Christopher Stroup, president of Silicon Beach Financial, on money IRS owes you: “A ‘good’ tax outcome isn’t a big refund”
Almost two thirds of Americans are likely to get a tax refund, but what may seem like a windfall if it’s a big check may be a sign of a missed opportunity.
The Internal Revenue Service begins collecting and processing Americans tax returns at the end of January every year. Typically, nearly two thirds of taxpayers are likely to receive a refund on the money they’ve sent to Uncle Sam over the course of the year.
This year, the average refund is over $3,800 so far according to the agency’s data. For those receiving a big payback from the federal government that may seem like a win. However, founder and president of Silicon Beach Financial Christopher Stroup says that may actually mean that you missed an opportunity. “A ‘good’ tax outcome isn’t a big refund,” he warns.
Why a big refund could mean you’re doing your taxes wrong
“The biggest misconception is that a large refund means you did something right,” the financial expert told GOBankingRates. “Most of the time, it just means you gave the IRS an interest-free loan.”
“Refunds feel like a bonus because they arrive all at once. Psychologically, people frame them as ‘extra’ money, even though it’s their own,” he adds.
“The lump-sum payoff often masks the opportunity cost of having less money available throughout the year,” Stroup explains. “That money could have improved cash flow, funded goals or been invested earlier in the year.”
The financial expert told the personal finance website that if you are getting a tax refund of $1,000 or more every year, it is likely that you are giving too much of your hard-earned money over to the federal government. But, there are ways that you can remedy the situation.
How to avoid overpaying your taxes
One of the main things that people overlook doing, that may cause them to pay too much tax on their income, is not updating their W-4 form. Taking a few minutes to correct that document, which you may have filled out years ago, to mirror you current life situation can put serious money back into your monthly budget.
“A five-minute adjustment reflecting real credits, dependents and outside income often puts hundreds back into a monthly budget without increasing the chance of owing at tax time,” Stroup told GOBankingRates.
He also highly recommends doing a mid-year check of what you are paying to the IRS by going over the year-to-date withholding on your paystub and then to “compare it against projected income using a tax estimator.”
Stroup emphasizes that “an optimal tax plan aims for accuracy, keeping more money in your pocket during the year while avoiding surprises.”
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