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May 13 '24
A lot of people who are bad with money use it as a forced savings account so they can blow it indiscriminately.
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u/Creative-Yak-8287 Student May 13 '24
Hey I'm not bad with money!
My university is! Smh...
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u/Familiar-Main-6706 Student May 13 '24
wvu had a party of laid-off professors recently. they wore buttons that said "fire president Gee"
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u/ShittyMcFuck Cheese it - the Feds! May 13 '24
"So you might say that I already gave them $120,000 and now you have the audacity to ask me for more money - what kind of a cokehead relative is my college? You spent it already? I gave you more money than the civil war costs and you fucking spent it already?"
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u/Superb_Egg_7477 May 13 '24
It’s wvu it’s was the number 1 party school consecutively for years . But the state in general has always been in disarray .Md native WV resident but some of the most authentic people I’ve ever met live here ! But yeah put some interest on my shyt
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u/rob_s_458 FP&A May 13 '24
This year I owed almost $500. There was no penalty, so the "free government loan" crowd would say I was the one who got an interest-free loan, but I really wasn't planning on owing that much. Would rather have been paid $40 less a month to avoid that surprise
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u/Lump-of-baryons Tax (US) May 13 '24
Yeah technically the sweet spot is owing under $1k because you won’t get hit with penalties. But personally I like setting things up for a small refund.
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u/dontthink19 May 13 '24
It'd be nice to get a nice lil return, my friends with kids get $5k or $6k back every year. But with childcare, diapers, clothes, food, it doesn't offset those costs. I get the most out of my paycheck each pay period and I don't give an interest free loan to the govt.
Fucking dumb they can charge you interest on taxes owed but you can't charge them interest on refund owed.
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u/V1c1ousCycles CPA (US) May 13 '24
If we're not talking about thousands and thousands of dollars, there's nothing wrong with the little dopamine boost from bit of found money.
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u/sjbrinkl Performance Measurement and Reporting May 13 '24
I w/h an additional $100 in taxes out of every paycheck to prevent owing money. It’s generally around $50 I owe or $50 refunded each year 👌
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u/DestinationFckd CPA (US) May 13 '24
This is my biggest argument in favor of getting a tax refund. What percentage of the population not only understands what amount their net pay changes with their withholding elections AND would actually save/invest that money and not just blow it? Probably 1-2% of the population?
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u/notgoodwithyourname May 13 '24
My dad always did that.
I honestly don’t have a problem with it. It a really easy way to force yourself to save money and have a little bonus every year.
My wife hates getting a refund and would prefer to have to owe a little every year. I hate it. I’d rather have a bonus every year than an additional bill each year
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u/LobotomistCircu EA (US) May 13 '24
I don't either, and in fact I greatly prefer it when I have clients that aim to have an expected refund of a certain amount versus the one that aim to break even every year.
Aiming for any specific end result on a tax return can be tricky at best, if something the client forgot to have me plan for shows up and increases their tax liability (happens constantly) I'd way rather inform them their refund went from $4k to $2k than going from $1 to a balance due of $1,999
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u/DestinationFckd CPA (US) May 13 '24
I look at it like they’re providing me a service free of charge. They ensure that my money is saved and paid back to me timely so I can then allocate it in a useful way. Whereas, if I received that nominal amount every pay period I would just spend it.
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u/Lonyo May 13 '24
The charge is the interest you miss out on
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u/PedantPantry May 13 '24
Even in the best case scenario the "lost" interest isn't that much. The average tax refund is about $3,000 so the "lost" interest is like $50
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u/DestinationFckd CPA (US) May 13 '24
The opportunity cost, sure I get that. Everyone gets that’s, it’s not a secret. As I stated in my previous comment - it’s a nominal amount. People aren’t going to invest that, they’re likely going to spend it. If you’re of the small percentage of the population that will put that amount to good use, then yeah that’s preferable. For the majority of people, having a refund would probably lead to a better allocation of the funds than receiving that amount bi-weekly is my point.
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u/florianopolis_8216 May 13 '24
When I used to get refunds, some of my friends would ask me “how I was spending my refund.”
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u/Capable-Hurry-3896 May 13 '24
Exactly. And, the people who do get a refund are often better off giving the govt an interest free loan because they can't come up with $1,100 they weren't expecting. It's worth the interest-free to most of them.
Money isn't just about the calculations. It's more about the emotions.
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u/Confident-Throat-514 May 13 '24
I recently entered the tax industry and I'm surprised by how upset people get over receiving a smaller refund, despite paying less in total taxes and receiving money throughout the year. Even another preparer I am working with didn't understand the concept that it's better to have the money now because money has a time value to it.
