Avoiding a Large Refund

I chose a headline that I hoped would catch your attention – did it work? My goal was to have you think twice about the counter-intuitive statement in my title. The media and our society has conditioned many of us to anticipate a large refund when filing our tax returns each year and to regret a break even tax return status or to (gasp) owe a little bit of tax with the filing of our tax returns.

I often crush this perspective for my clients when I explain that it makes absolutely no sense to create a circumstance that produces a large income tax refund when filing income tax returns each year. Why would it be logical to pay in too much toward our tax liability throughout the year just to have the government hold our funds, earn interest on our funds, and then simply pay it back to us once each year when we file our income tax returns? I try to give perspective to my clients regarding this concept by offering to have them send their excess tax withholding to me throughout the year instead of the government. I tell them I will take great care of the funds for them for a year (earn interest for me) and then promptly pay them back the excess funds once they ask for it by filing their tax return. Ironically, many clients don’t buy into this generous plan from me, but are more than happy to sign up for the same plan with Uncle Sam or their home state. Go figure!

For me, the goal is to land each year somewhere between break even or to actually owe the maximum amount I can get away with without incurring any late payment penalties or interest. This result allows me to keep my funds in my pocket (and hopefully earning something) for the longest time frame possible.

The new tax law, effective January 2018, changed the rules quite dramatically – more than at any time for decades. Now that most of you have filed your 2018 tax returns, you now know what your bottom line was for 2018, the first year under the new tax. If you weren’t close to break even or owing a small amount, I would strongly recommend adjusting to your withholding or estimated tax payments for 2019 in an effort to get closer to breakeven at year end.

For our clients, our goal is to minimize their tax liability through proper tax planning and strategy and then to help them pay in enough through the year to cover their remaining tax liability. The goal is to get as close as possible to break even. This is in line with what Dave Ramsey teaches. We are proud to represent his program.

If you are not a current client of Weech Financial, we would love to meet with you to review your most recent tax returns filed and discuss changes you might make going forward. We offer a free initial consultation which provides a great opportunity to have this discussion. Please contact us to set up an appointment.

Mark J Weech, CPA