Today’s question comes from Paul - Just noticed in the news how people are complaining about the new tax laws and their refunds being lower, locally and on national news. Being a bean counter, it drives me crazy how so many people don't understand taxes, and you only get refunds if you paid into the system in the first place. Plus, everyone's tax situation is different, side jobs (Uber drivers, etc) and many other things may affect what you get back or have to pay. If you want a refund every year file single 0!
Bottom Line: It was only a couple of weeks ago that you couldn’t hear a story about taxes without the news media informing you that tax refunds were down and the Trump tax cuts were to blame. On Monday, I brought you the story - The truth about taxes – Latest IRS data shows refunds surging & 95% of Americans benefiting.
In it, I shared and compared data with you that demonstrates record tax refunds being paid out with the average refund coming in at $3,143. Furthermore, I mentioned that 95% of tax filers completed their 2018 taxes benefiting from the Trump tax policy. That’s why there’s now radio silence on the topic. A quick search of “declining” tax refunds produces endless pages of stories from a week to two weeks ago before the latest data was produced. A quick search of record tax refunds shows one story that references it from the Wall Street Journal.
Once again, it’s a teachable moment. Know who your credible sources for information are and be mindful of those that aren’t credible. It’s more important than ever before to know the difference because the most pervasive form of bias in news media is omission.
Now, as you file your taxes it’s also a good reminder to hit the reset button. If you get a big refund and it wasn’t due to a rare one-off situation, you should seriously look at altering your withholding. If you need some motivation, consider this. If you generally get a $3,000 refund, you’re losing the ability to invest that money during the year. What’s that really worth to you over time? The average rate of return in the stock market is 10.1% annually. Over the course of a 35-year career, the value of having that money when you earn it and investing it rather than giving the government an interest free loan is $91,000, in today’s dollars.
Would you just set $91,000 on fire? Sounds stupid right? Exactly. Celebrating annual tax refunds is the equivalent of celebrating a $91,000 bon fire. I’m not trying to make you feel bad. Just trying to help you make better decisions.
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