1. A large tax refund is a loan without interest given to the government for a year.
About three years ago, I started geeking out about personal finance. One of my virtual mentors, Dave Ramsey, said something that always stuck with me: getting a big tax return means that in the year prior, you have given a loan to the government without interest. What does this mean? Essentially, receiving a larger tax refund means you have overpaid the government the year before and you are being repaid for overpaying. After hearing this, I decided to make changes to my finances to avoid large refunds.
2. I would rather have more take-home pay every month.
Instead of loaning my money to the government without interest, I would rather have a bigger monthly take-home pay. In this way, I can avoid waiting for a large payment at the beginning of the year and use my monthly take-home pay toward things that serve me. Believe it or not, even an extra $50 per pay period can go a long way.
3. Protect yourself from identity thieves trying to get their hands on your tax refunds.
In recent years, identity theft and tax refund fraud have progressively gotten worse. Subsequently, I froze my credit to protect me from identity theft. Believe it or not, owing taxes can be a form of financial protection…. Ok hear me out here: if someone tries to steal your tax refund when you owe the IRS, that thief will be in for a surprise because instead of seeing a nice fat check, they will get a bill from the IRS. That would serve them right!
All in all, if you got a big fat tax refund then enjoy it. However, a bill or a small refund might actually be better, just saying!
Happy Tax Day!