Tax Refund – Is it Really a Good Thing?

Is That Tax Refund Really a Good Thing?

Article Provided by BerryDunn You are not alone if you experience a sense of excitement when you find out that you are due a tax refund at the end of the year. But is it really a good thing for your finances? No. Sure, it’s nice to not have to make a payment when Tax Day arrives, but in the end, you would be better off to have had the use of that money during the year. Think about it: you have just provided the government with an interest-free loan! How much money you are losing really depends on the amount of the “loan” you have provided to Uncle Sam and what you would have done with that money had you not paid in more tax than was necessary during the year. What if instead of having that extra tax withholding coming out of your paycheck, you were investing the funds in an investment with a 6% return allowing it to reap the benefits of compound interest? Or, what about putting those funds in a retirement account? Even better.

You could also use the excess funds to save on interest by paying down credit card debt or making additional principal payments on your mortgage. That refund check is not “free money,” it’s your money! So take a closer look at your tax payments whether through withholdings or quarterly tax estimates and make sure you don’t pay the government more than you need to any earlier than you need to.

When everything seems to be going against you, remember that the airplane takes off against the wind, not with it. –Henry Ford