The concept is simple: CYA

IF the IRS has the money in their hands, and an audit finds they overpaid you a refund based upon an aggressive (but not criminal) position that you took, they can only come after you for the money that YOU OWE them and can *only* put penalties and interest on amounts YOU OWE them unless criminal fraud was involved. In short, that questionable deduction that might be ok, but Liberty Tax would not take for you is something you should take if you think it is correct to do so. When the IRS chooses who to audit, they look for two things: Criminal Fraud (and *hopefully* you are not agressive enough to clearly claim what you should not) and significant amounts that will cover the expense of the audit. The penalties and interest are *very* much part of that equation.

If they normally could get enough to make challenging a deduction worthwhile because of the penalty and interest they may get as well worthwhile, the fact that they can *only* recover the basic amount *and* it does *not* result in any further cash in their hands may allow your agressive position to stand. For them, it just is not worth it to chase you down.

Besides which, if they have your money long enough (turning it over year to year in their hands) you *will* get interest on it eventually. The IRS did just that to me once, sent me back a check with interest. They almost seemed to be *angry* about it, although I am sure that was just a misperception on my part.

So there is a lot of good “conventional” wisdom that is expressed here, but sometimes, that “out of the box” thinking can get you even farther. Get a good grip on who you are and how you opperate and take the advice that best fits *your* mode of opperation!

;’{P~~~

#3/5 – The tires were just an example. Fill in any other potentially unexpected expense. I’m not sure where you got the $30 in point #1; all the tax preparation services say the average refund is $2400. That’s a lot of money! As for #4 – yes, you should have an EF. That’s the whole point of not letting the government hold your money all year, so you can put it in the EF and have it at YOUR disposal when you need it…for emergencies.

I don’t think anyone is saying “you are a failure unless you have a zero refund” or even that everyone should be striving to pay huge tax bills in April, and possibly getting hit with underpayment penalties. But if you are consistently getting 4-figure refunds, you can adjust your withholding to get a *smaller* refund, and have more money for that EF (or debt) during the year.

It can be done. Our federal tax bill this year was $89. One year it was $14.

Ironically enough, JD, I just realized that the linked post in the first sentence about how you used to love getting a big tax refund was how I found GRS! Someone sent it to me as a justification for why they always got a big refund. I’m glad to see you’ve changed your ways

First is the time value of money. A small amount of money multiplied over a long period of time eventually becomes a large amounts of money. People that procrastinate and don’t start investing because they don’t think their small investment will amount to anything do not get this. Interest earning interest or dividends earning dividends, capital gains, etc, is the foundation of accumulating wealth. Start as soon as you can with whatever amount that you can. You can’t start if someone else has your monty.

Second, the phrase “Watch your pennies and the dollars will take care of themselves” is as true today as when Ben Franklin first uttered it. Ben Franklin also said that “A penny saved is a penny earned”. Don’t dismiss any amount of money as too small to account for.

Accumulating wealth requires a change in both mind and action. The time value of money and being frugal are the cornerstones and time tested when it comes to accumulating wealth.

While in some ways this is all splitting hairs, in another way you gotta be practical & use your head. If you don’t have enough taken out you can be penalized & it’s not like we’re talking about oodles of extra money being withheld.
If you want to pay the govt a $500 fee (like I did 3 yrs ago) for not having enough prepaid because of “what ifs” then more power to ya. I’d rather not pay fee’s and get a check back from them.

And truth be told, with the amount of other annual stuff I have due between February & April I’d rather accidentally “loan” the govt a few hundred bucks then be scrambling to get some extra $ together by April 15. I always figure in something of a pad since paycheck withholding is not always accurate – especially if your pay check fluctuates a lot.

And my refund is smaller this year too, the some of the credits were smaller & my home improvements (new door insulation, etc – done in such a way so they were claimable) weren’t allowed because of a change in the code – thanks Obama! What a great “change”

And yes I know it probably wasn’t him – it was probably his buddies in Congress or the house but he’s the figure head of the bunch.

As far as “loaning the government ‘interest free’ money” is concerned, I am not the least bit bothered. I would like to think that the government is putting that money to work in more “meaningful” and/or beneficial ways that will benefit society as a whole than I ever would.

The way I look at it is that I really don’t need all that extra money each week so why not let the government hold on to it, maybe do something good with it, then in February/March when they “pay me back” I dump it into our IRAs and get the personal benefit at that point.

Besides, the government gave my wife and I $2,500.00 back towards her education expenses in 2009. So if I am getting tax credits like this I will continue to try and help out and lend them $263/week.

1. $15 dollars is a small insurance cost to ensure you don’t have to dip into your savings to pay for taxes. You can plan for your taxes but small changes in December can impact your return. For me if my charitable givings slip in December I can lose substantial portions of my refund. This could be because I forget to mail a check because of some family emergency, vacations, or weather.

2. $15 dollars is not worth my time it takes to properly manage withholdings. I would have to look at it in December before the year starts, June of the actual year, and November of the actual year to alter my December withholding. This means calculating my expected tax return 3 times. I don’t like doing it 1 time a year.

I would the think the more sensible advice is to live without the money (pay yourself first only let the government hold it for you) for a year and then get it paid out to you. They can keep the $13.23 in interest if they want.

I was not aware of the site where you could check your refund, thanks for the tip

I made 11k last year, and I got $850 back from overpaying and EITC and “making work pay.” If I had been able to keep the entire amount in ING the whole year, I would have made a whopping $13. No thanks.

I currently make a variable income, and I have for the last several years. I’d much rather overpay and get it back than owe money. I used to be glad to write a small check to the government, but, you’re right — at small incomes with small amounts back, you’re really not losing that much interest, and it’s nicer than having to pay out at the end of the year. As long as my refund isn’t massively substantial (several thousand), I’d rather just get a bit back. Heck, even if my refund is several thousand, I’ll just throw it into savings and get to earn my interest then. The federal government can enjoy my $13.

No tax refund for me again this year. Uncle Sam gets plenty of my money, so I just don’t see the need to lend him any more than absolutely necessary.

My refund is largish this year because my job loss mid-year and I wound up having no tax liability.

After we started filing jointly, I usually had tax over-withheld just a bit … the overpayments went to reduce the total bill based on DH’s self-employment. No more refunds for me, boo!

Estimated taxes: frankly, I wish he paid them every month. This quarterly crap is a giant pain. My advice to DH (for YEARS, and sadly, disregarded) has been to transfer, every week, 30% of his deposits into a tax account. That way he’d always be covered. It’s not like we don’t know how much the tax bill is going to be.

If you had instead kept the $100 each month, a savings account at 2% interest would have gotten you 16 cents in Jan + 33 cents in Feb all the way up to $2 in December… so you’re losing out on maybe $15 of interest in a year.

If you have high interest debt you’d save more by paying it down each month instead of all at once, but the point is if you’re the kind of person that has accumulated high interest debt you might be the kind of person who needs a little help learning to set money aside anyway.