Tag Archives: Why I declare zero tax allowances

Reasons To Get A Tax Refund

by

This is yet another year that I’m filing my income tax return…

I know that this year there is a good chance that I’ll have to pay taxes, so the motivation to do my taxes early, no longer exists as was the case just a few years ago.

Most financial advisers will recommend against withholding your income taxes to the extent that you get a tax refund back from the government.   I admit, I agree that from a mathematical perspective, it is smarter to get the money that you earn as fast as possible, and a refund would be the less preferable route.

But from a non-mathematical perspective there are many advantages of letting the government withhold your withholding money, and here are a few of the ones that I have found to be great reasons, and the reason why I let the government hold my income tax refund money for me.

Here are the reasons I preferred getting a tax refund by declaring zero allowances:

  1. Avoiding being hit by a huge tax bill all at once.  Where I was younger there was a time that I didn’t withhold my taxes like I do today.  After a big bump in pay, I suddenly found myself owing the government a lot of taxes with money that I didn’t have.  After that time, I started withholding the maximum amount possible.  Life has been more stress free going this route for my family.
  2. Motivation to file your taxes earlier.  When I would get a tax return, I had a solid reason to file as early as possible to get my money back.  Without such motivation, I’m now in the scenario where I have no motivation to file early, so much like last year, I have no motivation to file early this year…
  3. A easy “stress free” saving program.  Yes, my tax refund has paid for vacations and enables me to deposit that amount into investments.  At a time when most savings accounts only yield .25% (a fourth of 1%), it really doesn’t matter that government could hold you refund for half a year (half a year because your refund amount doesn’t exist at the beginning of the year, and it takes each paycheck to build that refund amount).

The point of this article is that there is more than one way to do things.  I like to take a stress free route with respect to my income tax withholdings, but if you have the discipline with money, the more mathematical approach would be a better route as long as you don’t spend it first.

Hope you did your taxes earlier than I am…

MR