Monday, April 12, 2010

Tax Time – The Psychology of Taxes

Okay, so I have my MBA in finance and I know that we should have our tax withholdings set from each paycheck so that come April 15, we still owe $1,000 or more on taxes. My propblem is that I really like getting a tax refund. Financially I know that if we get a tax refund, we have just given the government an interest-free loan. We could have invested the money or paid off debt instead of having a “forced savings of 0%” by overpaying taxes.

If we owe money come tax time, I REALLY dread doing my taxes, put it off until the last minute, get moody and am generally no fun to be around. I feel that the government is taking way too much of my salary for taxes and look for every possible deduction that I can find.

 When I know that I’m getting money back on my taxes, I look forward to getting them done to see how much I get back. I’m in a much better mood and feel good that I’ve done my civic duty of paying taxes. I then put the money towards debt reduction, investing, savings or vacation. It is “guilt free” money that I feel good about spending.

Are a few dollars in interest (or more) worth the reduced stress come tax time? Financially and psychologically, I have two different answers. In this case, my mental soundness wins over my financials.

Hope you are, as well, on your way to a pain-free April 15th tax day.