Now What?
For some reason, some believe it’s better to receive than to give when it comes to filing taxes. While that may help your savings account, it’s not always a great idea. Here’s why.
You are the bank. You are giving the IRS an interest-free loan. And now with higher interest rates, you could be giving away a lot of earned interest on that overpayment to the government.
Debt costs a lot. Consider lowering your withholdings throughout the year and using the extra money to pay down your debt. Even better, the benefit of paying down a home loan in the early years of a mortgage can yield tremendous savings!
IRS identity theft is common. The longer you have your money in the hands of the IRS, the higher the chance some unsavory character is going to try to get it for themselves. Should this happen to you, the IRS will fix the problem, but it is typically taking two years according to a recent taxpayer advocate report. In the meantime, there is paperwork and hurdles to overcome while your refund is delayed.
You could fund something else. Instead of money being parked at the IRS, you could be investing in your retirement or funding a Health Savings Account to pay for medical expenses in pre-tax dollars! So in addition to saving money, you could also be lowering your tax bill!
So you received a refund. Congratulations. Now you have an opportunity to make tax tips work for you.