Taxes question

[JE3146]

Originally Posted by RevSmoke

Don't think I'm referring to you. In college I did the same thing, as I live paycheck to paycheck. I'm speaking of the guys (and/or gals and/or couples) who brag about the $5-$10K refund check.

$5k at simple intrest in a savings account is a bit more than a cheeseburger. Put into a money market is even more. A CD (that allows you to add throughout the year) even more. And, put it in a mutual fund is even more.

Peace of the Lord be with you.

We're talking more like 2k$ with our refund before education credits. Find me a CD with greater than 2% APY for a 6 month low yield and I'll applaud.

Fact remains Savings Account interest rates suck(even moreso for College Savings Accounts like what we both hold) and putting money in a CD after a year's worth of savings won't mature for another 6 months to however long. So the money comes far later and the interest again isn't going to be anything worth celebrating over.

I can fully appreciate not trusting 'the man' and keeping your money close to you, but doing it purely for the 'interest' is a null factor in my mind.

With the ease of online banking, money transfers and seeing that nice lump sum sitting in an account untouched, the ease of ability to spontaneously purchase something will create the possibility and probability of more negative impact on the average person's 'withholdings account' than the positives will ever gain.

[longknocker]

Good Points, Jordan, Considering The Current Economic Situation!

We are taxed too much and the government spends our money recklessly. I see both sides of the argument though.

[wayner123]

I have thought this back and forth for years. The main thing for me is like Jordan pointed out. Even if I was to put the adjusted income increase in an intrest bearing account the amount of interest would be negligible. And even then I wouldn't be able to touch it for a number of months to collect that interest.

The real problem lies when those who adjust their W4 now increase their lifestyle instead of putting it away. And that is the majority of our population. If you were to increase their salary they would find a way to spend that "new" money. Then if an emergency or they have to pay more for insurance, a new baby, etc comes along, they don't have that "savings" on which to fall back on.

Where it makes sense most to me is someone who has a large amount of debt. Say over 10k worth of debt. If that person can get back more throughout the year and pay down that debt, then it works out well. Just my thoughts on the matter.

[RevSmoke]

Originally Posted by JE3146

We're talking more like 2k$ with our refund before education credits. Find me a CD with greater than 2% APY for a 6 month low yield and I'll applaud.

Fact remains Savings Account interest rates suck(even moreso for College Savings Accounts like what we both hold) and putting money in a CD after a year's worth of savings won't mature for another 6 months to however long. So the money comes far later and the interest again isn't going to be anything worth celebrating over.

I can fully appreciate not trusting 'the man' and keeping your money close to you, but doing it purely for the 'interest' is a null factor in my mind.

With the ease of online banking, money transfers and seeing that nice lump sum sitting in an account untouched, the ease of ability to spontaneously purchase something will create the possibility and probability of more negative impact on the average person's 'withholdings account' than the positives will ever gain.

Originally Posted by wayner123

I have thought this back and forth for years. The main thing for me is like Jordan pointed out. Even if I was to put the adjusted income increase in an intrest bearing account the amount of interest would be negligible. And even then I wouldn't be able to touch it for a number of months to collect that interest.

The real problem lies when those who adjust their W4 now increase their lifestyle instead of putting it away. And that is the majority of our population. If you were to increase their salary they would find a way to spend that "new" money. Then if an emergency or they have to pay more for insurance, a new baby, etc comes along, they don't have that "savings" on which to fall back on.

Where it makes sense most to me is someone who has a large amount of debt. Say over 10k worth of debt. If that person can get back more throughout the year and pay down that debt, then it works out well. Just my thoughts on the matter.

There is one problem.

If you are counting on your return, you still have no given date when the money is available to you.

If there is an emergency in your income needs in September, you have squat till you get your rebate, February at the earliest??? There are states right now that are withholding sending back the refunds because they don't have the money. You want your money with those agencies?

OK, so the interest is negligible. I still like the adage, "It's my money, I'll use it when I want to."

