Being in the midst of tax season, I have had a few friends who are extremely angry at the idea of them getting a smaller than average tax return. I have heard from different tax professionals that you should want a $0 tax return, meaning the government took less money or the right amount of money out of your paychecks.
Dave Ramsey has said on a few occasions that as long as you don’t owe the IRS anything, you want the smallest return possible. However, many people plan trips or expensive purchases around their tax returns and use their tax return as an unofficial savings account.
The truth is this: If you are using the federal government as a savings account, you are doing financial planning wrong! When you get a tax return, it is the IRS’ way of saying they took too much money out of your paychecks and held onto it from January of the year before to the day it is returned with a 0% interest rate. Theoretically, you may have owed $1000 in taxes, but the government took out $3000, so you get a $2000 return.
If you gave the bank $3,000 for them to hold onto for a year, you should get a few bucks back in interest. The government holds onto your money and then gives it back to you ad you get nothing out of it.
So the question is this:
Would you rather pay less taxes per check and get a small refund OR pay more taxes and get a larger refund?