Eager to get that big tax refund? Don’t be.

The new year typically brings a barrage of advertisements from tax chains claiming to get you your tax refund FAST, FAST, FAST! One week, next day, and even same-day refunds are promised…for a price. If you typically get a big tax refund, or are expecting one this year, it might be tempting to rush out TODAY and get your refund. But it’s usually a bad idea for a couple reasons.

  • Same-day and next day refund loans always charge hefty fees…in most cases well over 100% when looked at on an annual basis. E-filing your return and having your refund direct deposited typically results in receiving your refund in under two weeks. Unless you absolutely can’t live without your refund for a couple weeks, and can’t find any other way to access money, paying to get your refund a little sooner is usually a terrible deal.
  • Tax returns filed in January are far more likely to contain errors. Tax law is frequently not finalized until the very end of the tax year…sometimes even later. This leaves tax software companies scrambling to make sure everything works. Virtually every year there are several errors in popular tax programs that affect large numbers of people. This means you may have to deal with the hassle of amending later…or worse, never find out you missed a deduction or credit that could have saved you a lot of money.

You’re generally much better off waiting until at least the beginning of February to file your return, unless your return is very simple. But your best move is to make sure you do NOT get a big refund each year. That’s right, a big refund is something to avoid!

When you receive a large refund, that means you’ve given the government too much money during the previous year. In essence, you’ve given the government a loan, and you’re going to get the money back a year later without interest.

Instead of rushing out to get your refund as fast as possible, what you should actually do is plan ahead and adjust your withholding (“withholding” is what you pay to the government out of each paycheck). If you withhold the right amount through the year, you’ll make more money all year long. Rather than waiting to get a refund sometime after the end of the year, you’ll keep more of your hard-earned money when you earn it. Then you can have the extra money direct-deposited in a savings account throughout the year, and you’ll have access to it when you need it…instead of having to wait to file a return and pay fat fees for a refund loan.

If you’re somewhat savvy about taxes and your finances, you can use online tools to find out how to complete your W4 with your employer so you have the right amount withheld. One of the best tools is actually the Withholding Calculator available at the IRS website. Of course, if you’re not a numbers person, or you just have an unusually complex situation, you can always enlist the help of a good preparer. If your current tax preparer doesn’t offer to provide this service as part of preparing your tax return, then you should ask for it…or maybe shop around.


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