[quote name='JJSP']It's not free money at all. Tax refunds are interest free loans you gave the government - it was your money to begin with, and the IRS got to do whatever they wanted to with it for a year.[/QUOTE]
[quote name='Allnatural']This^
I never understood the celebretory nature of most people during tax season. I've always claimed myself as a dependant so as to reduce my withholding (and subsequently my "refund"). Much better to have that money in the paycheck so I can do something with it. Putting it into the most basic of savings account is better than letting the government hold it.[/QUOTE]
That's a cute little line you guys picked up on (not to mention, completely cynical). But in the interest of feeling grumpy this morning, I'm going to take a minute to expound on it. I suppose you could, in theory, sit down and calculate what your tax
liability will be for the coming year. Let's say you make $10/hr at Walmart, work 40 hours a week throughout the year. You know you're going to make $20,800 this year and the tax rate is 10% on the first 8,350 and 15% on anything beyond that. Standard deduction is $5700 and personal exemption is $3650 so your tax liability is $11,450 so you crunch numbers and decide to fill out a W-4 instructing your employer to withhold $25 a week for federal income taxes for you and you have a 0 payment or 0 refund due on April 15th. Awesome.. you managed to not give the government an interest free loan for them to do what they want with throughout the year. Go you.
The truth is you don't know what's going to happen throughout the year. You might get promoted to manager at Wal-Mart netting a huge raise. You might get a nice holiday bonus for selling a ton of ammo from your checkout in the sports department. Hell, you might get fired for stealing beef jerky.. I don't know but that kind of stuff can drastically alter your expected income/tax liability and the plan to owe/not be owed anything is out the window. Who knows what will come up that you can use as a tax reduction in your return?
On the flip side you also end up being eligible for tax
credits. A reduction will take your liability to zero whereas a credit can take your liability to zero and net a refund. If you, for example, decide to start a 401k mid-year, you may be eligible for a tax
credit for a percentage of what you contributed. So in essence, it wasn't you giving them a loan, it was them actually giving you a credit and if all things considered your tax liability was zero beforehand, you kinda
are getting something like free money. If you can accurately predict your own financial future and have advance knowledge of what tax legislation will be passed throughout the year that might result in unexpected credits, reductions or liabilities, then by all means make the calculations.. and I might ask for your number so we can be study buddies if I decide to go for a CPA.
But I'm kind of boring myself with all this tax talk. And to be honest, there's truth in what you're saying but you picked on two words I wrote in a post on a videogame message board after a night of adult beverages at 2am so I'm feeling touchy today
and I see phrases like this thrown around knowing full well that most of the people that repeat it don't truly understand what they're saying. No it's not free money by any means and I could have chosen better words by simply adding the word "like" to say "
to me, it's
like free money..." I overpaid by about $190 and received a tax credit of $162 for contributing to my 401k resulting in a fed refund of about $350. I'd have to say that I'm not going to lose very much sleep on the interest I could have gained on $350 throughout the year.
For the people who get thousands back year after year, I would definitely say it would be worthwhile to sit down and figure out how much to have withheld from paychecks throughout the year. But then again, maybe a lot of people like the idea of having more taken out weekly and getting it back when they file? I don't know.. to them it's like an unconscious, 0% interest, savings account they withdraw from when its tax time. I think enough of us have accepted that the two certain things in life (death and taxes) aren't worth fighting against and go with the flow.
I'll get off my soapbox, just again it drives me crazy to hear things like this. Another one that gets under my skin is, "I got taxed more because I worked overtime." Umm.. no, there's no special tax rate for overtime hours, the tax rate is the same and you just made more money so in effect there was more to be taxed.
Dead of Knight - You're supposed to receive your W-2 by Jan 31st.. isn't it by law? You can call the IRS and stir the pot if you don't receive it by Feb 14th if you want. I'd imagine that a CPA firm would know better, but they also might know enough to know a loophole that allows them to be lackadaisical about it. I used to joke that one of my former employers would give them out at 11:59pm on Jan 31st if they could since it always felt like we were the last to get them.
ing Christ Sakes.
