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Jeff Schnepper

The Basics

Why I hate income tax refunds

That big, fat tax refund really means you've given the government an interest-free loan. It's far better to keep the money you earned in the first place.

By Jeff Schnepper
MSN Money

Refunds: They're wrong!

It's hard to get that through to my clients. But refunds are bad.

Sure, it's exciting to get a check from the Internal Revenue Service. Well, actually, it's from the Treasury, but you know what I mean. That misses the point, however.

It's not like you're gaining anything. That money was always yours. The feds are just giving it back. And that's the point.

When you get a refund, what that really means is that you've given the federal government an interest-free loan. You're just getting your money back.

In fiscal 2008, more than 100 million Americans received tax-refund checks, with an average refund of $2,429, up slightly from the year before. No matter how you do the math, that's a whole lot of interest-free dollars.

An offer you can't refuse?

People just don't learn. They want that check from the government. But I can give you the same deal.

I hereby offer to allow anybody reading this to send me money. I'll take cash, checks, money orders, even food stamps. Send me as much as you want. And I promise -- on my word as MSN Money's tax expert -- that I'll send it back to you on April 15, without interest.

It sounds silly when you put it that way, doesn't it? But it's no different than getting a tax refund from the IRS.

Some people argue that refunds are a great way to save money. If they never see the dollars in their checks, it's easier to put aside money for, say, that big-screen plasma TV they've been drooling over.

Video: Tax-filing audit triggers

Open your eyes, financial fool! That's what payroll savings deductions are designed to do. Buy savings bonds or, better yet, increase your retirement-plan contributions. Or just put an extra $50 per paycheck into a money-market fund.

Here's what I'll do. I'll up the ante on my original deal. Not only will I give you your money back, but I'll add a whopping 2% to your original contribution. That's twice what the money-market funds were paying not too long ago. You can't beat that kind of deal.

Continued: Aim to withhold just enough

[Related content: taxes, tax preparation, tax refund, IRS, Jeff Schnepper]

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