2014 taxpayers are being “responsible.” But are they being smart?
For a large majority of Americans, this tax refund season will be more response than most. Recent surveys by TD Ameritrade and financial services firm Edward Jones reveal fewer of us plan to spend our tax refunds on items like flat-screen TVs and vacations.
The TD Ameritrade survey shows:
- 61 percent plan to save or invest the money
- 21 percent plan to use the money to pay off debt
- 18 percent expect to spend it on necessities
Meanwhile, the Edward Jones survey revealed something different:
- 8 percent plan to invest
- 52 percent will spend their refund on “necessary expenses”
- 30 percent plan to put the money into savings
These seem like wise financial moves. But are taxpayers really being smart about how they manage their taxes?
The troubling trend
A new survey from MoneyRates.com finds that 68 percent of taxpayers prefer to have more taken out of their paychecks so they get a refund when tax time rolls around. Warns Lule Demmissie, managing director of retirement guidance for TD Ameritrade…
“Rather than giving Uncle Sam extra money throughout the year, taxpayers may want to consider adjusting their withholdings so they have that money to invest throughout the year.”
And according to the IRS, the average tax refund last year was $2,651. The IRS issued more than 109 million refunds worth almost $300 billion – which is money taxpayers could have been collecting interest on, says Gary Herman, President of Consolidated Credit…
“Manipulating your withholdings so you receive a larger refund is bad money management. The IRS is not a bank, and they certainly won’t pay you interest on your money. You should be managing your level of withholdings so it equals your likely tax bill – so you won’t owe money to the government. This way, you get more money in your paycheck to save. But the problem is, most people don’t have the discipline to save that money. They spend it.”