Tax Returns and Walmart

[DocMcStuffins]

So my wife comes home from Walmart shopping before a storm was about to hit our area.  I asked if it was crazy there and she tells me that the parking lot was full but that there was no one in the grocery section.  She rounds her way to the back where the electronics section is and she sees people with  70 inch TV's and expensive gaming systems.  My wife is originally very confused as she sees some people she knows who are not in good financial situations with these items.  One of these folks is her friend who tells her everyone is getting their tax return.  The lady has gotten a gaming system and explains that her son already has one but it is 3 years old so he needs a new one.  There is alot of "I deserve" going on with tax returns.  That same person is currently moving from one rental into another and has no emergency or back up funds if anything ever goes wrong (ie pay check to pay check).  I am not judging but just observing the craziness that is a tax refund. My wife and I just talked about it and couldn't fathom living pay check to pay check and not using that money as an emergency fund.  So many better uses........even if one just took a "regular" 2500 rebate and invested at 8% along with a "normal" / non-mustachian 30 year working career/investment, that person would end up with > 300K.  That would certainly help alot of 50 year olds have more options in life.  Any thoughts on the craziness that surrounds Tax Returns, I am sure this is discussed each year on this board and I am sure some of you have a story or two to share. 

[Andrew928]

It is pretty silly and frustrating, here at work people use their tax returns to bail other people out and they will complain that they only got 6K this year and should have another kid so they can get more and continue to not work. I have a buddy in Chiraq, I mean Chicago who says that in the low income areas people actually have "Refund Parties" where they blow it all in one night.

[DocMcStuffins]

Refund Parties........wow now I have heard of it all.  The thing is for me as a business owner, I always want have as little of a return as possible.  That meant I had a relatively predictable year and planned well.  No free lending of cash to the gov.  By the way, what a great scheme it has been to tax people before they ever see their money.  I know there is a study about how when you do it this way, no one ever makes much noise about having their money taken from them..........now what would happen if we did it old school, like the Roman Empire, where you actually touched the money you made and then had to give it to Caesar.  No wonder there were so many revolts about taxes in history.  Now look at us, we blindly give our 0-50% to our government first then when we purchase something / anything, we are taxed more. 

[jjface]

Their loss. 

I suppose people think of it as free money instead of realizing they just overpaid tax. 

[coolistdude]

Their loss. 

I suppose people think of it as free money instead of realizing they just overpaid tax.

This. The day I realized this, was the day I realized in addition to paying taxes, I also give them a 0% loan. Part of the MMM spirit is changing the game. So, now I have adopted getting no refund and investing it instead.

This helps me conclude that processing has been outsourced to advertising.

[thd7t]

Their loss. 

I suppose people think of it as free money instead of realizing they just overpaid tax.

This. The day I realized this, was the day I realized in addition to paying taxes, I also give them a 0% loan. Part of the MMM spirit is changing the game. So, now I have adopted getting no refund and investing it instead.

This helps me conclude that processing has been outsourced to advertising.

Yeah, the 0% loan to the gov't thing is kind of a joke.  If you have a $1000 refund, you've kept that out of the market for an average of 6 months.  That's about $35 lost at a 7% return.  Then again, with how the market did last year, you would have come out ahead by "giving the government a loan".

[gliderpilot567]

The same thing happens every year in Alaska when people get their Permanent Fund dividend checks (usually around $1k-2k per capita, varies a lot). It's advertised all over the place in the fall - spend your PFD here! New TV! New car!

For a large family (since each resident gets the dividend, even infants, as long as they physically spent enough time in the state the previous year), it can be a substantial amount of money - often enough to pay a few months rent, mortgage, utilities, property tax for the year, so many options... or, God forbid, invest!!

I'm sure that there are many people who do sensible things with this cash, but for so many it just evaporates like all "found money" does.

