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Why a Big Tax Refund Check Isn’t All It’s Cracked Up to Be

By April 13, 2015 February 26th, 2019 No Comments

As Tax Day draws near in the U.S., many taxpayers are getting excited about a fat refund check from the government. Totally understandable, right? Well not exactly. Sure, a big refund may seem like a spring bonus, but there are a few deeper implications to consider… 

Your Refund Was Really a Loan

The government is giving you a refund because throughout the year, you gave them too much. So think of your refund as money you loaned the government—interest free. Doesn’t feel so much like a bonus anymore, does it? Yes, there’s solace in knowing that you’ve overpaid instead of underpaid, but remember: it’s your money first!


You Could’ve Been Doing Other Things with the Money Refunded To You

If we’re in agreement on the fact that the money you’re getting as a refund is really just money that you loaned out to the government (interest free, mind you!), you need to consider what you could have been doing with that money over the last 12 months. Most obviously, you could’ve been saving that money and earning interest on it. You could’ve also been investing it either in a retirement account or your portfolio. (You could’ve started a portfolio!) Maybe that money would’ve been useful in your emergency fund at some point last year. You could’ve also had better liquidity month-to-month too. The point is, the time your soon-to-be-refunded money spent with the government was time you didn’t get to do what you want with it.

Change Your Mindset and Your Status

A tax refund is really about perception. Once you view it for what it is, the “giftiness” will disappear. And that’s when you take action. What sort of action? Well, it depends on how your business is set up, whether or not you have payroll, and a few other things. Here are a few quick tips, but as always, make sure you talk to your accountant or tax prep pro about matters like these…

  1. If you’re a business owner, have payroll set up and get a W-2 at the end of the year yourself, then your W-4 is huge here. You always want to make sure that the appropriate amounts are being withheld from your paycheck. Double check your filing status and discuss making any changes with your accountant or tax prep pro. 
  2. If you’re a self-employed solopreneur without payroll set up, then you’re likely filing quarterly estimated tax payments. (If the form 1040 ES rings a bell, this is you.) The more accurate you are in your quarterly estimated payments, the less off (in either direction) you’ll be at the end of the year. So keep good records because an accurate quarterly profit and loss statement is the cornerstone of on-target quarterly estimated payments!
  3. Lastly, if an important aspect of your life has changed, there’s a chance it might have tax implications too. Did you buy a home? Get married? Have a baby? Officially watch one of your children leave the proverbial nest? There are a bunch of life moments that can impact your filing status and thus, your refund—especially if you’re a small business owner.  

So friends, sadly, that big refund is not a spring bonus or gift. It’s really just a matter of you giving the government too much. Consider these tips to do everything you can to make sure your refund is small—or nonexistent at all!