Your Tax Payment is an Interest-free Loan

If you’ve ever needed to get a loan, I’m sure you can imagine how nice it would be to get it with zero percent interest. I’m sure, too, that you know that this kind of offer is rare. Even student loans, which traditionally offer lower interest rates than standard loans, are far from being interest-free. In fact, we currently have a nation of college graduates swimming in debt due to their enormous loan burden.

Now take a moment to think about that before reading the next line. Seventy percent of tax-paying United States citizens offered interest-free loans to the government this year. For 2013, 101,082,000 of the 134,349,000 federal tax returns filed received refunds. This means that just a little over 75 percent of the people who filed their tax returns this year got a check from the government instead of writing one. It also means that just over 75 percent of the people who filed their tax returns this year generously provided the United States Government with an an average of $2,651 per person in interest-free loans over the course of 2012 (at a total loan of $228.46 billion).

So how can you reduce your chance of being one of these benevolent government benefactors? If you’re feeling a little less patriotic this year and are employed by someone, you might want to reduce the tax payment withheld from your paychecks. You can do this by increasing your allowances on your W4. Don’t go overboard, of course, because this strategy could leave you owing a large sum of money to the IRS next year. What you want to do is adjust your allowances enough to prevent getting a windfall of money when you file your taxes next year. Although many are prone to looking forward to a big refund from Uncle Sam, it’s better to owe a small amount of money to the IRS at the end of the year.

The reason your tax payment should be smaller:

All that money that you are receiving from the the government after you file your taxes is YOUR money. This is money that you could have invested or put in a high yield savings account and turned into MORE money. Loaning out your money to the United States Government might be a noble thing to do for your country every year, but it is not a smart thing to do with your money. If you’re planning to buy an HDTV with your next tax refund, you should re-think your financial strategy and consider adjusting your tax payment so that you can keep more of your money now and put it to better use. If you’re not sure what the right course of action is for you, talk to a tax expert.


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By |2014-05-12T22:02:08+00:00May 12th, 2014|Blog|0 Comments

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