Get Next Year's Tax Refund Now

I've already posted Getting a Tax Refund is Costing Americans Billions, Comments: Getting a Tax Refund is Costing Americans Billions, and Comments: The Fastest Tax Refund Possible; Don't Give the Government an Interest-Free Loan, so what's another "don't loan the government money interest free" post going to hurt? ;-)

Seriously, consider the facts from a Kiplinger article suggesting that you should get next year's tax refund now:

As of last week, the IRS had processed 75 million 2005 tax returns. And a whopping 90% of them called for refunds. Already, the government has sent more than $155 billion to taxpayers. The average refund: $2,314.

Here's their alternative suggestion:

You can get next year's refund in installments starting next payday. All you have to do is file a new W-4 form, Employee's Withholding Allowance Certificate, with your employer and adjust the number of allowances you are claiming. You can claim an allowance for yourself, your spouse and your dependents, for example. Each allowance basically makes $3,300 of your annual income off-limits for withholding. Claiming extra "allowances" on your W-4 will automatically push down withholding, which in turn will push up your take-home pay. You'll enjoy instant gratification from a do-it-yourself pay raise.

Good idea! I agree! :-)

But for this year, if you're wondering what to do with your refund, consider Seven Smart Ways to Spend Your Tax Refund and How to Make the Most of Your Income Tax Return.

Comments

[Apex]

I suppose this works well for many people. Some people have drastically inconsistent annual taxable income due to things like business venture profits and losses and capital gains transactions among other things. I am often in that category. My taxable income is moving close to zero this year, next year my AGI is going to likely be in the category that I don't dare make a 2006 Roth contribution because I could easily exceed the limitations (and I am not interested in the hassle of trying to undue the contribution).

So in cases like mine I really am not able to be too worried about whether or not I get a refund. I have to worry about whether or not I will owe a penalty and thats my key consideration from year to year. Unfortunately depending on previous year AGI that can change whether I need to with-hold 90% of tax bill due, 100% of previous tax bill or 110% of previous tax bill. And in a year where I may be required to with-hold 110% it is very possible that the next year could be a very low income year so I get to with-hold 25K of taxes and get almost all of it back (and I may not have it easily accessible if it starts out as a low income year). This is the gross inconsistency of the situation the tax code puts me in because I can't know that the next year won't be an equally good year so I have to with-hold or estimate as if it will be in case it is.

Got any advice for a situation like that? So far all I can figure out is to suck it up and deal with it.

[Nick]

I finally stopped being stupid and adjusted my W-4. I might miss a $6,000 refund at the end of the year, but I'll soon forget it with the $100 extra showing up in my paycheck each week!

[Bryan SCheerer]

yeah i like getting my money now instead of giving the government a free loan with MY money.

[Bryan SCheerer]

yeah i like getting my money now instead of giving the government a free loan with MY money.