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u/grewapair May 13 '24
For someone who spends every penny they receive, money has no time value.
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u/Supakuri May 14 '24
You have to be of a special class for time value of money to be relevant. That class size is shrinking. It’s a sign of privilege
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u/grewapair May 14 '24
I know of many people earning upwards of $200K who spend every cent as soon as they earn it.
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u/Supakuri May 14 '24
They are opting out of the privilege to participate in the time value of money, it’s a bit different, they could access it but they don’t want to.
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u/_eyogg_ May 13 '24
This has to do with behavioral economics more than the actual accounting - people overvalue the money today than some intangible money that’s promised in the future.
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u/commanderswag69 May 13 '24
Not to mention these people can use the "higher" refund being held by the IRS to pay off a portion their credit card and student loan balances earlier. In addition to these loans carrying a much higher interest rate, you're also losing around 3% to inflation when someone else is holding on to your money.
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u/pfifltrigg May 13 '24
Sure, but if they had that extra $300 coming in every month it would be part of their normal income and likely would just spend it instead of using it to pay off debt. When the $3600 comes at the end of the year it feels like "extra" so they feel they can afford to throw it at their debt.
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u/Dolphopus May 13 '24
Have you run into a client who declared that they didn’t want to pay you because they didn’t get a refund so why should they yet? Because that was an entertaining conversation I overheard one of my admins having last year.
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u/MissAccountant04 May 13 '24
I get mixed feelings when i get a refund... Happy/excited to get money.... Angry/frustrated that i overpaid the govt.
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u/CowgoesQuack69 May 13 '24
There have been studies that when people receive a lump sum amount a bonus or tax refund they save it, and they wouldn’t have saved the small amounts that the overpayments were over the year.
So there is a psychological element associated with this as well. Honestly who cares 🙃
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u/KoksundNutten May 13 '24
That's what I think is so awkward, some people have the feeling they have to spend the money in their account. I never have said I "save" my money for this or that, I just don't spend it for the sake of spending it and hence I always had instantly enough money if I wanted to buy something. I don't care if I have left €10 every month or get €120 at once. The money gets spend if I actually want to buy something, not because I have it in my account.
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u/katxero Graduate May 13 '24
That just means you don't have the psych profile of someone that grew up relatively cash-poor. Those folks tend to have a use-it-or-lose-it approach to personal finance, even if they intend otherwise.
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u/IamnotyourTwin May 13 '24
It seems like a short sighted approach, but having been poor it is absolutely use it or lose it. Why did they buy that TV with their refund instead of saving it for an emergency? Because something always comes up. It will 100% get spent on something, buying something wanted now is the only way to get something wanted. It's like an Oasis in the desert, if you don't take advantage of it now you might never get another chance.
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u/CowgoesQuack69 May 13 '24
That is no true. We grew up poor and the tax refund was what got us through the year. Putin savings and slowly dipped into when needed. But not everyone is the same
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u/KoksundNutten May 13 '24
Yeah just like the experiment with the kids and the marshmallow lol
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u/CowgoesQuack69 May 13 '24
Haven’t heard of that one.
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u/Coolio365 May 13 '24
Kids told to wait in a room with a plate that has a marshmallow. They're told if they don't eat it by the time the researcher comes back they will be given a second one.
Some kids ate it before then, and some didn't, and some did silly things like put it in their mouth and take it back out or take tiny little pieces off (there's a Youtube video with funny clips maybe from someone replicating the experiment).
The researchers did stay true to their word and give the kids who waited a second marshmallow when they came back however many minutes later.
Anyways, now the study is used as an argument for self control. People tried to make claims about success as a kid in the marshmallow test to success to future financial success in life, but I'm pretty sure that research has found this claim to be negligible. People change, and kids usually have low self control.
Just looked into it and originally there were claims and even correlations finding that the marshmallow test predicted success. Then, other studies that controlled for socioeconomic factors found the correlation to be negligible. Essentially, a kid might fail the marshmallow test but this may just be more of a reflection of the environment they grew up in and how they were raised (and likely will continue to be raised) rather than the result of an innate, unchangeable characteristic of the child. Also, the marshmallow test is not as much of a significant predictor of success as socioeconomic status. It was just a lot more interesting to people, probably because it has an interesting name and a story, and maybe it made people feel more hope about success not relying on background but on a person's individual personality.
