Author Topic: It's not about your refund amount  (Read 1749 times)

tips^up

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It's not about your refund amount
« on: April 16, 2019, 10:38:48 AM »
I don't understand why so many people think the amount of their tax refund is the only thing that matters.  It's an interest free loan you are giving to the government.  It's not the refund, or what you owe, its the total taxes paid that matters.  I've heard smart people, in money smart jobs, totally hung up on refunds like total morons.  Just ranting here, but it really surprises me how misunderstood this concept is.

BTW - my wife and my tax rate was down about 1.5% this year. 

walkwalkwalk

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Re: It's not about your refund amount
« Reply #1 on: April 16, 2019, 11:16:49 AM »
I don't understand why so many people think the amount of their tax refund is the only thing that matters.  It's an interest free loan you are giving to the government.  It's not the refund, or what you owe, its the total taxes paid that matters.  I've heard smart people, in money smart jobs, totally hung up on refunds like total morons.  Just ranting here, but it really surprises me how misunderstood this concept is.

BTW - my wife and my tax rate was down about 1.5% this year. 

Also matters what the taxable income was. If your income went down, then that makes sense. If it stayed the same, then it is still good. If it went up, then the 1.5% looks even better.

StarBright

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Re: It's not about your refund amount
« Reply #2 on: April 16, 2019, 11:33:37 AM »
You are, obviously, factually correct. If you pay less in taxes over a calendar year than the year before (while making the same or more), then you got a tax cut.

I think the issue with the tax roll out for the Joe/Jane everyman comes down to a matter of perception though. People expect a tax cut to feel tangible.

We know that for folks in lower to medium income brackets (especially those in hourly jobs with fluctuating paychecks) the cut wasn't enough to really be noticeable (I remember reading $1.50 a paycheck in some cases) and in many cases it could be largely offset by rising insurance costs.  To then owe or get back less at the end of the year doesn't feel like someone is helping you out.

Additionally many, many people use their tax refunds as forced savings on purpose so it hurts to get less.
« Last Edit: April 16, 2019, 12:55:00 PM by StarBright »

katsiki

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ender

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Re: It's not about your refund amount
« Reply #4 on: April 16, 2019, 02:19:01 PM »
Almost everyone would be upset if the government withheld the exact amount throughout the year.

therethere

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Re: It's not about your refund amount
« Reply #5 on: April 16, 2019, 02:24:34 PM »
I think this year more people are upset because the tax changes messed up employer withholdings. A ton of people are complaining that they have to pay this year when they usually get a refund. While I understand the math on this, to workers who don't this is a huge change. I'm on top of my taxes and the withholdings screwed me up too. I was .5% away from having to pay an underpayment penalty.


Boofinator

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Re: It's not about your refund amount
« Reply #6 on: April 16, 2019, 02:36:49 PM »
Even better than paying zero: Owing the government money! I think I squeaked under the 15% special exemption this year.

http://money.com/money/5505876/the-irs-is-making-it-easier-to-avoid-tax-penalties-this-year-heres-how/

Granted this is was not without some luck, so I went ahead and increased my withholding for this year.

jps

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Re: It's not about your refund amount
« Reply #7 on: April 16, 2019, 02:48:45 PM »
I got hit with an underpayment penalty this year. My effective tax rate went down while my income increased.

I'm okay with it.

solon

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Re: It's not about your refund amount
« Reply #8 on: April 16, 2019, 02:52:35 PM »
I had more income this year than last year, but I paid less tax, both as a real amount and as an effective rate. Which is awesome!

But I'm still bummed my refund was so small.

tips^up

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Re: It's not about your refund amount
« Reply #9 on: April 16, 2019, 03:09:09 PM »
Income was nearly the same year-over-year, mostly due to missed rental payments by the "snowboarders"...  Taxes and effective rate dropped slightly.

Ideally, we would breakeven, but I'd rather owe $100 than get $100 refund.

iris lily

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Re: It's not about your refund amount
« Reply #10 on: April 17, 2019, 12:40:38 PM »
I don't understand why so many people think the amount of their tax refund is the only thing that matters.  It's an interest free loan you are giving to the government.  It's not the refund, or what you owe, its the total taxes paid that matters.  I've heard smart people, in money smart jobs, totally hung up on refunds like total morons.  Just ranting here, but it really surprises me how misunderstood this concept is.

BTW - my wife and my tax rate was down about 1.5% this year.

Please stop making sense.

