Saturday, February 09, 2008

I Want To Owe Taxes

I know many people prefer to get a large refund when filing a tax return. For some, the tax refund is a great way to force savings or to get a large yearly lump sum to use. The refund can be used for paying bills to paying for a large purchase.

Personally, I prefer to owe a little bit of tax. Paying a small amount means that I've had full use of my own money for the entire year. Getting a refund means the government has had free use of my money for the previous year. I am happy to write the IRS a check on April 15th each year.

Of course, it is important not to owe too much. Otherwise, one has to pay penalties and interest. One can avoid the penalty if one paid at least one of the following amounts:
  1. 90% of the tax shown on one's 2007 tax return.

  2. 100% of the tax shown on one's 2006 tax return (110% of that amount if one is not a farmer or fisherman and the adjusted gross income (AGI) shown on that return is more than $150,000, or, if married filing separately for 2007, more than $75,000).
For our 2007 tax return, I expect that we will owe money for both the Federal and state tax returns. However, since we paid at least the amount in #2, we shouldn't owe any interest or penalties. While it is painful to pay taxes when filing a return, I find comfort in knowing that I had full use of my money through out 2007:-)

For more on Reflections and Musings, check back every Saturday for a new segment.

This is not financial or tax advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC


Chief Family Officer said...

I should talk to my accountant about #2. For 2007, we were told not to make any adjustments to our withholding in case there was no AMT relief. Now that AMT relief has been passed, I'm hoping for a significant refund. But I'd rather not go through the same thing this year, having tax taken out that might well prove to be "extra."

Sick of Debt said...

I know what you mean, I prefer to owe them myself too. I've been trying to get less and less back, this past year I had 9 exemptions with my employer, yet I'm still getting all but $30 back from taxes.

Anonymous said...

I'm glad to see someone has FINALLY figured this out!

Everyone I know keeps telling me I'm nuts for _wanting_ to owe money. Even most bloggers suggest aiming for a zero tax return.

This year, premliminary estimates have me owing around $4000. Yup, that's a LOT of money, but I meet both tests for no penalty/interest, so that extra $4000 has been sitting in my ING account earning interest over the last year.

I will gladly take that option over anything else!

Anonymous said...

Need some explanation!

I owe $12,000 to Federal and State this year. WHY? I know - woe is me - I made $100M more over last year, but shouldn't the appropriate amount of tax be taken out of my pay?

Does anyone have an explanation?