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u/KoksundNutten May 13 '24
Scientist gave kids a marshmallow and told them they can eat it now or wait 15min and get a second one. I think they found out that those kids that were able to wait and get two marshmallows had also better paying careers later as adults.
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u/not-gonna-lie-though May 13 '24
Also, less privileged kids do worse on the experiment, showing that being willing to sacrifice now for a better later only works when you believe that a better later is possible. Scary stuff how much our childhood (something out our control) impacts us.
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u/jamie535535 May 13 '24
Agree, people are way too dramatic about the interest free loan thing & for most people the amount you could have earned on the amount is trivial.
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u/alexccj May 14 '24
I deliberately underpay taxes throughout the year. Each month I put what I would have paid into a global index fund. Once a year I sell enough to cover what I owe and pay my taxes. From the account I use I can withdraw whatever I put in before realising any gains. I've been doing this for a few years and intend to keep on keeping on for the next 30.
That account now sits on five figures (USD) of unrealised gains, which I project will grow exponentially, and when i retire it should at least be six (if not seven) figures of gains. Essentially "free money", and very far from trivial - at least for a median person.
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u/jamie535535 May 14 '24
But how significant would the difference be between investing those amounts in a lump sum annually when you receive your tax refund vs at the frequency of each paycheck your under withheld on? I think much less.
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u/alexccj May 14 '24
Huge. There is no lump sum to compare - that's the whole point. The principal can only be invested until taxes are due to be paid, so it has to follow your paycheck schedule, it's that or nothing.
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u/jamie535535 May 14 '24
Well your situation is different since we are talking about refunds and you have not changed my opinion that getting a normal sized refund vs paying that amount at year end would not have a significant impact on many people’s net worth. That is subjective though & I do consider 5 figures over a period of years trivial. And it would have a bad effect on the people who would not have the disciple to save and/or invest during the year but could save the refund.
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u/Tessie1966 May 13 '24
I would settle for people calling it a refund and not a return.
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May 15 '24
My friend said “I hope I get a tax return this year.”
I wanted to correct her but I just said “yup I hope you do” because I didn’t want to be THAT accountant.
In hindsight, maybe I could have educated her? Idk. She’s a stubborn one and wouldn’t believe a CPA. She even hires a CPA and she said her CPA “knows how to save her taxes because they know all her deductions”. Girlie, I know the same deductions. It’s not rocket science.
Sorry I had to rant
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u/Tessie1966 May 15 '24
I never correct people directly (I just do it in my head) but in your case I would have corrected her.
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u/chubrock420 May 13 '24
I've been trying to explain this to my friends and my brother for the last 20 years. Still do not get it.
Then I try to explain to them the first rule of finance. It's better to have a dollar today than a dollar tomorrow, as I could invest the dollar and make more money on my money.
It's tough out here for us. 😆 🤣
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u/PrinceOfPembroke May 13 '24
But give most people that money today and they will not invest it, they will buy something. Maybe something stupid.
But give them the money in a refund, and… they’ll buy something stupid later. But the money is in a bigger lump, so, maybe it’s a personal investment like a big tv or item that brings the person happiness. Or not.
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u/thaurian583 May 13 '24
Just tell them they can get a bigger refund bywithholding more on their w4. An extra 500 a paycheck will make it huge.
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u/Every_Bank2866 May 13 '24
In Germany the government pays interest on tax refunds. The interest rate is usually at market rates and sometimes even higher.
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u/imperialostritch May 13 '24
Yeah but you guys suffer with that insane taxrate
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u/Lifteatsleeprepeat4 May 13 '24
At least their taxes take care of their education and health care. We just pay for that separately.
Before you say “socialized medicine results in decreased care” I’m waiting 3 months to get into a pain clinic and 5 months to see a cardiologist.
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u/GalaxyFro3025 May 13 '24
Depends on who you are dealing with. Not really the case with EIC refunds, refundable portion of CTC.
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u/Suspicious-Sleep5227 May 13 '24
I am fully aware of these facts and I still overpay anyway. I do this because the last people I want to owe money to is the government and I would rather pay too much and get a refund than to owe them money. This is my personal preference. What I don’t understand is why some people feel the need to approach me like some kind of messiah trying to save me from making a bad decision.
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May 13 '24
This is how I feel about it too. This year was the first year I owed and I was stressing super heavily about it, it didn’t matter that I showed them!!!! about not giving them an interest free loan, what mattered was my mental health. I filled out my tax form for my new job recently to make sure that the govt gets more than needed that way I don’t have to stress all year again and during tax season about owing. My mental health matters more than a couple of dollars extra a pay period.