This is an excellent opportunity for CNN et al to dis Trump, so let those mainstream media hacks have their day!  For those followers who believe them and vote accordingly, they deserve the politicians they get. Sadly, I will get those same politicians.

thd7t

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Re: It's not about your refund amount
« Reply #11 on: April 17, 2019, 01:12:53 PM »
This argument is hilarious.  The average (not median) tax refund is $2,800, but only one paycheck has really been held for a whole year.  The website that talks about losing 3% to inflation is just silly, because your pay isn't adjusted throughout the year for inflation.  Even in conditions of good returns (say 10%), you're losing out on $140.  It's nothing to sniffle at, but it's also not a huge deal.  The median refund is undoubtedly lower, so most people are probably looking at under $100 difference over the course of a year.  Even then, the opportunity cost is only 1 year, the money is still available afterward.

DadJokes

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Re: It's not about your refund amount
« Reply #12 on: April 18, 2019, 01:21:07 PM »
Because most people think emotionally, not logically. It's also why people are so successful on Dave Ramsey's plan. It takes into account psychological factors. It's also why the entire world will not adopt the FI ways- it requires a certain type of thought process.

I'd be willing to bet that if members of the FI movement took a personality test like the Myers-Briggs, people would score very similarly, and it would be dominant in areas that the population at large does not score highly in.

StarBright

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Re: It's not about your refund amount
« Reply #13 on: April 18, 2019, 01:40:29 PM »
If I recall, mustachians were heavily INTJ, INTP and INFJ (like that made up over 50% of poll respondents)

Telecaster

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Re: It's not about your refund amount
« Reply #14 on: April 18, 2019, 02:18:56 PM »
This argument is hilarious.  The average (not median) tax refund is $2,800, but only one paycheck has really been held for a whole year.  The website that talks about losing 3% to inflation is just silly, because your pay isn't adjusted throughout the year for inflation.  Even in conditions of good returns (say 10%), you're losing out on $140.  It's nothing to sniffle at, but it's also not a huge deal.  The median refund is undoubtedly lower, so most people are probably looking at under $100 difference over the course of a year.  Even then, the opportunity cost is only 1 year, the money is still available afterward.

The other thing is the withholding is $115 a paycheck or whatever.   So if you are really hard core and actually save all of those dollars, then yes it is better to lower your withholding.  But most people, and probably all but the most hardcore Mustachians would spend at least some of it.   So most people are probably better off getting a once a year windfall than a little extra each check.

One other thing is that many people were expecting a check of certain size,  maybe even planning on a check that size, and were understandably disappointed when the check was small than they planned. 

phildonnia

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Re: It's not about your refund amount
« Reply #15 on: April 18, 2019, 02:29:50 PM »
The misunderstanding about refunds has undoubtedly been perpetuated by the media, who are rather desperate to find something -- anything -- to complain about recent tax changes. 

I always tell people about a secret weird technique to increase your refund: Just file form 1040-ES at any time, and you can choose how much extra refund you'd like to receive.  Trump doesn't want you to know!  Obviously, I mean this ironically, but it does get the discussion focused on the right things.

In the same vein, there are many effortless ways to decrease your tax liability.  I plan to give myself a big tax cut in a few years.




BTDretire

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Re: It's not about your refund amount
« Reply #16 on: April 19, 2019, 09:10:27 AM »
I don't understand why so many people think the amount of their tax refund is the only thing that matters.

 I have followed this closely since I saw an ABC world news report by David Muir, where he told of the bad news that refunds were down,
with out mentioning that tax bills were down for the average household $1,400.

Quote
It's an interest free loan you are giving to the government.
 It's not the refund, or what you owe, its the total taxes paid that matters.
 

Exactly correct
Quote
I've heard smart people, in money smart jobs, totally hung up on refunds like total morons.  Just ranting here, but it really surprises me how misunderstood this concept is.

 With the hundreds of media reports about refunds being down and only that information, it is understandable that the financially uninformed
believe what the media emphasizes  .
 A fair media would tell the important part of the truth (reduced tax bills) not just the part that they can use to make Trump look bad.

Quote
BTW - my wife and my tax rate was down about 1.5% this year.
Ours was down also.


Proud Foot

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Re: It's not about your refund amount
« Reply #17 on: April 24, 2019, 08:11:44 AM »
I don't understand why so many people think the amount of their tax refund is the only thing that matters.

 I have followed this closely since I saw an ABC world news report by David Muir, where he told of the bad news that refunds were down,
with out mentioning that tax bills were down for the average household $1,400.

