Description

Is getting a tax refund a good thing?

I used to think so, but now I feel a little bit differently.

Here's how I try to imagine the process of how we pay taxes in the US.

Basically, we have what I like to think of as an imaginary cookie jar that you are filling up as the year goes on.  You know that you have to give Uncle Sam a few of the cookies you made over the course of the year, but you're not exactly sure how many he needs.

Either we paid exactly what we were supposed to, which is highly unlikely, or one of two things happens.  We give a few more cookies to Uncle Sam to properly fill the cookie jar or he gives us a few back.  Regardless, the cookie jar gets emptied and we start all over for next year.

So what's really happening is that when you get a refund, you are getting paid back what you already set aside for taxes.

If you have any questions, shoot me a note at podcast@start100k.com and I'll be happy to address your questions in a future episode.

Action Items:

1. File your tax return for the year if you haven't done so already. IF you have, take a look at what you did with your return and decide if it would be better to have that cash during the year or in one big chunk at the end of the year.
2. Make a plan for your tax return. If you don't have an emergency fund, this might be a perfect opportunity to start one.  If you don't make a plan, you'd be surprised how fast that money disappears.
3. Us the IRS Tax Withholding Estimator to figure out the proper number of exemptions. Keep in mind, the more exemptions you claim, the smaller your tax return will be.

Now go get started!

Links:
https://www.irs.gov/individuals/tax-withholding-estimator