3 Reasons Why You Should NOT Be Happy About Your Tax Refund

tax return, tax return blog, big tax return, low tax return

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You may have just read that title and thought, “What?  Who shouldn’t be happy when they get money in the mail?” The answer is simple – the person who overpaid for a product (your taxes) in the first place!

Here are 3 reasons why you should think twice about being happy about your annual tax refund check.

  1. You overpaid
    You are getting a tax refund because you overpaid for your taxes.  Who likes overpaying for things? For example, think about the rebate forms you get in a store at a cash register. It’s always a pain that you have to overpay now and then wait 6-8 weeks to get a check back in the mail…IT’S YOUR MONEY!  You overpaid.  When it comes to your tax refund, the irony is, The IRS doesn’t even give you your money back in 6 weeks. You have to wait all year to get your money back and you don’t earn any interest.
  1. You could have been using that money throughout the year
    This money could have been used to invest, to pay down higher interest debt, or to have it in hand, just in case.  However, you didn’t have your money, because you’ve been coached to overpay your taxes, and Uncle Sam was putting it to use instead of you. Let that fact sink in a bit.
  1. It shows that you are not being proactive with your taxes
    This may also be a sign that you are not being proactive with other decisions about your money.  For example, automatically contributing to a 401k and waiting until retirement age to see what happens, or carrying high interest debt without having a plan to get out from underneath the bank’s control. When it comes to taxes, the tax code actually tells us how we can legally reduce our tax burden. That means it tells you how you can keep more of your own money.

What is even more interesting about tax returns is that we do tend to really “feel happy” about that fact that we are “getting a refund check back.” I believe that we feel happy because we don’t feel like it’s our money. Because we don’t physically “write a check” to the IRS each month, we don’t feel the pain of sending money away.  We don’t feel like we paid anything. The money is automatically taken from our paychecks, and even though we can see the amount when look at our pay stub, we don’t feel the sting because we don’t sit at our desk with our checkbook out writing a check to the Internal Revenue Service. This tricks us into feeling like we are getting something special back from Uncle Sam.  The truth is, all we are getting back is our money. This Jedi mind trick that Uncle Sam uses is very effective in making sure his bills are paid.

Take some time to think about it. It doesn’t feel good to overpay for things. Perhaps it would be best if you never gave that money away in the first place. Talk to a trusted tax advisor about the detailed tax information and reach out to a strategist here at Paradigm Life so you can grow YOUR wealth and not someone else’s.

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Q: Why might receiving a large tax refund not be advantageous?

A: Receiving a large tax refund often means you overpaid taxes throughout the year, which is essentially giving the government an interest-free loan.

Q: How could the money from overpaid taxes be better utilized?

A: Instead of overpaying taxes, that money could have been used throughout the year for investments, paying down high-interest debt, or for emergencies.

Q: What does a large tax refund indicate about tax planning?

A: A large tax refund can indicate a lack of proactive tax planning, which involves understanding and utilizing tax codes to reduce the tax burden legally.

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