Feb 18, 2016 Don’t Roll Your Tax Refund Forward
Getting a refund this tax year? You might be planning to use this money like a bonus: buying things you need or want or even putting it into an investment account. However, many Americans choose to apply their refund to next year’s taxes. At first glance, it might seem like a sensible idea – prepaying your taxes just in case – but letting the government keep your money another year has drawbacks you should consider:
#1 – You’re essentially giving the government an interest free loan. If you took that refund and put it in the bank you would earn interest but the government won’t give you anything to hold your money. Even at the current rates, getting something is better than nothing.
#2 – The money could get lost. Let’s face it – the IRS processes millions of refunds and returns every year and mistakes can happen. Often refunds that are rolled forward don’t show up the following year. Then you have the tedious task of gathering your return information and waiting patiently for the IRS to fix their mistake.
#3 – No taking it back. Once you fork over your refund to the IRS and April 15th passes, there’s no going back if an emergency occurs. Stashing that money in an emergency fund could prevent you needing to take out a loan if the car breaks down or you have a large medical bill.
Sometimes applying your refund can make sense. If you’re self-employed and make quarterly estimated payments, you could apply your refund to your next quarterly payment and avoid underpayment penalties. If this situation doesn’t apply, however, it’s probably better to take your refund now and pay down debt, save in an investment account, or put it away for a rainy day. If you do decide to roll your refund forward, make sure to keep accurate records just in case the worst happens.
Leonard Rickey Investment Advisors, PLLC (“LRIA”), is an SEC registered investment adviser located in the State of Washington. Registration does not imply a certain level of skill or training. For information pertaining to the registration status of LRIA, please contact LRIA or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).
This is provided for general information only and contains information that is not suitable for everyone. As such, nothing herein should be construed as the provision of specific investment advice or recommendations for any individual. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. There is no guarantee that the views and opinions expressed herein will come to pass. This newsletter contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information prepared by any unaffiliated third party incorporated herein and take no responsibility therefore.
Any projections, forecasts and estimates, including without limitation any statement using “expect” or “believe” or any variation of either term or a similar term, contained here are forward-looking statements and are based upon certain current assumptions, beliefs and expectations that LRIA considers reasonable or that the applicable third parties have identified as such. Forward-looking statements are necessarily speculative in nature, and it can be expected that some or all of the assumptions or beliefs underlying the forward-looking statements will not materialize or will vary significantly from actual results or outcomes. Some important factors that could cause actual results or outcomes to differ materially from those in any forward-looking statements include, among others, changes in interest rates and general economic conditions in the U.S. and globally, changes in the liquidity available in the market, change and volatility in the value of the U.S. dollar, market volatility and distressed credit markets, and other market, financial or legal uncertainties. Consequently, the inclusion of forward-looking statements herein should not be regarded as a representation by LRIA or any other person or entity of the outcomes or results that will be achieved by following any recommendations contained herein. While the forward-looking statements here reflect estimates, expectations and beliefs, they are not guarantees of future performance or outcomes. LRIA has no obligation to update or otherwise revise any forward-looking statements, including any revisions to reflect changes in economic conditions or other circumstances arising after the date hereof or to reflect the occurrence of events (whether anticipated or unanticipated), even if the underlying assumptions do not come to fruition. Opinions expressed herein are subject to change without notice and do not necessarily take into account the particular investment objectives, financial situations, or particular needs of all investors.
For additional information about LRIA, including fees and services, please contact us for our Form ADV disclosure brochure using our contact information herein. Please read the disclosure brochure carefully before you invest or send money.