"Refund parties..." Now that's an idea the Mustachian community might actually get behind. See how far we can stretch our tiny piddly refunds! I would love it if every year, my refund check is just enough to buy a nice 6-pack of craft beer or something.

[Need2Save]

Thank you for enlightening me on Alaska's Permanent Fund. I never heard of this - I had to look it up.  Crazy! 

Year   Amount
2015   $2,072.00
2014   $1,884.00
2013   $900.00
2012   $878.00
2011   $1,174.00
2010   $1,281.00
2009   $1,305.00
2008   $2,069.00 + $1,200 Alaska Resource Rebate
2007   $1,654.00
2006   $1,106.96
2005   $845.76

[coolistdude]

<rant>My Facebook friend just posted asking what he should do with his "sizable" tax refund. He was considering buying an Xbox, a computer, music equipment, or saving it (probably for a big ticket item like a car, but maybe he has an EF). What's funny is that it is a bragging point to have a refund. For anything else, if you regularly overpayed for something, people wouldn't tell you your smart for that, they'd tell you how dumb you are to loan money for nothing. I'm not bitter about this guy, he just makes me shake my head sometimes. Back when I was Craigslisting and he was unemployed, I gave him an old Apple tower worth about $100-$150 to sell since I didn't have time. Not even a thank you lol, or a "hey bro. Sold it for $120! Yay!" People who aren't money/goal conscious often just do not understand why their decisions are non-linear leading to not having money. </rant>

[WSUCoug1994]

What is a tax return? lol

[coppertop]

I have a pet peeve and realize that I may be seen to be a PITA:  But a tax returnis the form you file.  A tax refundis the money you get back if you have overpaid.  This always drives me crazy.

[dude]

Refund? What refund?!  I have to cut a check for $3,800 this year! (but at least that $3,800 was in my account earning close to 3% last year instead of in Uncle Sam's coffers).

[WSUCoug1994]

I have a pet peeve and realize that I may be seen to be a PITA:  But a tax returnis the form you file.  A tax refundis the money you get back if you have overpaid.  This always drives me crazy.

My apologies - What is a tax refund?

[Kaspian]

When tax refund time happens there's always a noticeable spike in my Facebook friends' Mexico and Cuba photo postings.  Now these are alll people I *know* have no savings at all.  At all!!   It's like some sort of forced vacation savings program for them.  And of course, they never do their own taxes--even when they're super simple and they could do it in under an hour with software.  A $10 tax program is beyond them--better to pay a tax professional $300, get $1000 and go on vacation.  Yay!!

[FireDAD]

I screwed up my taxes royally this year, big time. My refund from state and federal was just over $11,000. (we bought a used electric car this year and our state still gives a credit for that, we also had significant moving expenses from moving cross country on top of a bonus that didn't hit until January, etc)
I could not imagine the people that do this every year and take a vacation, buy useless shit, etc. I spent a small amount of a new chicken coop to increase our flock that I was planning on buying anyway and the rest is going right into this cheap stock world we have right now.
However, I'm glad someone out there is spending all their money to increase the value of my investments.

[PathtoFIRE]

Some tax credits are refundable, so it's possible that for some people, they withheld essentially nothing throughout 2015, and are getting refunds because of this, so no 0% interest loan to the government. Still wouldn't excuse what we here would consider poor use of the money. I'm getting a very large refund this year because of an electric vehicle credit for a purchase at the end of the year, which I didn't plan or account for throughout most of the year, and I've already spent it !....on our 2016 backdoor Roths!

[zephyr911]

HAY OP I'M GONNA BE A DICK FOR ABOUT 10 SECONDS.

Your tax RETURN is what you file with the government.

Your tax REFUND is the payment they send you if you overpaid.

Thanks, and I'm sorry. ;)

[coppertop]

HAY OP I'M GONNA BE A DICK FOR ABOUT 10 SECONDS.

Your tax RETURN is what you file with the government.

Your tax REFUND is the payment they send you if you overpaid.

