Comments on: Receive a Tax Refund or Owe the IRS?

By: John Q.

John Q. — Tue, 01 Sep 2009 21:48:24 +0000

Let’s spend just a second looking at the following comments:

- “I think it’s too easy to spend that money”
- “I now have my emergency fund of $5,000 and some extra I can throw towards my credit card debt”
- “extra pennies I might have earned in interest”

All of these comments support a central theme that we as Americans have no idea how to properly maintain our finances. The first step in financial management is to create a budget and stick to it – this eliminates the “too easy to spend it” conundrum.

Additionally, with your budget, you have the ability to set aside money for an “emergency fund” before-hand. This should effectively eliminate the need for credit cards, and thus eliminate credit card debt. Just everyone think to yourselves for a moment that commenter #2 has been paying between 5% and 15% interest APR on his / her credit card – rather than paying it off monthly. This should be considered as a loss of 5% to 15% rather than a benefit.

Finally, if you’re receiving a refund of $2,500 (just for example) you would not earn pennies on this money, rather, you would earn an extra $100 over the course of the year at 5% interest. (Bear in mind that you don’t have the initial 2,500 all at once and can’t simply multiply 2500 X 0.05. You need to calculate it with installments and compounding interest.) Better yet, if you have a home loan or a second mortgage like most Americans – pay this extra money against the principle and consider your mortgage rate (i.e. 6%) as interest paid to you. This will be far higher than any “high interest” savings account.

Smart decisions and sound financial planning lead to long term success.

By: Broke Wall Streeter

Broke Wall Streeter — Tue, 17 Feb 2009 11:49:01 +0000

I have trouble saving every month, but now with my refund (deposited yesterday), I now have my emergency fund of $5,000 and some extra I can throw towards my credit card debt.

By: KT

KT — Mon, 16 Feb 2009 23:31:15 +0000

I’m on the side of getting a refund back. Sure, you technically are giving the gov’t an interest free loan, but how much interest do you expect to earn on that sum? I also feel that many people don’t have the cash on hand to make up any taxes they still owe when they’re hit with a bill all at once. The need to scrounge up some cash quickly leads to putting other expenses on a credit card and then getting slammed by those interest rates. I’d rather get a lump sum back, which I could then use to put towards paying off student loans faster or to invest at that time. I should note that I feel its important to have a plan with what to do with your refund money, even before you know the amount. For example, say I’m going to take 80% and use it to put some extra money toward student loans. I’ll invest the other 20% in my IRA. Otherwise, I think it’s too easy to spend that money and then look back and wonder, “hey, where’d it all go?” Note: I don’t necessarily believe that you have to put that money towards retirement or paying off student loans; that’s just my current situation.

By: Broke Grad

Broke Grad — Mon, 16 Feb 2009 20:03:03 +0000

Mike: No, I didn’t pay quarterly estimates last year, but I have paid enough tax to avoid the underpayment penalty. I’ll probably pay quarterly estimates this year to ensure that I don’t get hit with the penalty.

By: Suburban Dollar

Suburban Dollar — Mon, 16 Feb 2009 19:59:04 +0000

I owe and I pretty sure it sucks. But at least they weren’t sitting on my cash for a year.