the day.

Receiving large refunds from the IRS on a regular basis while thinking it's a good idea, is idiotic and stupid.  Since when has the government known better than you where to spend your money?  Get your money back.  TODAY!

Update:  Corrected several typographical errors and made a couple of minor content edits.