Maybe will power is the problem. If the government is your willpower, your savior, your retirement, there are bigger problems. For that matter, stick it under a mattress - you don't have the interest, but at least you know it is safe.

Personal responsibility? Or nanny state to help us save?

I have a 15 & and a 13 year old. I give them a negligible allowance to teach them fiscal responsibility. !0% goes to the work of the Lord, right off the top. The rest is theirs to spend as they see fit. We buy everything for them. However, sometimes they want the name brand - I put what I'll buy next to the name brand - and then give them the $$ for the one I'll buy plus the amount that is the governor's cut for taxes - if they want the name brand, they have to come up with the rest. Sometimes they do... Oftentimes they don't. These are young boys, and there is a convenience store with candy, soda, ice cream, etc... right on the corner. It is a huge temptation, to which they sometimes succomb.

Here's the kicker. One took that $8.00 a month allowance and after offerings to God, and little things here and there, and some money saved from birthday gifts, was able to buy an Ibanez electric guitar and amp (I bought some headphones for him to wear when playing at certain times). The older one saved up for the rod and reel combo he had his eyes one and a pair of waders (didn't like the ones I handed down to him).

Willpower to save? It is a choice.

I do no banking online. I refuse to do it. I know it is easier, but it is also a temptation. I don't like it because it allows too many access points that can be compromised, it is an identity theft issue. I don't normally order online either, unless I use a fill as you use it credit card.

Someone changes their W-4 now, with the decision they are going to put $XX.00 away every pay period isn't going to have a problem. Yes, it takes some disciplined willpower. But everyday we each have responsibilities and must be disciplined. Hundreds of choices each day. I could give in to a bunch of things that would ruin my life just as surely as spending what I am supposed to be saving.

I guess it really boils down to this simple issue with me, I like having access to what is mine, when I need/want to have access to it. And I'm not going to entrust what is mine to a bunch of idiots in Washington and/or Madison who cannot live within their own means.



Peace of the Lord be with you.

[wayner123]

Just for a point of reference, Florida has no State tax.

Also, if you have an emergency in September as your example above, you have 2 options. One, you can keep that large amount in a liquid account and use it when needed. Two, is to put it on credit, then pay off when the return comes in.

I agree wholeheartedly on the fact that many people need to learn fiscal resposibilty, but is that best learned through receiving that amount throughout the year vs a lump sum? Maybe, maybe not.

[cbsmokin]

If you can, lower the amount of taxes taken out of your check and increase your 401(K) deposits by a similar amount. This is the best possible scenario for anyone who can do it. The long term reward will be well worth the short term scarifies.

I also tend to think the "refund" craze applies more to younger people, myself included. When I was in college I looked forward to that money every year. I also used to be an employee vs. being the owner. Running a business will certainly change your thinking about taxes and money. Now, I don't even have a clue what a refund is. All I do is write checks that take my breath away.

[PeteSB75]

I did receive a pretty sizable return this year. I bought a place in 2008 and last year was the first I've paid interest all year, so my deductions are quite a bit larger than previously. I was thinking that I should start witholding less and have my money throughout the year instead of as one lump sum, so I did the math.

Let's say I reduce my witholding to cover my refund amount this year, about $4700 - figure that at $400 a month extra cash. I put that money, every cent, into a savings account. Now, I don't know about you guys, but my savings account is earning 0.5% interest right now. So, by the end of the year, I have 4811.015 in my savings account. How is this worth it to me? If I put it into a money market, maybe I earn 2%, at that point I've got an extra $44 at the end of the year. Personally, I would need to be guaranteed at least 4-5% return on that money to make it worth changing, which means I'm likely investing in some sort of mutual fund, with all the associated fees, additional taxes, etc.

Maybe it's worth it, but I can make a single deposit in February when I get my refund and not worry about it every month for a tiny difference in the amount of income i am earning.

Basically, what I'm getting at, is you're absolutely right - the government is making millions off the interest it's earning on money we've all paid in witholding. But the potential benefit to us of changing the behavior is so negligible, I just don't see it changing.