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February 04, 2010


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I wonder how much it costs to process a paper return. It seems like they should charge people an extra $50 to use the paper system. I'd support that "tax".

PS... I e-file every year, and try to minimize my return as much as possible, if not owe a little.

Hmmm, let us take a look at the flip side of your coin.

How much deeper in debt would people be because they don't have the disipline to save the money they would get by declaring more allowances? So at the beginning of the next year they don't have that extra cushion from the refund, so they go even deeper into debt?

I also wonder how it would affect the government if everybody did perfectly set the appropriate allowances so that the government wouldn't get that extra slice of money... I'm not sure what they do with our money once the collect it? Does it earn interest somewhere (I doubt it...)

In a perfect world with perfect citizens, I agree with your statment above, but in our imperfect world, I don't agree with your statment :)

@Money Reasons,

I concur. I used to think it was obviously a good idea to consolidate high interest credit card debt into a home equity loan at much lower rates.

What I realized is that would be a good idea for me (except that I would never get myself into that situation in the first place). And for those who would, they all did do exactly that in the last 5 years, ran the credit cards back up and then lost the house. So it turns out what makes sense if your rational doesn't make sense for most people, because most of them are driven by many factors with reason and rationality coming in pretty low on the list.

I have always found the lost interest argument on refund most to be a big of a big deal over little of nothing anyway and in the interest rate environment we have had the last 10 years its an even smaller nothing. But your point to the fact that for most people its actually forced savings is also quite true. If you could run 3 simulations, 1 where every person gets a 1000 dollar refund, 1 where every person gets exactly no refund and owes nothing, and 1 where every person owes 1000 at the end of the year, I would bet anyone any sum of money that the scenario where people get a 1000 dollar refund results in an overall higher average networth across the population and the one with owing money in (free interest for a year) results in the lowest networth.

People are not rational actors and all economics based on rational actors is flawed and eventually blows up in the economists face.

See the Effecient Market Hypothesis as an example.

I will be getting a sizable refund and have no way to avoid it. I have no income tax withheld from my paycheck except for when I receive a bonus. Unfortunately, those bonuses are handled differently and do not follow the standard withholding guidelines. Obviously, it would be great to not have to "loan" the government money but sometimes it is beyond a person's control. The other reason for my significant refund is the child tax credit, one of the few financial benefits of having four children.

I don't eFile as I believe it makes it that much easier for the IRS to go through your return with a fine-tooth comb.

With eFile, every number from the tax return is available for electronic sifting and filtering. Filing on paper means someone needs to scan/keyboard every sheet/figure to glean the same information. I doubt every number from a paper return is entered into the IRS computer system as is from an eFile return

It's not that I'm dishonest with my taxes, for me it's more of a personal rights thing (freedom from unreasonable search & seizure). Not a big fan of "Big Brother" knowing too much about me.

I always eFile and I almost always owe taxes at the end of the year (mainly because I'm self-employed and I've been able to grow my business by a good 10%-20% annually.)

You know that a reasonably large percentage of the population actually pays negative taxes. That will skew the average refund statistics, because they can't possibly owe anything and will necessarily receive a refund.

Also, I have heard that those people applying for the New Homebuyers Credit are required to paper file.

We sign off on e-filing with our CPA. We haven't got a tax refund since college and even then it was only a few hundred dollars.

We usually owe $200-$400 dollars...I put it aside during the year and make interest off of it - a whopping 1.3% right now, but better than nothing.

We may not owe anything this year since we will have a $2000 school credit to apply...yay. But we made a little more and won't have as much business loss to deduct, so I'm not positive yet. We'll be filing in mid-March since we don't even get all our paperwork from certain stocks we own until mid-February anyway.

I have filed a paper return for the last 3 years, but I have filed electronically in the past. It doesn't seem worth it to pay extra money for tax preparation software that includes an efile option (turbo tax is usually $10 more). I have found that it usually takes a week or two longer to receive a refund, but I don't think receiving an expidited refund is worth the extra money. Also, it makes feel good to know that I am one of the hold outs preventing the IRS from achieving their efile % quota. If the IRS wants me to efile, than make it free.

@tom(#1): Not everyone who files a paper return wants to do so. There will always be people filing paper returns until the IRS improves its systems. For example, if you're claiming the homebuyer tax credit this year, you can't e-file because of required documentation you have to send.

I prefer to e-file when I can. TaxACT is great because they give free e-filing to everyone (and the software is free). Also, make sure you check your state's department of revenue site to see if you can e-file your state return for free rather than paying for it.

We e-file.

We are get on average $2-3k as a refund each year. I intentionally do not reduce my withholdings because hubby sells real estate and most of his income is commission and impossible to predict from year to year. So if he does very well one year, I know we have a cushion in place to cover the tax on his income. If not, we get a refund. Thus far we have avoided having to pay quarterly estimated taxes.

I efile usually since it's free. But we bought a house this year, and even though it was before they changed the law, I'm required to send in a paper form and it'll take more time to get our refund (which is only big because of the homebuyer tax credit). I'd rather eFile.

