The Big 0: Why It’s a Good Idea to Break Even With the IRS

For many people, tax time is either a time for rejoicing or a time for dread. Those people that are looking forward to large tax refunds are usually the ones ready to have their taxes completed as soon as they have their W-2s in hand. People who owe money, on the other hand, usually want to put off paying that large bill for as long as they can. The best idea is to be one of those people who fall in the middle, neither owing the IRS nor expecting a refund from them.

Why Owing the IRS Is a Bad Idea

Times are hard. Many businesses are closing locations, cutting employees’ jobs and forcing them to look somewhere else for work. Even if you can pay your tax bill now, you might not find yourself able to pay that amount if something happens and you need to dip into your savings to pay everyday expenses like your utility bills and mortgage.

If you can’t pay your tax bill, the IRS won’t take no for an answer. You can file a request for an extension, but sooner or later that bill will come due. Even celebrities have been in the news for receiving jail time because they haven’t paid their tax bills. While the IRS might not be so hard on you, the added stress and worry of having that danger hanging over your head won’t do you or your family any good.

Why Getting a Refund Is a Bad Idea

Instead of worrying about having a large tax bill to pay at the beginning of the year, it might be tempting to have as many taxes as possible taken out of your paychecks so you can anticipate getting a large refund instead. Setting yourself up for a large tax refund can be just as bad as paying that tax bill, however.

Having a large sum of money coming to you as a tax refund might seem nice, but what happens if you need that money sooner? If you have an unexpected bill during the year, your tax money could help you cover that expense instead of taking out a loan and paying interest on the money you borrow while the government has the tax dollars that rightfully belong to you.

Not only would you need to pay interest on a loan if you need your money sooner, but you would also be losing out on interest you could be making on your money now. The IRS is not a savings account. The government won’t pay you interest on your money while they have it. Instead of letting the IRS keep your money, put it into a savings account where you will have access to it while earning even more in interest.

The best idea when it comes to paying taxes is to have just the right amount taken out of each paycheck so you will neither owe the IRS nor receive a large refund at tax time. If you discover that your taxes are on track to go one way or the other, you can adjust your tax withholding at any time during the year by filling out a new W-4 worksheet through your employer. Keep your money in your pocket where it works for you.

Rodger Black is a tax consultant and occasionally blogs for, where you can learn the answer to the question “Am I entitled to a tax rebate?” and how to go about filing a tax rebate form.

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