Today’s tax deadline means last-minute filers will be lining up at the post office, and many of them will probably have to pay government some amount of money to cover their full tax bills. After all, if they expected large refunds, they probably would have filed their tax return months ago, right?
Financial experts tend to agree that it’s better to owe a small amount at tax time. That means you have remained in control of your money all year, and you haven’t given an interest-free loan to the government.
Carolyn T. Geer, writing in the Wall Street Journal’s “Investing Basics” column, says “Getting a big tax refund means you’re doing it wrong,” but she also points out that refunds “pay emotional dividends.” That is, they make us feel better, not just because of the extra money, but because they help us avoid uncertainty–particularly the unpleasant shock of being saddled with a large tax bill when we file.
That uncertainty is a pretty good reason to over-pay throughout the year and guarantee a refund rather than a bill when tax time comes. Humorist Joel Stein recently wrote about trying four different methods of tax preparation and arrived at very different results from one tax preparer to another. If the tax code is so complicated that four accountants come up with four different returns, then planning to get a modest refund sounds like a smart and safe plan.
Of course, if you’re savvy, you should stick with the experts and try to break even or owe just a little bit at tax time. But if the uncertainty of the U.S.’s 3.8 million words of tax code makes you want to play it safe and plan to build up a refund, you shouldn’t feel guilty about it.