If you weren’t aware, it’s tax season! I thought I’d brighten your day by giving you one more thing to think about when it comes to your income taxes.

Before I go any farther, though, I do have to do my lawyerly duty and provide a disclaimer – I hope this post makes you think, but I hope you don’t ACT until you talk to your accountant.

Whew. Glad that’s over with. Now let’s get to the good stuff.

It seems to me that ever since I could understand what income taxes are the idea of getting a refund has been promoted as a good thing.

I mean, I get it, who doesn’t like getting a check every April, right?

But, the more I’ve learned about taxes and the more I’ve learned about money, the less I am excited about refunds at tax time.

Let’s start at the end – the reason it’s called a refund is you have overpaid into the tax system.

You owed x, you paid y, so you get the difference.

So the money you are getting back is technically already yours.

It’s NOT extra.

You earned it.

Now that we’ve established that, let’s look at the implications of that.

First, that extra money you gave the government essentially amounts to an interest free loan for Uncle Sam.

Every paycheck they get a little bit of your money to hang onto for free.

Then, when the time is right, they give you back the overage, with no interest.

That’s not the kind of business deal I’m trying to do.

Second, on the opposite side of that coin, is that money you loaned to the government interest free could have been earning YOU interest during the last year.

When it comes to compound interest, every little bit invested counts.

And every little bit held back from compounding can add up to hundreds of thousands of dollars over time.

So, what should you be doing?

First, talk to your CPA and make sure you are taking the right deductions on your W4.

Second, talk to your financial advisor (don’t have a financial advisor? You should! Let me know and I’m happy to introduce you) about how to automatically invest that little extra in your paycheck every month.

In a very short amount of time your bank account will be growing rapidly and you can rest easy knowing you only paid the government exactly what you were obligated to.

Have a great week, and as always, if you have any specific things you’d like me to talk about here, please let me know. Always looking for ideas!

Cheers,

Christopher Small
CMS Law Firm LLC

PS – of course we’re here if you need estate planning or probate help. Click here to talk estate planning. Click here to talk probate.