Why Owing Taxes may be better than getting a Refund

During tax season everyone is excited to receive their refunds. HR Block and other tax preparer services offer refund anticipation loans. Stores advertise specials hoping to lure consumers in. You may plan a much needed vacation with this windfall. You may prefer to save that much anticipate refund. Whatever you choose to do remember, it’s your money.

The money you receive from your tax return is money you paid to the government on a monthly basis. The amount taken is based on what you claim on your W-4 form. It is estimated. This means the amount you have paid is either more, or less than what your actual liability may be. So we file our tax returns and hope the government will give us that money back.

But if the government owes you more than $3,000, you may be paying too much. According to an MSN Money article, in the 2010 fiscal year, 52 million Americans received refunds. These refunds totaled some $160 billion. That’s a lot of money. So what does our government do with our money?

Well, it may sit untouched the whole year. That sounds unlikely. One hundred and sixty billion dollars is a whole lot of money. It’s borrowed money from Americans. Imagine if the government loaned that money out, the interest they could earn would be substantial. Does the government give you interest on your overpaid tax? I didn’t think so.

Some money gurus insist that it is better to owe additional taxes at the end of the year. More money in your pocket monthly would surely be helpful. Imagine if you took this additional money and put it in a Money Market, invested in C.D.‘s, or Bonds. You could earn interest on this money. At tax time, you simply give the government what is owed and keep what you earned. This would be better than getting your own money back from someone who gets to keep your money for a while, and doesn‘t even give you interest. However, if you are only going to spend this money, you’re better off getting a refund.

But, if you’re interested in making your money work for you, there are some guidelines to playing the “keep my money” game. First, you want to make sure that you do not incur any penalties by not owing more that $1,000. Also, be sure to pay 90% of your tax liability throughout the year. You may want to consult an accountant who can help you figure out how to make the most of your money. They will probably tell you that if you’re money smart, paying extra taxes is dumb.