If I were to buy a lottery ticket, I would consider that to be an "entertainment" expenditure for budgeting puposes. I suspect that more than one percent of the population enjoys this form of entertainment. If the expected refund is very small it makes sense to treat it as money to be spent on entertainment. If your refund is only eight or ten bucks, it's not like you're going to rush out and buy stocks and bonds with it.
Hey, maybe they thought they were undertaxed, and this is how they give back. (That's my rationalization for the $1/week I spend on Mega Millions--I drive on state highways to go to work, and my kid goes to public school, where he needs to have a full-time aide, so I'm getting more than my money's worth.) And if it's just a few dollars, why not gamble it?
If you get $1's worth of entertainment from playing the lottery, and you don't need that dollar to pay for necessities, then it's as valid an expenditure as any other entertainment option.
But there are people whose retirement plan includes winning the lottery.
Well, the people who understand these things already consider a tax refund to be, not a magical windfall, but an interest-free loan to the government.
So if 1% of the people who are not good at managing their money are *staggeringly* bad at it, (and not counting the ones who, like elizilla said, are spending their refunds on entertainment because their refunds aren't significant enough to invest), then it's a fairly small number of people who are actually dumber than turnips.
You're right, of course. I use Quicken and TurboTax religiously, and take advantage of TT's feature that offers to help me reduce my refund. For example, a few years ago, TT said my refund was uncessarily large, and coached me to increase my 401(k) withholding, which I did. As you say, income tax refunds are an interest-free loan from me to the government. Money in a 401(k) (which is pre-tax) is an interest-free loan from the government. I have little expectation of Social Security actually paying any singificant amount of money in the 2030s, nor do I expect my pension plans (defined-benefit as they are) to be worth meaningful amounts (I can, for instance, draw $150/month from Blue Shield of California starting in 2030 for the 5 1/2 years for which I worked for them; big whoop). The money in the 401(k) is all I figure I can really bank on having when I retire; anything else is a bonus
( ... )
You're doing it right. I do understand wanting to aim for a small refund to avoid risking an outlay you weren't counting on (I didn't know there was a penalty for owing money).
Yeah: you made me curious, so I went and looked it up. It's a bit complicated, but the version that applies to most people appears to be if you underpay by more than $1000, you're subject to a penalty even if you file your return and pay all tax due by April 15. The IRS itself says that the form for calculating the penalty amount is so complicated that the recommend not filling it out and letting the IRS calculate the penalty; they won't charge interest if you filed and paid the tax due by April 15.
In any event, getting between $100 and $300 in refund to me says I'm hitting it as close to perfect as possible. Sort of like running a Worldcon and having about 1% of gross revenue as surplus.
Comments 8
Reply
Reply
Reply
But there are people whose retirement plan includes winning the lottery.
Reply
So if 1% of the people who are not good at managing their money are *staggeringly* bad at it, (and not counting the ones who, like elizilla said, are spending their refunds on entertainment because their refunds aren't significant enough to invest), then it's a fairly small number of people who are actually dumber than turnips.
Reply
Reply
Reply
In any event, getting between $100 and $300 in refund to me says I'm hitting it as close to perfect as possible. Sort of like running a Worldcon and having about 1% of gross revenue as surplus.
Reply
Leave a comment