I efile. I think I will get a refund this year. I'm self-employed and have to pay estimated taxes quarterly, but this year is my first year with a mortgage, so I'm expecting that my mortgage interest will offset some of the amount I've already paid in taxes. Last year I owed. My personal preference would be to control the numbers well enough to owe about $75, but this is my first year with a mortgage, so hopefully next year it'll be right :)

I got a big refund last year. I use to try to keep that amount low, so as not to give the government a loan of my money. But.... twice I have underpaid at the end of the year, and then I had to pay the penalty. So now I have decided to overpay and not get caught being underpaid again. I too use to think it was goofy that people didn't mind giving uncle Sam their money to hold for the year. But now I figure I would really only make very little interest over the year from that money and if you don't get it right and have to pay the really don't come out ahead anyway. So... now I just have extra money taken out of my check and at the end of the year they can return to me what I over paid. Anyway my point is don't get caught up in that thing about over paying the government your taxes. Refunds are better than penalties.

I have always done my own taxes and paper file. I have no problem doing them and don't want to pay extra for something I can do myself. I would e-file once I have figured out what goes on the form, but it seems that there is also a charge for that. So I just sent mine in the mail. Last year, I thought I could try e-filing for free on the IRS website. But I got bogged down doing that (their system was slow) and gave up. I usually owe the IRS a couple of hundred. Although for 2008, I paid them about $600 because of some extra income I had from cashing in some stocks. I usually get a few hundred dollars refund from my state, Virginia. Is there a place online I can do fast Federal e-file for free? I do Form 1040, with schedules A and D.

I have usually paper filed because I do my own taxes with spreadsheets or free online software but there was always a charge for e-filing. But last year I e-filed because the IRS now has FreeFile Fillable Forms. These are easy to fill in (once you've already done your taxes) and it's free.

You just described the classic case of Present value. However, you know that many Americans probably would not have used that money in the present for such causes as you described. Also, if you think about the tax credits, many individuals' refunds are higher.

Lets just flush out the giving the government a loan thing with some numbers. Lets say you got the average refund quoted here of 2753. Now if you had reduced your with-holding you wouldn't get that all on Jan 1 to put in savings but you would get it trickled out over the course of the year. So on average it would the same as having had 1/2 that much to invest for the whole year.

Now in order to actually get the savings return on this money you would need to put the extra money from each pay check immediately into a high yield savings account. Thats 115 dollars twice a month you need to transfer to ING or something similiar. You have to do this on payday every payday or you start losing your return. Now if you did do this religiously and maximized your savings return on this extra 2753 for the entire year how much would you get.

So if getting it trickled out over the year is the same mathematically as having had half of it for the entire year that is 1376.50 * 1.2% at ING = $16.52

So there it is, you gave the IRS an extra $16.52 (about 1 large pizza). If you got a $1000 refund you gave them 6 bucks (burger and fries). Again assuming you religiously transferred ever extra dollar to high yield savings twice a month and never spent any of it due to have a little extra money available to you.

For people who like the refund and the peace of mind knowing they will not owe tax at the end of the year, hey it cost you 6-12 bucks for a 1000-2000 refund in potential lost interest (of which you will need to pay 1/4 - 1/3 of that back to the IRS in taxes on that interest depending on your tax bracket).

Hakuna Matata, get the refund and don't sweat it. The lost interest aint worth a hill of beans.

I e-efiled for a couple of years, back when it was really really uncommon. I was getting a refund back then, so I'd file as quickly as possible. Recently, however, I've owed money, so I prefer to file by mail on the last possible day, on paper. I use Turbo Tax, so it's easy to e-file again if I'm ever owed a refund again.

@Apex - One situation where it could make a big difference not to give the government a loan of your money would be if you were trying to pay off credit card debt. $115 twice a month would make a huge difference in creating a debt snowball, and save a lot of money in interest at 18-21%. Just a rough guesstimate based off some of your calculations is that it's worth $250-300 over the course of a year. Something to think about.
I generally try to keep my taxes in the plus/minus $200 range at filing time, if I can. When one's income is steady over the course of a couple of years, you can get things fine-tuned to that point, and tax time doesn't become a big deal whether or not you owe or are owed a refund.


That is a superb point. If you are paying huge interest like 20% and you can apply the extra to the credit card bill that would make it a much more compelling case to try to worry about getting the refund as low as possible.

Hehehe, I almost do the same thing... In 2007, I waited until practically the last day and then clicked the efile button. If you sell to many stocks, you eat away your refund. It's still a positive since I made money off of the stocks, but the big reduction in the refund also slowed my desire to file early...

Oh, TaxAct offers free efiling for the federal tax, no income limitation like the others...

You and I are two peas in a pod. I agree with everything you've wrote! :)

We always had refunds until 2009. We used the extra monies - $1k-3k - to do major work on our home. It is now well situated and my utilities are low. It was an excellent way to save.

Last year I owed over $1k because I had not checked and changed my taxes after the death of my husband. We were both over 65 and I lost 2 deductions. I wrote a note on my 1040 and said I was uncertain of the accuracy of the figures. Would they please double check for me. Three weeks later I got a check for $300, told what line to check, and no penalty as a result. However, I checked the line they mentioned and did the worksheet. By question three, the sheet said to stop-I did not qualify. I asked my govt. teacher how to tell the IRS they made a goof. He said, "Very carefully." I keep the $300 available in case they ask for it back.

I do not efile. I am virtually computer illiterate and prefer paper. But, this year I will take my taxes to a preparer. I sold my husband's collection of toys and took a loss. So I want someone else to do the work for me and double check it after I do the figures.

I didn't eFile when it cost me extra to do it. Now that the software includes it in the cost I do. I know it still costs me, but its all part of the package now. It irks me to no end that I have to pay money to do something so the government can save money!

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