For some reason, some believe it is better to receive than give when it comes to filing taxes. While that may help your savings account, it is not always a great idea. Here’s why.
You are giving the IRS an interest-free loan. Granted, interest rates are pretty low, but every dollar you earn money on, is one more dollar of yours and one less of Uncle Sam’s.
Debt costs a lot. While interest on savings is low, the same is not necessarily true for credit card and other forms of debt. Why not lower your withholdings throughout the year and use the extra money to pay down your debt?
IRS identity theft is common. The longer you have your money in the hands of the IRS, the higher the chance some unsavory character is going to try to get it for themselves. Should this happen to you, the IRS will fix the problem….eventually. In the meantime, there is paperwork and tons of hurdles to overcome while your refund is delayed.
You could fund something else. Instead of money being parked at the IRS, you could be investing in your retirement or funding a Health Savings Account to pay for medical expenses in pre-tax dollars! So in addition to saving money in interest, you could actually be lowering your tax bill!
Let’s face it, sometimes knowing you get a refund versus a tax bill is less stressful. But, for the savvy taxpayer you can possible accomplish both!