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Why You Shouldn’t Aim to Receive a Tax Refund


Why You Shouldn’t Aim to Receive a Tax Refund

What you should do instead

It’s tax season; the deadline to file is April 17, 2018. Whether you have already filed your taxes or are still in the process, one thing is for certain: getting a tax refund is actually not a good thing.

You’re probably asking yourself why. After all, who doesn’t want a lump sum of money from the IRS and/or state government each year?

In reality, getting a refund really means that you’re lending the government more money throughout the year, interest free, than they should be receiving.

The end goal is to determine exactly how much you’ll owe in taxes each year so you can plan your tax withholdings accordingly. Tax withholdings are based on several factors, including income, number of allowances you claim (i.e., children or a spouse) and if you’re a small business other, to name a few.

This year is also especially important given the recent tax law changes that went into effect.

The only time that getting a refund is financially beneficial is when you don’t already have a good habit of saving regularly. You can overpay in taxes to the government throughout the year which will force you to save more consistently and get a lump sum of that payment when you file your taxes.

Wherever you are in the tax planning process, you have options to not overpay the government:

Calculate the exact amount of your tax withholdings.


At the beginning of each year or if you start a new job, take this opportunity to look at your W-4 form. Determine if you’re withholding enough to cover what you’ll owe at the end of the year and if not, you can elect for additional withholdings from each paycheck. The IRS withholding calculator helps you estimate how much you’ll owe for federal taxes. Be sure to check your state’s specific tax rates as well.

Make your tax withholdings earn you money.

Why not make your tax withholdings work for you? Rather than letting the government borrow your money interest-free, open a high interest savings account specifically for tax payments and set up automatic transfers in the amount of the additional estimated withholding. This way, you’ll have money set aside to payback the government at the end of the year, and you will have made some interest on those funds.

The Bottom Line:

Getting a tax refund isn’t all it’s cracked up to be. You don’t want to lend the government your hard earned money, interest-free, throughout the year. Instead, calculate how much you expect to owe each year and withhold more from each payment or set that money aside in an account that earns money for you. If it helps to overpay the government to help you save if you don't have good regular savings habits, then that's the only time getting a refund is a positive thing.

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This data is for informational purposes only and Capital Benchmark Partners, LLC ("CBP") is not affiliated with any of the businesses mentioned nor endorses them. CBP is not endorsed by any third party entities for their inclusion in this article nor is compensated for mentioning them. Past performance is not a guarantee of future results. The information contained herein has been obtained from sources believed to be reliable but the accuracy of the information cannot be guaranteed.

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