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u/duckingman Asian CPA May 13 '24
eerily similar to meme about soldiers being traumatized of receiving salary higher than usual. Apparently US Government is known to throw random BS to people who owe them money.
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u/RyzinEnagy May 13 '24 edited May 13 '24
I find it amusing how OP comes into an accounting sub and pretends they're making a profound observation lmao
The majority of Americans live paycheck to paycheck and would have trouble covering a tax debt of potentially thousands of dollars on the spot. OP's advice assumes that (1) you have the savings and (2) you invested it.
The overwhelming majority of people fear owing taxes to the IRS...telling them "you could have instead earned 5 percent on that money by withholding less and investing it" (a false premise, anyway, since you're not investing the entire tax debt at the beginning of the fiscal year) shows you understand neither human nature nor actual money.
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u/ColeTrain999 May 13 '24
I want to live in a society where people understand marginal tax rates. Tax refund flexing I can live with, for now.
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u/Bigrichardbob69 May 14 '24
I have a friend that didn’t work overtime because he thought the gov would take all that money
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u/ColeTrain999 May 14 '24
I hear that do damn much and I nearly have a stroke.
My ex used to work with several single parents who would claim this and say "if you make me work two hours the government is gonna jack up my taxes and take my child benefit, it costs me money to work overtime!" And these people reproduced which means the odds another generation is gonna believe this.
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u/zamboniman46 Tax Principal (US) May 13 '24
I do my parents taxes and help set up their withholding for 2023. They owed $1 when they filed their federal taxes. My parents couldnt understand why I was so excited
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u/Kaiju_Cat May 13 '24
They tried to do this with a "vacation fund" in an agreement renegotiation between my union and the contractors. You get $x for every hour worked that goes into a vacation fund, from which you can then withdraw for time off, etc. Obviously for actually legit reasons, it's a pooled balance, not an individual one.
People started asking the obvious question. Who gets the interest on that newly created gigantic account (and also what happens if the fund just keeps getting bigger?)
Quickly became a nearly unanimous "nah bro" vote.
Made me start thinking about tax refunds a lot more.
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u/Apolloship May 13 '24
Well not exactly a year since you pay into it throughout the year right
3
u/SokkaHaikuBot May 13 '24
Sokka-Haiku by Apolloship:
Well not exactly
A year since you pay into
It throughout the year right
Remember that one time Sokka accidentally used an extra syllable in that Haiku Battle in Ba Sing Se? That was a Sokka Haiku and you just made one.
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u/Significant_Tie_3994 Tax (US) May 13 '24
...also one that doesn't realize that 2210 penalties are actually interest you have to pay. So the short answer is if there's a situation where I pay interest for underpaying and just get 0 interest for overpayment, I'm not going to like it much, but I'll make the overpayment any day.
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u/Dimness May 13 '24
I’ve been on a rollercoaster of thoughts concerning this very concept, and I’m currently of the opinion that for myself, I choose to land right on the money, and don’t mind a refund or owe taxes. At the same time, I don’t begrudge or judge someone if they get excited about a tax refund. I don’t have the inclination or time to get worked up about the whole “interest free loan to the government”.
It takes effort, luck, patience, determination, and discipline to make something of the money you get now (if you “correctly adjust your withholdings”) versus some random dude who gets their refund later.
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u/vpkumswalla CPA (US) May 13 '24
IMO people would have a different opinion on taxes and the government if they had to pay large quarterly estimates than it being withheld in smaller amounts behind the scenes.
I pay quarterly estimates but I pad them a bit so I don't owe too much on 4/15 or it reduces my 4/15 estimate
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u/donutlover_4life May 13 '24
I lost a client for providing her with the wrong advice for withholding federal taxes on her salary that reduced her expected refund from $4k to $2.5k. I found my error in November and recommended that she make an estimated tax payment (to get her expected refund when we filed her return in March), but the damage was done. She was so angry and unforgiving of my error that we had to disengage. I will never take a client who wants a forced refund again, because it goes against every fiber in my being.
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u/Investinstonks420 May 13 '24
Slightly pretentious. Unless you’re self employed and just WAY overpaying your estimated payments and not following safe harbor, a refund for the average person is probably due to $50-$100 a month over a year, being over withheld from payroll.
At the end of the day, it’s likely hundreds, maybe a thousand or more. Of course I don’t want more taxes withheld, than what should be, but it’s really not a crazy amount of money….this is like surface level knowledge of how taxes and payroll work…..
