almost-accounting colleagues look forward to playing Ledgerman in Cones of Dunshire. I assumed the fact that I liked taxes was just my inner-nerd making itself known, or maybe more evidence that I should have majored in Accounting instead of English. But this year I found myself kind of hating the task. Because this spring, for the first time ever, I owe Uncle Sam money instead of getting a refund.
It's some pretty serious coin, too. We're writing checks to various governments for over two grand and, friends, having the government give me an interest-free loan is not as fun as it sounds. Writing those checks sucks, especially since it means we have less to invest and spend than we normally would.
But hey, we owed. As with all debt, eventually the bill comes due. And you know what? I've never really liked paying bills. It kind of pissed me off to write those checks.
I'd like to say that, since this is supposedly a personal finance blog, I've found some way to rise above the emotional aspect of money. But, if anything, writing and budgeting about money has probably had the opposite effect: we think about it more, and I find our emotions are tied up in it more as we cultivate the financial aspects of our lives.
Despite the excellent military protection and medical benefits that our taxes provide, I really felt some anger and resentment while I was writing those checks. This is normally the time of year that I get to feel happy about getting a big old check from the government. It's like Christmas, and my rich uncle, instead of sending me a sweater or a book, gives me what I really want: a big pile of money that I can blow on anything I want.
(Normally, what I want is a scooter. It makes no sense since we already have two, and both work fine. But go ahead and ask Mrs. Done by Forty. Every April she has to convince me not to use our refund on some two wheeled contraption, like this one. Only $1,250 for a vintage cafe racer, and it is so friggin cool.)
Anyway, instead of that conversation, we're having other ones, like how we can't go out to more fancy brunches this month, because the federal government needs more of our money, apparently.
Shouldn't I feel good about this scenario? We had more of our money available to us throughout 2015 to invest or spend, while the government lent us a couple grand without charging interest or penalties. And since we invested more of the family rubles in 2015 than we spent, I suppose we probably came ahead in that scenario. It was a good thing for the government to give us that loan, and to pay it all the following year without penalties or interest.
So why doesn't it feel better?
Anywhere you look online, you'll see sound advice about not giving the government an interest free loan. The argument makes sense on its face. Why pay more taxes throughout the year just to get it back, sans extra, the following April? There doesn't seem to be any benefit in getting a refund.
But it's kind of a specious argument, as Jason Hull notes. The kind of interest you'd make on your tax refund if you saved it throughout the year is laughably insignificant: $12.17, on average (assuming you got the average refund of $3,000, spaced out through the year, and if you put it in to a savings account, and you paid taxes on the interest gained). So yeah, twelve bucks is not a lot of money. The good folks at FiveThirtyEight have a handy calculator that shows what you might earn if you invested it in stocks instead (roughly $239) or paid off credit cards ($331).
No matter what you choose to put your tax refund in though, you're not going to get rich investing it throughout the year as opposed to the following spring.
The rub, of course, is that you might not do something smart with that extra $250 in your paycheck each month. You very well might spend it instead.
Of course, I want to go spend my refund, too. (Seriously, check out this Honda. It has a friggin skateboard for a seat and is only $1,800. Money please!) Still, Hull argues that I'm more likely to convince myself once a year to do the right thing, and save my big tax refund, rather than convince myself 12 or 26 times a year to put those "tax savings" to a good use.
That makes intuitive sense, and I think it's especially good advice for your average American household: give the government an interest free loan, count on yourself to make one good decision instead of twenty six good decisions, and come out ahead.
But my guess is that most of the people reading this blog are atypical, in that you likely have way, way better financial skills than your neighbors. Heck, we have evidence that you're doing better than the average American family, so maybe Hull's advice is not for you. For the average Done by Forty reader, are you better off underpaying your taxes a bit throughout the year, and netting a few hundred extra dollars by putting that money in the market?
On the other hand, maybe the juice is not worth the squeeze, when you consider how unhappy you might feel writing a check instead of getting a check when you do your taxes?
Most importantly, should Mrs. Done by Forty listen to reason, and agree to buy a motorcycle?
As we tend to do, let's let a survey decide, and let me hear it in the comments.
swanksalot at Flickr Creative Commons.