I enjoy getting a big tax refund every year but a friend said that getting too much was a mistake. How could this be?
Getting a tax refund is much better than paying, but the key here is that it is a refund of dollars you paid in taxes that exceed what was required. This means you pay more each month than is necessary and you wait until the next year to get it back. During this year, this money should be in your account, earning interest, not in the government's. Ideally you want to neither pay nor receive a refund, but that is not likely to happen with variances in income, deductions and tax laws. There is a penalty for paying too little. The rule is that you must pay the lesser of 90% of your taxes owed, by the year end, or the amount of your taxes from the previous year. You should adjust your withholding to reach that zero mark, but be sure you don't under-pay.
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Getting a tax refund is much better than paying, but the key here is that it is a refund of dollars you paid in taxes that exceed what was required. This means you pay more each month than is necessary and you wait until the next year to get it back. During this year, this money should be in your account, earning interest, not in the government's. Ideally you want to neither pay nor receive a refund, but that is not likely to happen with variances in income, deductions and tax laws. There is a penalty for paying too little. The rule is that you must pay the lesser of 90% of your taxes owed, by the year end, or the amount of your taxes from the previous year. You should adjust your withholding to reach that zero mark, but be sure you don't under-pay. 