Thanks, and I'm sorry. ;)

I see I am not the only person to be annoyed by this.  :)

[zephyr911]

I see I am not the only person to be annoyed by this.  :)

If I hadn't spend those years as a tax preparer, I might not be QUITE so pedantic. I feel compelled to be a little apologetic, but not enough to stop doing it. Precision does matter sometimes.

[AlwaysLearningToSave]

Their loss. 

I suppose people think of it as free money instead of realizing they just overpaid tax.

This. The day I realized this, was the day I realized in addition to paying taxes, I also give them a 0% loan. Part of the MMM spirit is changing the game. So, now I have adopted getting no refund and investing it instead.

This helps me conclude that processing has been outsourced to advertising.

Yeah, the 0% loan to the gov't thing is kind of a joke.  If you have a $1000 refund, you've kept that out of the market for an average of 6 months.  That's about $35 lost at a 7% return.  Then again, with how the market did last year, you would have come out ahead by "giving the government a loan".

Before discovering MMM I claimed 0 exemptions to make sure enough was withheld and always enjoyed receiving a refund.  That was even having had people explain to me that it is stupid to give an interest-free loan to the government.  I just saw it as a form of forced saving-- sure its an interest-free loan to the government but it I reasoned that it would hardly earn anything better in my savings account and if the government has it, I won't fritter it away.  I saw it as easier to make a responsible decision with a large chunk of money in the form of a tax return than many smaller chunks of money.

The disconnect for me was that I didn't realize I actually could get a better return on the money by reducing my withholding and paying down student loans.  A guaranteed 6.8% return beats the heck out of 0%.  It was only when someone on the forum pointed that out to me in response to my case study the light bulb went on for me.  I now have a thorough understanding of tax withholding, adjust my withholding as necessary, and aim to have no refund/no tax owed.  And I will continue to do so after the student loans are paid off because I now know that I can get a better return even if it is not the guaranteed 6.8% return from paying off student loans. 

I never made completely stupid financial decisions with my tax return like these Walmart shoppers.  But a lack of understanding of how tax withholding works coupled with a lack of understanding of investment options resulted in me just not knowing any better.  I imagine there are a lot of people who are like I was-- they genuinely try to make good decisions but just don't know any better and end up taking advice from other people who also don't know any better.  I feel bad because most of them will probably never see the light. 

[merula]

I see I am not the only person to be annoyed by this.  :)

If I hadn't spend those years as a tax preparer, I might not be QUITE so pedantic. I feel compelled to be a little apologetic, but not enough to stop doing it. Precision does matter sometimes.

FWIW, this was my first reaction to reading the post. It is annoying.

[mtn]

Wifey and I will be blowing the refund on replenishing our emergency fund (dipped into it for a car), paying rent, and the rest is going to her student loans.

Kinda interesting, that is the same thing that is happening with my annual bonus that comes in a month. YAY! Oh wait, except that it will just be going into the student loans and our downpayment fund.

[partgypsy]

Guess I'm not a true Mustachian. I enjoy getting a tax refund back and it gives me motivation to fill out my taxes early. I calculated what it would earn in a 1.2% interest account all year and it is maybe $20 (less once one pays taxes on the interest).

[zephyr911]

I've had a nice high-end carbon bike frame that I got a really good price on ~2 years ago. I may actually build it up with a small portion of my (totally unexpected) refund if I hit my savings targets in Feb/Mar. Other than that, invest and kill debt, invest and kill debt.

Guess I'm not a true Mustachian. I enjoy getting a tax refund back and it gives me motivation to fill out my taxes early. I calculated what I would earn in a 1.2% interest account and it is maybe $20 (less once one pays taxes on the interest).
So shoot me.

About the only thing we'd shoot you for here is wasting your soldiers by keeping them in such an account instead of investing them somewhere that earns real returns. ;)
I usually try to calibrate my withholding for 0 refund, but last year I had a six-month rental vacancy that kinda kicked my ass. Refund $2400 fed / $1700 state.

