I’d Rather Owe Taxes Than Get a Refund. Here’s Why

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A tax refund isn’t free money. Keep reading to learn why one writer wasn’t too upset that she owed Uncle Sam this year. [[{“value”:”

Ah, tax season — when millions of your fellow Americans sit down to frantically calculate how much they owe in taxes so they can see if they overpaid, underpaid, or somehow broke even. It’s a fair bet that many Americans are excited at the prospect of having overpaid, because it means they’ll get a refund. The majority of us do — according to IRS data, almost 63% of taxpayers received a refund on their 2022 taxes.

I actually was owed a small refund on my 2022 taxes, but due to my employment situation, I didn’t end up receiving it back. Rather than using tax software to file my own return, I happily pay an accountant. And he generally rolls a small refund like mine (about $400 for 2022) into the next year’s taxes for his self-employed clients. For 2023, however, I owed Uncle Sam. This didn’t bother me in the slightest, though — and here’s why.

A higher tax bill wasn’t a surprise

In full disclosure, my 2023 tax bill came to almost $2,700 more than I paid in quarterly installments. I’m a full-time freelancer, so my clients don’t take taxes out of what they pay me. Instead, I keep track of my earnings and let my accountant know, so he can calculate an estimated quarterly tax payment for me to send to both the IRS and my state’s taxation office.

My estimates were based on 2022 earnings, but since I made more in 2023, they came up short. Plus, I also earned almost $1,900 in interest on the money I had in a high-yield savings account, adding to my tax bill.

It didn’t surprise me in the least to learn from my accountant that I owed extra taxes, and thankfully, my tax-planning activity saved this bill from being a hardship. I take a flat percentage off the top of every dollar I earn, and I keep it in my savings account until it’s time to make my quarterly payments. Since I save a higher percentage than I strictly need to, I had the extra money ready to go, and once I heard from my accountant about my finished tax return, I made the payments. No muss, no fuss.

I don’t like giving Uncle Sam an interest-free loan

You might wonder why I wasn’t annoyed by this turn of events, and the answer is simple. When you receive a tax refund, it means you overpaid your taxes for the year. The refund is simply the IRS returning your own money to you. It’s not “free money,” it was yours all along. And if you’d had access to it during the year, you might have been able to do some good with it.

Let’s say you receive the average refund for 2023 (according to the IRS, that number is $3,182 as of March 1, 2024). What could more than $3,000 do for you? It could have formed part of an emergency fund that could have saved you from paying interest on a credit card when you had an unexpected trip to the auto mechanic last year. Maybe you could’ve added it to your IRA and let it grow for the future. Or maybe you could have afforded a nicer vacation than the one you took.

Ultimately, I got to earn interest on the $2,700 extra I paid. My high-yield savings account is currently earning an APY of 4.35%, so $2,700 could earn me about $117 over a year if the rate stayed the same. Granted, I’d still have to pay part of that $117 to the IRS, since savings account interest is taxed as regular income. But I’d get to keep the majority of it. The IRS wouldn’t have paid me interest.

What can you do to shrink your tax refund?

Have I convinced you that a tax refund isn’t something to strive for? (And lest you think I’m alone in this attitude, my colleague Maurie Backman rarely gets a refund and is pleased as punch about it.)

If you want to receive more of your hard-earned income during the year, you’ll just need to adjust your tax withholding. You can play with the IRS’s withholding estimator, and then get in touch with your employer’s human resources department to update your W-4 form.

If you’re self-employed, it might be a bit harder to come up with an accurate estimate for payments, especially if your income varies. In this case, I recommend doing what I do, and saving more than you think you’ll need for taxes. If you come up short and owe money, you’ll have it ready to go — and if you’ve had it in a savings account, you might even have earned some interest on it along the way.

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