Every spring, retailers prepare for U.S. consumers waiting their Federal Tax Refunds. The IRS sends out nearly 100 million refunds, and everything from airfares and automobiles to zylophones goes on sale to entice taxpayers with “money to burn” in their pockets. This spring alone, retail sales increased .04 percent in March, according to the Commerce Department.
Some people even think of their annual refund as part of their financial “strategy” (and I use the term “strategy” loosely). For instance, I have met some people who plan and take an annual vacation funded by their tax refund, or even put a portion of their refund into savings. A curious strategy indeed, since the money now being put into savings had to first be loaned interest-free to the government for many months.
Which leads me to the five reasons you DON’T want a tax refund after all…
1. Lost Opportunity Cost
Loaning your money interest- free to the IRS is a poor financial strategy that violates #3 of the 7 Principles of Prosperity. Principle #3 is to “measure lost opportunity costs.” What could you have done with the money had it been in your control, adding to your cashflow and moving it in your personal economy instead of being held hostage by the IRS? Perhaps it could have earned you interest, prevented credit card usage, or been put to use in an investment.
2. Loss of Control
Waiting for the IRS to collect and later refund your money also violates #5 of the 7 Principles of Prosperity, which is to “control your money.” The money is literally “out of your hands.” When you keep that excess money to start with, you keep your options with it.
3. The IRS makes a poor Savings Account
If you need a savings account, then get one! Every person should have an emergency account and where money can be accessed easily when needed. Your tax refund doesn’t qualify as savings, because if you need the money before you get your refund, you’ll be out of luck. (Or, if you’ve filed already, you’ll have to pay usurious fees to have a third party loan you the money during the interim).
4. It Represents Scarcity Thinking and Bad Habits
Perhaps at the core of the habit of overpaying the IRS so that you get a refund is the fear that, if not for taxes, you’d never be able to save the money yourself. This violates the #1 Principle of Prosperity to “think from a prosperous mindset.” Let go of that fear and learn to trust yourself by establishing regular, automatic savings habits. If you want to take a vacation, plan and save for it. Building up your ability to manage your money according to your own priorities is a skill you can use all year long.
5. Even the IRS says it’s a bad idea.
Even the IRS tells you not to overpay your taxes and count on that money coming back to you in a lump sum each spring. The IRS Website lists risks such as garnishment for debts and warns taxpayers, “Don’t trust your future savings to a huge federal tax refund that may or may not materialize.”
And that, my friends, is advice you can take to the bank.
Try This: If you’re getting a refund, instead of letting it “burn a hole” in your purse or pocket, deposit it into a savings account or a Prosperity Flow-Through Account.