[mtn]

Honestly, I don't try very hard to get to the point that I owe 0 or more. Too much effort; besides, it always goes to replenish our "emergency fund" or the past few years to fund an IRA.

Aside from that, I can have 1 or 0 withholdings, and one of my jobs I'm an independent contractor--I don't know how much or little I'm going to make and I get to write off my mileage at the end of the year. That one almost always results in a return due to the crazy high mileage rate that the IRS gives you.

[2lazy2retire]

Thank you for enlightening me on Alaska's Permanent Fund. I never heard of this - I had to look it up.  Crazy! 

Year   Amount
2015   $2,072.00
2014   $1,884.00
2013   $900.00
2012   $878.00
2011   $1,174.00
2010   $1,281.00
2009   $1,305.00
2008   $2,069.00 + $1,200 Alaska Resource Rebate
2007   $1,654.00
2006   $1,106.96
2005   $845.76

Congrats to Alaska for distributing the wealth generated by its resources to its inhabitants

[mathlete]

It is pretty silly and frustrating, here at work people use their tax returns to bail other people out and they will complain that they only got 6K this year and should have another kid so they can get more and continue to not work. I have a buddy in Chiraq, I mean Chicago who says that in the low income areas people actually have "Refund Parties" where they blow it all in one night.

Worst trade-off ever. Kids are so much work.

As for the rest, I don't begrudge people for spending their own money how they want to spend it. I think it's dumb, you-do-you. (Or they-do-they)

[2lazy2retire]

It is pretty silly and frustrating, here at work people use their tax returns to bail other people out and they will complain that they only got 6K this year and should have another kid so they can get more and continue to not work. I have a buddy in Chiraq, I mean Chicago who says that in the low income areas people actually have "Refund Parties" where they blow it all in one night.

LOL - "I have a buddy" - all those low income people having "Refund Parties" - try again

[big_slacker]

I screwed up my taxes royally this year, big time.

I did as well, although not quite so badly at $6500. Used it to pay off the wife's trade school tuition. If I had more left over (which I didn't) it would have gone straight to savings. But that's kinda expected round these parts. :)

I know that it's the normal for most people to get a tax refund and immediately blow it. Calculating your taxes properly and investing the amount instead of the government is crazy talk.

[partgypsy]

I've had a nice high-end carbon bike frame that I got a really good price on ~2 years ago. I may actually build it up with a small portion of my (totally unexpected) refund if I hit my savings targets in Feb/Mar. Other than that, invest and kill debt, invest and kill debt.

Guess I'm not a true Mustachian. I enjoy getting a tax refund back and it gives me motivation to fill out my taxes early. I calculated what I would earn in a 1.2% interest account and it is maybe $20 (less once one pays taxes on the interest).
So shoot me.

About the only thing we'd shoot you for here is wasting your soldiers by keeping them in such an account instead of investing them somewhere that earns real returns. ;)
I usually try to calibrate my withholding for 0 refund, but last year I had a six-month rental vacancy that kinda kicked my ass. Refund $2400 fed / $1700 state.

Our emergency fund is low so any extra will go into that.

[nobodyspecial]

In Canada you get back the marginal tax rate on anything you put into a retirement account (RRSP= 401k)
So mustachians get back a $8k check.

[plainjane]

In Canada you get back the marginal tax rate on anything you put into a retirement account (RRSP= 401k)
So mustachians get back a $8k check.

Or much less, because they adjust with payroll to reflect their RRSP contributions, or have a work matching scheme (so that is reflected automatically), or they don't make over $100k/year.

Or much more, because they're finally catching up on the space they had carried over the past few years.

