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Getting a Big Refund Check - What is not to Like?

income tax form - Isakov Planning Group

Getting a Big Refund Check: What’s not to Like? Actually, the US Treasury check you received last April and paid for your 2-week summer vacation may not be the best approach. Think of it another way: instead of saving, investing, or pocketing all that money yourself, you are giving the federal government (and possibly the state government as well) interest-free loan.

There is no benefit to this, except perhaps that it is a form of “forced savings.” With a little discipline, you can save this money yourself throughout the year.

Here’s another way of thinking about that unintended loan to Uncle Sam. Not only do you not get any interest back, but the value of that sum you got back is actually less than what you gave them during the course of the year. That’s how inflation works. If you overpaid your income tax in 2019 to the tune of $5,000, the refund check that you receive in 2020 is actually only worth $4,936.92 because of inflation, according to the Bureau of Labor Statistics’ inflation calculator.

Isn’t this money much better in your hands week after week? For some people, it could make the difference between living with far less stress and worry about paying their bills.

At Isakov Planning Group, our advice is to change the amount of your withholding (the W-4 form) so that more of your money is in your wallet and less needlessly goes to the IRS and state treasuries. Next year’s refund will no doubt be smaller, but you will have control over how that money grows throughout the year.

Maybe that summer vacation is still the goal. If you are careful about setting aside savings automatically, you may still be able to pay for it, and have some extra money left over that would have been in the government’s hands.

If you received an unusually large tax refund from the IRS, contact me at the Isakov Planning Group. We’ll make it easy for you to keep that money every paycheck and make it work for you.

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