Happy (Almost) Tax Day: Cheap Strategies for Your Tax Refund

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It’s tax time! If you are one of the (unlucky) few who has waited until the absolute last minute to file your taxes this year, you have my sympathy, as well as my unsolicited advice. (Plan better next year). But let’s get down to business: most people look forward to getting a tax refund instead of owing taxes. Here are my thoughts on this:

  1. Refunds are good. A lot of personal finance types say that you should aim for 0 refund (and adjust your withholding and deductions accordingly), because getting a tax refund is basically giving an interest-free loan to the government.  But I disagree. I think giving an interest-free loan to Uncle Sam beats the hell out of owing taxes at tax time, where you have to pay taxes and penalties (aka interest) to the government. Most people simply don’t have the financial acumen or tax-law knowledge to pay their taxes correctly to the penny and come out with zero refund, and most who try this strategy end up owing money come tax time. Better to come out ahead (and get cash back) than come out behind! In a nutshell, getting a tax refund is a forced savings mechanism for people who often are not good at saving money. (What’s not to like about that?)
  2. Use your refund FOR good. Good uses of your tax refund include (in order of preference):
    • Paying down debt.
    • Opening (or adding to) an emergency savings account.
    • Putting the money into an IRA.
    • Putting the money into a college-savings account for yourself, your kids, or your grandkids.
    • Paying other essential unexpected bills (like medical bills. My husband and I are using our refund to pay medical bills for my cancer treatment until we meet our deductible for the year, so we don’t have to dip into savings).
  3. Do NOT use your refund as “free money” you can just blow on whatevs. Bad uses of your tax refund include (all of these are bad, but they get worse the further you go down the list):
    • Doing superficial “home improvements”. Because nobody I know gets a big enough tax refund to remodel the kitchen, or the bathroom, or replace the roof. (aka the only 3 major home improvements shown to substantially increase the value of your house). Anything else is cosmetic, and should be considered as such. My guess is, if you don’t research the ROI you can get from various home improvements (like painting, or buying throw pillows, or getting a new washer/dryer), you probably don’t have a good emergency fund or a decent retirement strategy. So, refer to Item No. 3. (And if by chance you do get a tax refund that large, you either a) have a gigantic income AND a crummy accountant; or b) don’t worry about what expenditure to put your tax refund towards, because you’re a bazillionaire anyway).
    • Going shopping for non-tangible goods. Like clothes, or booze, or a new gas grill, or Cubs season tickets. (None of those things are inherently bad, and I am the biggest Cubs fan who ever walked the planet, but these are all disposable/luxury items, and if you don’t have the cash to buy these things before you got your refund, for God’s freaking sake, don’t use your refund to buy them.)
    • Blow it all in Vegas. This should go without saying, but since I saw this commercial the other day about how the people who market Las Vegas to the masses are encouraging you to blow your tax refund in Vegas, I feel obligated to say DO NOT FREAKING DO THIS, MORONS.
    • Blow it all on other stupid stuff, like strippers, drugs, Grand Theft Auto enhancements, or random back episodes of Scarecrow & Mrs. King on Amazon Prime that you decided to buy when you were sleepwalking on Ambien. (If you don’t understand why doing any of this is bad financial planning, well, then I can’t help you.)
  4. FILE. YOUR. DAMN. TAXES. You would be surprised how many grown, educated, working/otherwise mature adults go for literally years without filing a tax return. When I ask them with my worst expression of incredulity why in the Sam Hill they have not properly filed tax paperwork with Uncle Sam, I have gotten a whole range of irrational responses. Such as:
    • “I have not filed a tax return in years, and nobody from the government has noticed, so why should I bother?” Um, maybe because it’s the law, genius.  Plus, you might be entitled to an unclaimed tax refund at some point if all the fines for not filing don’t consume it first. (Plus there’s the pesky matter of penalities for not paying, which can include jail time).
    • I can’t afford to pay my taxes, so I just don’t bother to file. I hear this one a lot, especially from freelancers (I know a lot of freelancers since I used to be one myself), Uber drivers, and the like, who are supposed to be doing things like setting aside $$ for self-employment taxes, but (of course) don’t. There are two major problems with this.
      • One, paying taxes is the law, you are going to have to deal with it eventually, and the longer you wait, the worse it will get. Interest on top of interest, penalties on top of penalties, and the feds and/or your state can garnish your wages, seize your assets, and all manner of unpleasantness if you don’t pay your tax debts. (You do not want to get into debt. See my many posts on Why Debt Sucks).
      • Two, you may be able to get out of paying some or all of what you owe in back taxes, depending on a number of factors. For example, in many states, people who worked as “independent contractors” were really considered employees of their “clients” under the law, which meant that the “clients” (ahem, employers) had to pony up their share of payroll taxes. (I actually won a case like this via a Contractor Misclassification Suit a few years ago myself, and got a nice windfall out of it since I had actually paid taxes I didn’t have to; I was even awarded damages!).
      • The IRS is also willing to entertain things like payment plans and such if you owe back taxes, so it is always better in the long run to deal with your tax problem head-on than to go run and hide and wait until the tax man comes after you with a vengeance (because he will). If so, look into getting a tax lawyer to help you, even if it is just going to your local Legal Aid society to help.
      • Uh, taxes suck. Yes, well, no argument there when it comes to parting with our hard-earned dollars. But taxes are important. They are the fee we must pay to live in a civilized society. To which I will add….
    • Last but not least, recognize that taxes are important to civil society. Suffice to say that I am not a libertarian. I believe in supporting public infrastructure and the common good by paying my fair share of taxes. I happen to believe that everyone benefits from public schools, public libraries, good roads, functional courts, appropriate business regulation, and public safety personnel. (Full disclosure: I send my kids to private school, but I went to public school for K-12 and a public university for undergrad). Nobody is an island, and I recognize that I would not be where I am today without the support I received at various times from tax-supported institutions, up to and including the Pell Grant I got during graduate school and merit-based scholarships to a state university. (And if you don’t like how taxes are spent, vote. Better yet, run for office yourself). If you don’t like taxes (like those nuts who go around saying Taxation Is Theft), you are more than welcome to move to a place like Somalia or Libya that lacks a functional government and basically operates in violent nonstop chaos, complete with open slave markets. (Have fun, and don’t let the proverbial door hit you on the way out of the country).
  5. If you haven’t filed your taxes yet, get off my damn blog and go get onto TurboTax before you get hit with a penalty.

I remain your Cheap Yuppie Mom.

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