[nobodyspecial]

I've only worked in startups so no idea about a benevolent company paying pensions, or matching contributions, or any sort of benefit beyond coffee

[JimLahey]

I was recently in a local sporting goods store using their indoor archery range. I noticed multiple people coming in and buying new compound bows for hunting. I can only assume they were buying them with their tax refunds because most people buy them right before deer season ha. For my taxes I only overpaid by about $600 but got a $300 Lifetime Learner credit. That money is already spent because it's helping me pay off one of my two remaining student loans. That will leave one with an interest rate of around 3%.

[thd7t]

I was recently in a local sporting goods store using their indoor archery range. I noticed multiple people coming in and buying new compound bows for hunting. I can only assume they were buying them with their tax refunds because most people buy them right before deer season ha. For my taxes I only overpaid by about $600 but got a $300 Lifetime Learner credit. That money is already spent because it's helping me pay off one of my two remaining student loans. That will leave one with an interest rate of around 3%.

Why can you assume that at all?  People probably want to get a bow with some time to practice with it and get used to it well before deer season. 

[Giro]

There are quite a few assumptions being made on this thread.  My husband and I were in a Lazy Boy store buying a new recliner.  The sales manager says "gotta love tax refunds".  We never get a refund.  We do have a child, but we have very equal salaries and earn too much for any child credits, income credits, etc.  We make additional quarterly payments and still owe several thousand and do not file until April. 

I appreciate that there are folks who spend their refunds on furniture and electronics, but certainly not everyone that is buying those things are using their refunds.  And also, not everyone that gets a refund is out blowing it on consumer goods. 

[Kaydedid]

Although the amount of goods on Craigslist goes way up due to tax refunds..we specifically waited on buying a new couch (old one is falling apart) because of this.

[marty998]

Thank you for enlightening me on Alaska's Permanent Fund. I never heard of this - I had to look it up.  Crazy! 

Year   Amount
2015   $2,072.00
2014   $1,884.00
2013   $900.00
2012   $878.00
2011   $1,174.00
2010   $1,281.00
2009   $1,305.00
2008   $2,069.00 + $1,200 Alaska Resource Rebate
2007   $1,654.00
2006   $1,106.96
2005   $845.76

Congrats to Alaska for distributing the wealth generated by its resources to its inhabitants

Darn those commie-socialist-left-wing-greenies with their crazy ideas like sovereign wealth funds. How dare they invest the country/state's wealth and distribute the returns as a gift to me.

[Metric Mouse]

Yeah, the 0% loan to the gov't thing is kind of a joke.  If you have a $1000 refund, you've kept that out of the market for an average of 6 months.  That's about $35 lost at a 7% return.  Then again, with how the market did last year, you would have come out ahead by "giving the government a loan".

I'm so glad someone else ran the numbers and realized the same thing...

But think! Saved over a decade, that would be over a DOLLAR a month of income you'd be giving up...not adjusted for inflation, of course...

[jfisher3]

Their loss. 

I suppose people think of it as free money instead of realizing they just overpaid tax.

This. The day I realized this, was the day I realized in addition to paying taxes, I also give them a 0% loan. Part of the MMM spirit is changing the game. So, now I have adopted getting no refund and investing it instead.

This helps me conclude that processing has been outsourced to advertising.

Yeah, the 0% loan to the gov't thing is kind of a joke.  If you have a $1000 refund, you've kept that out of the market for an average of 6 months.  That's about $35 lost at a 7% return.  Then again, with how the market did last year, you would have come out ahead by "giving the government a loan".

Before discovering MMM I claimed 0 exemptions to make sure enough was withheld and always enjoyed receiving a refund.  That was even having had people explain to me that it is stupid to give an interest-free loan to the government.  I just saw it as a form of forced saving-- sure its an interest-free loan to the government but it I reasoned that it would hardly earn anything better in my savings account and if the government has it, I won't fritter it away.  I saw it as easier to make a responsible decision with a large chunk of money in the form of a tax return than many smaller chunks of money.