 With the hundreds of media reports about refunds being down and only that information, it is understandable that the financially uninformed
believe what the media emphasizes  .
 A fair media would tell the important part of the truth (reduced tax bills) not just the part that they can use to make Trump look bad.

It wasn't just the media outlets saying this, there were many Democrat Senators and Representatives saying the same thing on social media. Only representing the fact that refunds were down without also stating the correlating information about actual tax bill. Of course that information does not support their narrative of the TCJA being a bad thing and hurting the middle class. Personally I ran my 2018 taxes under the old rules and I ended up with a tax bill of about $4k more than what I filed on my 1040.

radram

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Re: It's not about your refund amount
« Reply #18 on: April 24, 2019, 09:25:01 AM »
I agree that a "lower" return is only part of the story. Lower rates is also part of the story, as is lower withholdings. I agree you need to see the whole picture, and articles that only mention a part to feed whatever position do a disservice to the issue as a whole.

But in my opinion, the entire topic is a disservice, because income taxes themselves are a portion of a whole, and it is being spun by everyone to feed whatever position they are interested in spinning.

Sure, lower taxes are generally better for an individual. I look at the tax cut much differently. For a COUNTRY, lower taxes is shouting, "yes, I managed to give myself a big fat pay cut... Hooray!!". That celebration is taken alone, since the tax act, taken alone, is projected to raise deficit spending by about $1.9 trillion in the coming decade.

A lower income in a household is generally a bad thing, unless the household changes their spending to make up the difference. Moving to a lower cost of living area and taking a job that pays less, but still coming out ahead is a prime example of this.

I am not at all a fan of the recent tax cut, because it takes the easy decision(tax cut) while ignoring the hard decisions(spending cuts). I consider that irresponsible governance. We have been given a decade long economic boom, comparable to the roaring 20's, and we have still managed to spend WAY more than we take in. If we can not reduce deficits in a booming economy(the BEST EVER, am I right???), then when the fuck are we going to do it?

In my opinion nobody, ESPECIALLY moustachians, should cheer lower incomes for the government until the cuts offset the reduction in taxes.

Sibley

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Re: It's not about your refund amount
« Reply #19 on: April 24, 2019, 09:32:27 AM »
There is one overarching factor that I don't see mentioned:

People don't understand taxes. Period. Since they don't understand taxes, they latch onto the only thing they think they can understand, and that is going to be the most visible thing. In taxes, that's how much you get back/pay in April.

The solution is to remedy the ignorance. Not so easy.

MarciaB

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Re: It's not about your refund amount
« Reply #20 on: April 27, 2019, 12:31:43 PM »
There is one overarching factor that I don't see mentioned:

People don't understand taxes. Period. Since they don't understand taxes, they latch onto the only thing they think they can understand, and that is going to be the most visible thing. In taxes, that's how much you get back/pay in April.

The solution is to remedy the ignorance. Not so easy.

I couldn't agree more! I was a VITA tax volunteer this year and heard many people express disbelief, or joy, or regret, or disdain or...[fill in the blank] about their refunds (or lack of refunds) as if somehow withholding was the same thing as the tax due. Very hard to explain this to taxpayers (and I usually didn't try, I just made soothing noises because anything I said wasn't going to get through anyway).

I have no answers as to how to simply the tax code or make it more transparent or whatever. I just feel like a soldier on the front lines usually.

DadJokes

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Re: It's not about your refund amount
« Reply #21 on: April 29, 2019, 09:08:34 AM »
There is one overarching factor that I don't see mentioned:

People don't understand taxes. Period. Since they don't understand taxes, they latch onto the only thing they think they can understand, and that is going to be the most visible thing. In taxes, that's how much you get back/pay in April.

The solution is to remedy the ignorance. Not so easy.

I couldn't agree more! I was a VITA tax volunteer this year and heard many people express disbelief, or joy, or regret, or disdain or...[fill in the blank] about their refunds (or lack of refunds) as if somehow withholding was the same thing as the tax due. Very hard to explain this to taxpayers (and I usually didn't try, I just made soothing noises because anything I said wasn't going to get through anyway).

I have no answers as to how to simply the tax code or make it more transparent or whatever. I just feel like a soldier on the front lines usually.

I'm glad it hasn't happened since, but my first year of doing VITA (2016 I think), I had to console a couple different people who had large tax bills. I am certainly not emotionally equipped to console crying strangers.

While I know not everyone is mentally wired the same, but I can't imagine myself not knowing what my bill/refund is going to be a year before I file, much less the day of.