April 2, 2015
Receiving a refund isn't always a good thing. In fact, it may indicate that you are overpaying and thereby sacrificing potential investment returns. How you approach this reality depends on how careful you wish to be in dealing with the IRS.
"Personally, as a risk-averse accountant, I instruct my employer to withhold a little more in taxes during the year than I expect to owe so that I have a 'cushion' when I file my return," says Kirsten A. Cook, professor of accounting at Texas Tech University. However, if a taxpayer receives a large tax refund, such a refund indicates that the taxpayer has made an interest-free loan to the government. Knowing this, the taxpayer may prefer to reduce paycheck withholdings and have that money available for consumption of goods and services during the year or invest that money in stocks or bonds that generate a return on the investment rather than allowing the government to use that money for free."