Friday, May 05, 2006

Tax Refund

Most that have filed taxes for 2005 have already received refunds, especially if the choice is for direct deposit. The numbers are in for the amount of federal income-tax refunds and for 2006, it is $190.52 billion dollars!!!! The average refund was $2237.

Basically, this amounts to an interest free loan that taxpayers are providing to Uncle Sam interest-free. If you did get a large refund, consider changing your withholding (W-4) form to decrease the amount that is witheld from each paycheck and thus decreasing the amount that you are loaning to the government.

Consider a $2000 refund. If you leave this in an internet savings account such as ING direct or Emigrant direct with a 4.5% interest rate, this amounts to about $90 in interest over the course of the year. Not much right? Hey, but $90 can buy you a nice dinner for two, several movies, even a cheap wetsuit if it so interests you.

The only time I think it's OK to get a large refund is for those people that have trouble saving money. Then, having a large amount withheld is sort of a forced savings account. Just make sure that when that big refund check comes, the money should be saved or spent wisely.
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