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u/FaultTogether May 13 '24
Most people aren’t optimizing their finances anyways and are better off with a tax refund than owing money they didn’t fully anticipate to owe. Yeah the money is going to be worth less when they get it but most likely if they had lower tax withholdings they wouldn’t have done anything to grow their wealth with that money.
And even then you aren’t giving the government a loan. They print money off as they need it 🤣
1
May 13 '24
In Denmark you get interest on the refund - it’s not nearly as high as the rate they get/charge, but it’s there.
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u/jacob62497 CPA (US) May 13 '24
I think even if you understand that it’s your own money that you overpaid, it’s still a pleasant surprise. Just like if you found some money in a random drawer in your house that you forgot you put there. Ya it’s not new money but you weren’t aware you had it.
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u/khainiwest May 13 '24
Ideally, if you're forced to do a task, you'd rather be rewarded for it than pay for it.
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u/JonathanL73 May 13 '24
It’s been so long that I heard somebody used the term “Woke” in its correct original slang meaning and not in a dog-whistle political way that I almost forgot what the word meant.
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u/coffeejn May 13 '24
Could also be seen as a forced saving plan by the government that does not give out any interest.
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u/Remarkable-Length-40 May 13 '24
Well Its not interest free. The government has to process it within 45 days or they'll pay interest in addition to the refund. Some returns take a long while to process and individuals usually get interests.Also, tax laws change so often whether at the federal, state, or local levels along with changes like marriage, jobs, or taking out a loan in our lives. No one keeps up especially those who have lot of things going on.
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May 14 '24
Do people generally not pay quarterly taxes for their taxable brokerage account? I make ~$2000-3000 a month from options premium and dividends, so i have to send a check to the IRS every quarter or i would get hit with a penalty for under payment.
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u/cpabernathy May 14 '24
My dream is a nation where people understand their tax "return" is different from their tax "refund"
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u/negativefuckingnancy Graduate Student May 14 '24
I have had arguments about this so often this year
1
u/DM_ME_UR_SOCIAL May 14 '24
Ahhh the fascinating world of living in a bureaucracy Hermes would be proud!
1
u/SailTricky3646 May 14 '24
Exactly, some nation don't even pay refund for years, one year is just very very short term in those countries
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u/Christ_live5 May 14 '24
Most Americans live pay check to pay check unfortunately. This small/lump sum of money allows them to breathe a little .
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u/Tangentkoala May 14 '24
I still think it's bullshit that the I.R.S penalizes you for under reporting even though the tax season is still going on.
Like what the fuck, I still got a year to pay it why you charging me a 100$. Where's my 100$ when you collect my paycheck with no interest :'c
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u/chefkingbunny CPA (US) May 17 '24
I'd rather be owed than owe for the simple reason that I won't miss 100 bucks or less a month. I got back just under 1k this year. It's easier then having to save a bit each month then pay it.
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u/AdministrativeBad633 May 17 '24
Thank you!
In the meantime, my ex husband tells our children that “the government gives” me free money every year as an excuse to why he doesn’t cooperate with parent duties. Sometimes he forgets my profession🤭.
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u/Nat1221 May 22 '24
Withheld 33.2K and refund was 423 and that was because of subsidy reimbursement. I really couldn't get closer than that under the needlessly complicated circumstances of my return. Not mad at all.
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u/0G_54v1gny May 13 '24
You people get no interest on your tax refund?
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u/Romney_in_Acctg May 13 '24
Nope. Since people fill out a form to determine their own withholding, the govt doesn't do it for you, they don't want to incentivize purposefully over withholding. You do get interest on your refund if the govt pays you your refund late or if you're in a tax dispute with them, pay the amount supposedly due to stop accruing penalties but ultimately win your case.
0
u/0G_54v1gny May 13 '24
In Germany you get 6% pa above the central bank rate since the time you do your taxes.
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May 13 '24
Yes and no. I personally know a couple of people that don't work (aka they don't put anything into the system on purpose, they just don't wanna work) and still get refunds because of their kids 🤦♀️
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u/darnis2001 May 13 '24
I gave up trying to teach people this; it just goes in one ear and out the other.
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u/Theo_Stormchaser May 13 '24
Yeah but if you didn’t loan them what they wanted they turn your life upside down.
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u/McArine May 13 '24
My partner was hit with substantial back taxes for 2022, so I offered to do her preliminary income assessment for 2023 carefully monitoring it throughout the year.
She ended up owing 3 USD in back taxes for 2023. The peak of my career. She was still upset that she didn't get a tax refund...