Tax-re­fund re­cip­i­ents tell crit­ics: ‘Stop sham­ing me’

The Buffalo News - - REAL ESTATE NEWS - If

The talk of this tax sea­son is that so many peo­ple are fu­ri­ous that their re­funds are lower than usual be­cause of ma­jor changes to the tax code.

But while peo­ple are fo­cused on miss­ing the money they ex­pect from their tax re­turns, it’s a good time to dis­cuss tax plan­ning in gen­eral. This leads to the ques­tion: Should you ha­bit­u­ally get a re­fund in the first place?

Many tax pros ad­vise against it. Bet­ter for em­ploy­ees to ad­just their pay­check with­hold­ings in or­der to re­ceive their money through­out the year, they rec­om­mend.

Self-ap­pointed ex­perts have also weighed in on the is­sue.

“Set the with­hold­ing for a $10 re­fund and au­to­mat­i­cally in­vest the dif­fer­ence in a no-load mu­tual fund,” one reader wanted me to tell folks.

Other read­ers of­fer sim­i­lar ad­vice to reg­u­lar re­fund re­cip­i­ents. Here’s a sam­pling of com­ments on a re­cent col­umn in which I urged peo­ple to love their re­fund less.

• “If you over­pay, you’re crazy.”

• “I know peo­ple who use their with­hold­ing as a sav­ings plan. With the ease of di­rect de­posit, why should sav­ing a small amount from your pay­check be so hard?”

•“When you get a re­fund, that means you have not only given up use of some of your own money for the en­tire pre­vi­ous year, but you loaned it to the gov­ern­ment, in­ter­est-free.”

This year, it’s likely that many peo­ple didn’t no­tice that they got a slight in­crease in their reg­u­lar pay­checks due to the 2017 Tax Cuts and Jobs Act. This, in turn, im­pacted their typ­i­cal and cov­eted re­fund, as this money was spread through­out the year in­stead of pre­sented in a lump sum. At the same time, cer­tain tax de­duc­tions van­ished, and many folks are just start­ing to re­al­ize how that af­fected their re­fund amount, as well.

Here’s what some read­ers who de­lib­er­ately get a re­fund have to say to crit­ics (and colum­nists) who try to get them to re­duce their re­funds.

• “I un­der­stand the logic. I am a saver and I also in­vest into re­tire­ment ac­counts. The main rea­son I like the big­ger tax re­fund is be­cause that is money that I have ‘saved’ with no abil­ity to dip into it ex­cept once it ar­rives. I usu­ally break it into three piles, one for va­ca­tion, one for house main­te­nance and one for sav­ings.”

• “For some peo­ple, like my­self, the tax re­fund is rather like a locked ac­count, a way to save for a known ex­pense with­out wor­ry­ing that I might use it on other things be­fore I save enough of it for its real job.”

• “The idea of get­ting a re­fund is very ap­peal­ing, be­cause if you make un­der $30,000 to even $40,000 with chil­dren, it is so hard to save.”

•“Peo­ple who are very good at man­ag­ing money al­ways say stuff like this to mere mor­tals like me, who are not par­tic­u­larly good at man­ag­ing our money. So, for you, yes, it seems silly to give the gov­ern­ment a loan each year.

Should you ha­bit­u­ally get a re­fund in the first place?

For me, who has had years where I owed the gov­ern­ment big money (by with­hold­ing too lit­tle), or who faced the pleas­ant sur­prise of get­ting a nice check in the mail, the peace of mind is well worth the al­ter­na­tive hor­ror of learn­ing that you owe the gov­ern­ment thou­sands!”

• “I’m one of those who pre­fer a large tax re­turn as op­posed to hav­ing ad­di­tional money in my pay­check. I have tried plac­ing money into my sav­ings, but be­cause I know I can ac­cess that money, I tended to find my­self jus­ti­fy­ing do­ing just that. I just com­pleted my 2018 tax re­turn. And I can tell you that know­ing I’ll be get­ting a re­turn of nearly $5,000 sure feels good to me! And yes, you are wel­come for the in­ter­est-free loan, Uncle Sam.”

• “Get­ting a re­fund, even one that I don’t have plans for, feels like a ‘win.’ ”

To se­rial re­fund ad­vo­cates, I hear you. I get that peo­ple strug­gle to man­age their money and em­ploy var­i­ous strate­gies to save. So, yes, get­ting a tax re­fund isn’t a bad move you wouldn’t oth­er­wise save the money.

But here comes the re­but­tal that needs to be said – and re­peat­edly. Just be­cause some­thing has worked for you in the past doesn’t mean you shouldn’t re-ex­am­ine its ef­fec­tive­ness.

If you’re car­ry­ing debt on a credit card with a 20 per­cent in­ter­est rate, wait­ing to get a lump-sum tax re­fund to pay it down is cost­ing you money. And that’s bad money man­age­ment and not a “win.”

All I ask is this: If you’re in­ten­tion­ally get­ting a tax re­fund, just make sure lend­ing Uncle Sam your money isn’t cost­ing you a higher price than you want to pay.

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