Tax Refund vs Tax Obligation (1 Viewer)

[gianmarco]

Unless I'm mistaken, the easy way to compare the 2 options over 40 years is that owing $1000 gives you a $1000 headstart over 40 years. Because after 1 year, the amounts essentially overlap since one had to repay $1000 and the other received $1000 to start investing.

Thus, $1000 at 6% over 40 years is about $10k. In the end, not life changing, but not insignificant.

I will always prefer to owe because a tax bill owed isn't a burden in our situation. As long as there are no penalties, it's the way to go for us. But, I can fully appreciate preferring a refund for peace of mind and that amount doesn't justify railing against that preference.

 

[Tom Hagen]

Unless I'm mistaken, the easy way to compare the 2 options over 40 years is that owing $1000 gives you a $1000 headstart over 40 years. Because after 1 year, the amounts essentially overlap since one had to repay $1000 and the other received $1000 to start investing.

Thus, $1000 at 6% over 40 years is about $10k. In the end, not life changing, but not insignificant.

I will always prefer to owe because a tax bill owed isn't a burden in our situation. As long as there are no penalties, it's the way to go for us. But, I can fully appreciate preferring a refund for peace of mind and that amount doesn't justify railing against that preference.

I don't think the math works out that way since in most cases you don't get a lump sum of $1,000 up front,  you get an extra $38.46 every 2 weeks spread out over 52 weeks.

If you were to invest $38.46 every 2 weeks throughout the year at a 6% return and then withdraw the balance on 4/15 of the following year you would have earned an additional $49.44.  Change it to a 3% return and it is $24.44.

 

[ghostguy123]

Most of you guys harping on the refund people probably waste 50 bucks a year on something stupid.  Lets make a thread about how dumb those people are who don't use every dollar they own the exact optimal way.

Or, those people could just understand the reality of human nature.

 

[Pipes]

Most of you guys harping on the refund people probably waste 50 bucks a year on something stupid.  Lets make a thread about how dumb those people are who don't use every dollar they own the exact optimal way.

Or, those people could just understand the reality of human nature.

Good point this applies to everyday life.  You spent $200 on a nice dinner when you could’ve bought those steaks and grilled them for $20.  That $180 earning 10% over 40 years cost you 150k.  How dumb are you?

 

[Phil Elliott]

I would prefer to collect $1,000 instead of pay. I usually estimate my taxes a couple times per year and estimate conservatively so I don’t pay in. 

 

[Leroy Hoard]

Btw, skipping a 4 dollar cup of coffee every day adds up after 40 years to over $58,000. And I can show my math.

 

[Angry Beavers]

Btw, skipping a 4 dollar cup of coffee every day adds up after 40 years to over $58,000. And I can show my math.

4 x 365x40 = 58,400  - and this does not count for inflation! 

This is great - I am putting away $4/day starting right now - I will collect if I live to 90 - Schwing!

 

[Angry Beavers]

but getting a big refund means your wife thinks we found all of this money ( nevermind that the federal taxes withheld from her check are less than 10%) and therefore we are in a great spot to do all of the home projects she wants   

 

[belljr]

Btw, skipping a 4 dollar cup of coffee every day adds up after 40 years to over $58,000. And I can show my math.

Why do you hate America

 

[Leroy Hoard]

Why do you hate America

Not all of America, just the part that is Starbucks.

 

[ghostguy123]

4 bucks for coffee at starbucks?? More like 5 or 6

 

[shuke]

4 bucks for coffee at starbucks?? More like 5 or 6

$2.45 for a venti.  That's the largest they sell.

 

[Leroy Hoard]

$2.45 for a venti.  That's the largest they sell.

+35K for you.

 

[guru_007]

Alright, ......I suppose the easiest way I can wrap my head round this conundrum and sum it up would be as follows:

You and your buddy make a bet for $1,000.  You win, yay!  But, much to your dismay your buddy says, hey man, I'm good for it, I really am, but I don't have your $1,000 right now.  To make this right, I can offer you two alternatives.  First one, is a year from today I'll give you the $1,000, I promise.

Alternatively, I'll give you $40.00 a week for the next 50 weeks, and then a year from today, you just give me what I overpaid you.

The only reason I can think of in the world to accept having someone select alternative #1 in this situation is that you do not trust yourself to have the $1,000 extra a year from now to pay back your buddy.  And this is the underlying problem with Americans as a whole in that they are too undisciplined to save, invest, and have money set aside to meet their financial obligations.  

That's my take.

 

[belljr]

4 bucks for coffee at starbucks?? More like 5 or 6

You ordered more than coffee

 

[ghostguy123]

Do you guys see what people are ordering at the Starbucks?  I have been in starbucks maybe 10 times in life, and I see pretty much everyone ordering some mega drink that is well north of 4 bucks.

I suppose just a normal coffee with no frills might be like 2-3 bucks, but everyone was getting the frills.

 

[Frostillicus]

This is such a cranky old man thread.

 

[Dan Lambskin]

Alright, ......I suppose the easiest way I can wrap my head round this conundrum and sum it up would be as follows:

You and your buddy make a bet for $1,000.  You win, yay!  But, much to your dismay your buddy says, hey man, I'm good for it, I really am, but I don't have your $1,000 right now.  To make this right, I can offer you two alternatives.  First one, is a year from today I'll give you the $1,000, I promise.

Alternatively, I'll give you $40.00 a week for the next 50 weeks, and then a year from today, you just give me what I overpaid you.

The only reason I can think of in the world to accept having someone select alternative #1 in this situation is that you do not trust yourself to have the $1,000 extra a year from now to pay back your buddy.  And this is the underlying problem with Americans as a whole in that they are too undisciplined to save, invest, and have money set aside to meet their financial obligations.  

That's my take.

@cstu

 

[Tom Hagen]

I think there is a disconnect  here.  Most people choosing the refund understand they are potentially leaving money on the table but do it for 1 of 2 reasons:

1. The amount of earnings is immaterial to them.

2. The risk of an underpayment penalty would more than wipe out any earnings on the extra $40 every other week.

 

[ghostguy123]

I think there is a disconnect  here.  Most people choosing the refund understand they are potentially leaving money on the table but do it for 1 of 2 reasons:

1. The amount of earnings is immaterial to them.

2. The risk of an underpayment penalty would more than wipe out any earnings on the extra $40 every other week.

3. To keep from wasting money throughout the year, using it as a savings vehicle to take all at once with the refund and use it for more important things.........think wife blowing money all year.