…and just like Bruce Banner you wouldn’t like me when I’m angry, mainly because it involves me lecturing somebody about finances. Although this might not be as cool as turning into a giant green monster it is cheaper on the clothing budget. Now every year around this time I am forced to listen to friends and coworkers get excited about their tax refunds. I know what I am going to say is not a great new revelation but lots of people still think that getting a refund on their taxes is a good thing. I can’t believe how disillusioned these people are. They act like they are pulling something over on the government and getting a bunch of free money. They don’t stop and realize that this is THEIR money that they had already earned and the only reason they are getting a refund is because they paid too much. This is like bragging about agreeing to pay $1,200 for a $1,000 TV and then getting a check from the store for the $200 overpayment a year later. Nobody in their right mind would agree to this or be proud of this business decision, so why it is different when it comes to taxes?!

I’m not in business to give the government interest free short term loans. So when I get a refund I am always a little mad. The great hypocrisy of all this is that if you don’t pay enough or on time the government has no problem charging you all kinds of interest and penalties. This fact just builds on my tax refund rage.

I encourage everybody to aim for as small a refund next year as possible. In fact don’t be afraid to pay some at the end of their either. Since you will have lower monthly tax contributions your monthly take home pay will increase. All you need to do is take the extra money you will be receiving and put into savings/investing accounts as soon as you get paid. The best part is you know you don’t need that money anyway because you weren’t even getting it until a year later before. If you end up owing money at the end of the year you will have plenty set aside to cover it plus extra interest and gains to spare. Now for those you have sooo little self control they can’t put aside this extra money and want to use the IRS as their savings plan there are a couple of easy solutions.

1. Direct Deposit. Most employers offer direct deposit as a method of receiving your salary. These systems usually have an option to deposit a percentage of you pay to different accounts. So you can send your extra income directly to your savings or other account and you don’t need to bother with making regular transfers.
2. Retirement accounts. If you think you will be too tempted to spend the money sitting in your savings consider increasing retirement plan contributions you can’t technically access this money until around age 60. You can also set this up to get paid directly so you won’t have to worry about accidently spending it. Also since most of these plans have tax incentives there is a chance you could end up paying even less taxes. (I do not personally actively use retirement accounts for reasons I don’t want to get into on this post)

I hope we can all now see what tax refunds for what they really are; overpayments and interest free loans and not free money. Start getting made when you get a refund and tell others that you are sorry they got ripped off when they feel the need to tell you about their refund.

-T!

For people who are from other countries then the US, I just want to point out that T! is really concerned about the American tax system :). I would like to write a little bit about the Ukrainian tax system. Ukraine is a post-USSR country with a fast growing economy and a high level of corruption. About 70% of people in Ukraine still don’t pay taxes in full or avoid paying taxes all together. There is one interesting phenomenon in Ukraine and that is the government doesn’t like to return taxes as the citizens and companies don’t like to pay them. The best example of this phenomenon is the VAT (value-added tax) refund. When a company exports products to another country this company automatically becomes eligible to get a VAT refund. However, the government while gladly accepting the VAT is not in a hurry to return it to the company when the export operation is completed. Consequently the company can’t use these operational funds and has to borrow money from a bank and pay excessive Ukrainian interest, which leads to an increase in product cost and inflation.

-O.