This time each year, my wife and I look forward to receiving 1099s and other tax forms so that we can work on our tax return. This year is no different, although we had already projected our tax liability in December, so preparing the return is now just a formality. We knew six weeks ago that we would be getting a refund, which at first blush sounds great. In actuality, though, getting a tax refund is never a good thing.
Tax refunds, after all, are simply the IRS’s return of our money that we loaned them during the previous year. Like loans to friends or family, when the IRS pays back your loan, it does not pay interest!
My advice, then, is to avoid tax refunds to the maximum extent possible. You can do this by reviewing your tax withholding election each year. If your income or deductions have changed from the prior year, then your Form W-4 may need to be adjusted. You can also adjust your Form W-4 throughout the year as your situation warrants adjustment.
Finally, if you know that you are entitled to a refund, then you should file your return as soon as possible. Just because your return is due on April 15th, you do not need to wait to file it. Don’t forget, the longer that you wait to file your return, the longer the government gets to use your money for free!
