Maximizing Your Tax Return: Debunking the Big Return Myth

Understanding the Truth Behind Tax Returns

Many people believe that receiving a big tax return is a good thing because they can use it to buy something they want. However, a big tax return actually means that you were taxed too much throughout the year. This common misconception leads to the misunderstanding of how taxes work.

The Purpose of Tax Returns

Overhearing people at a bar discussing their plans for their tax returns prompted the author to discuss the misconception surrounding big tax returns. Some argue that the author doesn't understand how taxes work, stating that tax returns are meant to reimburse the amount overpaid. While this is true, deliberately having too much taken off from your pay to avoid owing money is a legitimate budgeting strategy.

The Benefits of Receiving a Tax Return

Another perspective defends the idea of receiving a tax return, emphasizing the peace of mind it brings knowing that taxes are paid. The author views the tax return as a way to save money for future expenses, such as repairing winter damage. They also mention that the taxes not received as a return are reinvested into government-provided services.

On the other hand, another viewpoint expresses a preference for receiving a tax return and not having any withholdings. They mention using the entire tax return to make a large mortgage payment or purchase plane tickets. In some cases, a tax return can even offset the taxes owed from selling investments, resulting in a nice return.

The Impact of Small Tax Returns

A counterpoint is made that a tax return of $3,000, received bi-weekly, would only amount to an extra $116 per paycheck. The author argues that most people wouldn't notice this amount and that a tax return can be used to make significant payments towards debts or investments. It is also mentioned that many people are not good with their money and would likely spend the extra amount received in each paycheck.

Lump Sum vs. Incremental Returns

Receiving the tax return as a lump sum allows for larger purchases outside of the typical budget. The author acknowledges that people often spend their tax returns poorly, but having it as a lump sum allows for more significant purchases. They suggest that receiving a tax return in one large payment helps people get ahead financially. Alternatively, people can choose to waste their tax return little by little throughout the year.

understanding the truth behind tax returns is essential for maximizing your financial situation. While some argue that small tax returns are preferable to receiving a lump sum, others believe that a big tax return provides peace of mind and the opportunity to make significant payments or investments. Ultimately, it's important to consider your own financial goals and budgeting strategies when it comes to managing your tax return.