The disconnect for me was that I didn't realize I actually could get a better return on the money by reducing my withholding and paying down student loans.

I never made completely stupid financial decisions with my tax return like these Walmart shoppers.  But a lack of understanding of how tax withholding works coupled with a lack of understanding of investment options resulted in me just not knowing any better. 

This is me right now. I'm just starting to come full circle with my understanding and being able to convince my completely anti-mustachian (but anal-retentive to the penny book-keeping) wife to let me handle some things, like the taxes.

[AlwaysLearningToSave]

. . . my completely anti-mustachian (but anal-retentive to the penny book-keeping) wife . . .

Now that is an interesting combination.  For my wife and I, the very act of starting to track spending made us alarmed by our spending.  If your wife has the anal-retentiveness necessary to be a to-the-penny bookkeeper, I'm betting she is not hopelessly anti-mustachian but just unaware that there is a better way than the way she knows.  My bet is that if you lead by example and show her the results in her already precise bookkeeping system, she will start to see the light.  Good luck!

[SomedayStache]

Yeah, the 0% loan to the gov't thing is kind of a joke.  If you have a $1000 refund, you've kept that out of the market for an average of 6 months.  That's about $35 lost at a 7% return.  Then again, with how the market did last year, you would have come out ahead by "giving the government a loan".

Sure.  But I'd still rather have that money in my pocket to use when and how I choose.

I also lived in California the year the state couldn't afford to issue refund checks and instead sent 'IOU's to the taxpayers.  We did eventually get our refund (with interest even!) but that was a kick in the butt for me to try to come out fairly close to zero.

[DocMcStuffins]

A lot of assumptions going on ..... I agree but I will tell you that I live in a very small town and we know a lot of the folks that we saw. I did not mean this to be judgementle or profiling. This was just an honest observation.

[simmias]

As for the rest, I don't begrudge people for spending their own money how they want to spend it. I think it's dumb, you-do-you. (Or they-do-they)

Amen.  This forum is at its worst when it turns into, "hey, let's point and laugh at people and call them stupid."

[coolistdude]

Yeah, the 0% loan to the gov't thing is kind of a joke.  If you have a $1000 refund, you've kept that out of the market for an average of 6 months.  That's about $35 lost at a 7% return.  Then again, with how the market did last year, you would have come out ahead by "giving the government a loan".

Sure.  But I'd still rather have that money in my pocket to use when and how I choose.

I also lived in California the year the state couldn't afford to issue refund checks and instead sent 'IOU's to the taxpayers.  We did eventually get our refund (with interest even!) but that was a kick in the butt for me to try to come out fairly close to zero.

When did the IOUs happen?

[SomedayStache]

Either 2007 or 2008.

[Veritasvosliberabit]

As for the rest, I don't begrudge people for spending their own money how they want to spend it. I think it's dumb, you-do-you. (Or they-do-they)

Amen.  This forum is at its worst when it turns into, "hey, let's point and laugh at people and call them stupid."

I agree, people should be free to spend their money as they see fit.  Unfortunately, in the Venn diagram of life, a lot of these tax refund shoppers also overlap into the "I can't afford student loans/more children/a new car!!!" circle, and then vote to increase taxes on the people making good financial decisions. 

[Kaspian]

Small update:  The Wal-Mart here now has temporary cubicles setup outside the Walmart entrance door area (in the mall) where H&R Block will prepare your taxes (staring at $67!).  You can literally be given your tax return in cash from the preparer and then walk inside the Walmart less than 30 feet away.  :/   Genius.  Sad, sad genius.

[coppertop]

You can literally be given your tax return in cash

Refund, people.  Refund.

[Kaspian]

You can literally be given your tax return in cash

Refund, people.  Refund.

Dammit--thanks!  I'm trying to remember that.  Years of people always saying "return" has brainwashed the hell out of me.  :( Corrections and facepunhces are always welcome with me when it comes to stuff like this.