Thursday, March 4, 2010

Death and Taxes

The only two things for certain in life, right?
I got a new job in 2009. A good job with amazing benefits, making a bit more money. This meant that when the husband and I set out estimating our tax bill, we were convinced we had under-paid throughout the year, and would end up owing money. Enough money that we would started a separate "Tax Bill" savings account right then and there.

Well, since that day, our taxes have actually been done, and we can expect a refund! Sweet! much prefer to get money back, as opposed to owing.

Last year, our taxes were split between Texas (no state income tax, or car-as-property tax) and North Carolina (state income tax, and car-as-property tax). Receiving the car property tax bill in NC at the end of November was a rude surprise, but shows the importance of knowing tax laws where you live/are moving and of having some sort of a cushion or reserve money. Also, last year, our federal refund roughly equaled our state bill. So, we came out even. Not bad. Even is still preferable to owing.

Now, I am quite happy about the prospect of getting a nice little chunk of change back sometime in the next 4 to 8 weeks, but it reminded me of something a professor I once had said. No, not a business or econ professor (two subjects I happily, although stupidly, managed to avoid in college), but a music professor.

Before my gen. ed. music class started one day in April, those of us who were early got to talking about taxes. I don't remember much of the actual conversation, aside from my professor stating that he tried to work it so that his refund was around $100 or less each year. I asked why. His reason was that way he knew he wouldn't owe money, but he would also be able to actually use his money during the year.

In the years since, that is hardly the only place I've heard the argument for arranging to receive a smaller refund. I've heard about, and read articles that call tax refunds "interest free loans for the government." Or this article, which does also address the "refund as savings plan (bad idea)."On the other hand, receiving a sizable refund check allows people to make substantial student loan payments, put money down on a home, start an emergency or retirement fund, or go on vacation.

Really, I am of two minds: 1) I really could use the money I earn as I earn it. Kind of need it, actually. (2) As much as I think I need the money as I earn it, I really, really don't want to owe money come April.

In years past, I was a student, or transitioning to or from being a student, or working different jobs, or moving  with such frequency that it was difficult to plan out what my annual income would be, and therefore what my taxes owed would actually be.

Now, though, with the aforementioned good job, we are more stable, and have the luxury of being able to tell in advanced what paychecks will be, and annual income. As I think about it, my music professor had a good idea: work it out so that you get a small refund, that way, you know you won't owe.

I still have the mammoth compilation CDs from that class, but aside from said CDs, that brief conversation is about all I really remember of the class.

In which camp do you fall: do you want to receive a big refund, or no refund?

1 comment:

loreleimarsh said...

I'm good at struggling with little money. It means we determine what really matters and put that first. We cut a lot of extraneous stuff because we simply can't afford it. I would like to get money back to save. It's not the wisest choice, but how often do you get a chunk of money with no real ties on it?