February 26, 2016

Tax Time: Expecting a Refund? What Will You Do With the Money?

The average American taxpayer receives a refund each year of almost $3,000. That is a lot of your money for our friendly government to have and use, interest free, each year until they give it back to you.

Of course, with interest rates rarely breaking 1%, and sometimes just barely above zero, I guess it doesn't matter like it once did. 

When interest rates do begin to rise, I would argue that getting a large tax refund is not a good thing. That is money you do not have to spend or save until the following spring. I know that some folks treat the refund as forced savings, but you are giving the government a loan and cutting into your monthly cash flow.

For now, the reality is a few thousand back into our pockets over the next few months. So, my questions are simple:

1) Do you prepare your own taxes, with software or a pencil and calculator, or do you have a professional take care of it?

2) Are you expecting a refund for 2015?

3) If so, what are your plans for that money?

I will get things started:

1) I use Turbo Tax to complete my return (with Betty), my dad's final return after his death last year, and the trust return for my parents' estate. Doing taxes myself is much less expensive and gives me a sense of control over the process. Have I made mistakes? Probably. Am I missing some deductions? Maybe, but not significant ones. 

2) Yes, a small one. Not knowing exactly how much money my parents' trust was going to generate that would become taxable to me, I made a few quarterly tax payments that were a bit higher than they probably needed to be. But, my advisor was quite close in her estimates, so there is a little coming back.

3) Put it into the checking account for bills and living expenses. One year, after some major medical expenses, we did get a larger than normal refund that was used for a vacation. But, that is very rare. My goal each year is to get back, or owe, less than $200.

OK, your turn. 


  1. 1. I use to do mine, but with a purchase of my retirement house and renting it, I got confused. So now I have an accountant do it.

    2. I get about $500 back. This year I think less because I didn't have any repairs to the rental.

    3. Direct deposit to the bank.

  2. 1. Did ours this year but hired an accountant last year due to trust inheritance.
    2. Owed the Feds; refund from the state - net owing
    3. The refund will go into the checking account

  3. 1. Nowadays I have the family taxes 'done' by an accountant'; they're so complex that I prefer relying on professional expertise. (Mind you I organize and summarize our slips before submitting them to the accountant, which reduces the time she spends on it, and thus the cost of her services.)

    2. I don't usually receive a refund, but this year may be different, thanks to a larger-than-usual whack of charitable donations and the prospect of claiming a capital loss (yay?).

    3. Refunds are always paid by direct deposit, so that bit's easy :-)

  4. 1. I do our joint return with paper and pencil form. Easy and short these days. Only qualify for Standard Deduction.
    2. Owe around $150
    3. N/A

  5. 1) Yes, I have prepared my taxes for years using TurboTax online.

    2) No refund from federal, small refund from state

    3) state refund will help to pay what I owe federal

  6. We follow the same path you do. Our financial life is very stream lined to make it easy to manage.

  7. Getting started on my taxes is on my to-do list for this weekend. I do my own taxes, using a spreadsheet of my own creation to do calculations and then using the free online fill-in forms to file. This is my first year without an employment income, so this year's taxes will have a fairly steep learning curve. I expect to get a small refund (usually $300 or less). -Jean

    1. Update: I just roughed out my taxes and will be getting a refund of over $1000. This is because I had taxes withheld from some IRA and 403(b) distributions and the minimum they would withhold is 10% -- which, once I factored subtracted the single exemption and generous standard deduction for seniors -- was far more than I owed on my small remaining taxable income. I will designate most of the refund for a special purchase, a new sewing machine. The rest will go into my checking account to cover living expenses.

  8. 1. We have used the same tax accountant for several years. It is worth it to us, to make sure there are no mistakes. I help my mother get her taxes organized every year as well. As former state employees, there are rules regarding taxation of pensions and periodic withdrawals from deferred compensation retirement accounts (to our benefit!). Our accountant helped to sort out these complexities, and is always available for questions, consultations.

    2. Refund from feds of about $3500, owe NYS a few hundred dollars.

    3. The federal return will be direct deposited into our checking account for our living expenses. I have often thought about the fact that we are allowing the federal government to use our money for several months, but psychologically it feels better to get a refund than have to pay. Sounds silly, I know.

  9. 1. We've used Turbo Tax for years and I filed as early as possible.
    2. Owe the feds, refund from the state. I file early enough to get the net refund to pay the feds.
    3. It went to living expenses, as I quit my job in Nov and am still deciding whether to go back. I have a possible job offer on the table, but gosh it's great to wake up and not have to go to work. OTOH, a couple more years of $$ might be nice. Tough decision...still deciding.

  10. 1. Turbo Tax- this makes year 10 with them
    2. We got back about $1000 from Fed and $600 from KS. We had to pay $150 to DE. We should be close to even next year since we both are finally retired from money making positions. We adjusted for this at the beginning of the year. Love that standard deduction thing!
    3. It went into the car fund. We bought a car this year. We will have enough to replace our other car in three years.

  11. 1. Now that I don't have rentals I can use Turbo Tax again.
    2. I had some large medical bills from some elective surgery so I will get back all the Federal Taxes I paid (about $1700) and a couple hundred from State. Next year I can use the free Turbo Tax - yay! I have the minimum (10%) withheld from my retirement payments but I still get money back. Being in a 5% tax bracket is definitely working for me.
    3. The kitchen remodel will use up the return and then some. And what fun we are having with that.It will be lovely and definitely add to the value of our home.

  12. 1. Past three years we've used our acct due to inheritances (not complaining--it's a blessing)
    2. Owe feds extra $150 and getting $133 back from state
    3. Perfect--no big gains/losses

    1. I am trying to handle the estate tax return and produce K-1's for the beneficiaries for the first time since my dad's death last year. Turbotax Business is set up to handle estates and trusts. I guess if the IRS has questions I will go with a CPA next time!

  13. So far, it looks like I should invest in Intuit, the parent company of Turbo Tax!

  14. 1. I've used H&R Block's tax software package for decades, including its predecessor.

    2. I'll be lucky if I break even since I moved $ from a regular IRA to a Roth IRA. If I don't like the tax bill I can always recharacterize it, but if the tax bill is not too high I'll stay with the strategy I used this year of having some totally tax-free accounts.

    3. Nothing to save since the government will either take a little more from me, or we'll call it even.

  15. We keep track of everything and gather all the data ourselves, but use an accountant to go over it all before filing. We have an S Corp which makes it a little less straightforward than it used to be.

    We often get a refund and when we do, those dollars go straight into our travel fund! In fact, any "extraneous" income goes into our travel fund and probably always will until we are too feeble to enjoy traveling anymore.

  16. 1. I get everything ready but treat myself to an appointment with the accountant. Just not that interested in all the details. It's my gift to me.

    2. I have taxes withheld from my pension, part-time job and 403B and IRA mandatory withdrawals, but still have to pay something. I don't have anything taken out of my small social security and so that must be accounted for. I can only claim standard deduction usually.

    3. Accountant pays IRS through direct deposit from my checking. Refund? If only!