Best Answer: Before you put too much emphasis on a tax refund, consider this example:
lets say you go to a store and grab a $15 item and get in line. The guy in front of you buys the same $15 item, hands the cashier a $100 bill, gets $85 in change and leaves. You hand the cashier a $20 bill, and get $5 change. Did the guy in front of you get a better deal? No, he simply overpaid by a larger amount and got the difference back. You both paid the same price for the same item.
Now imagine this happens in January. Same scenario but instead of the cashier handing you your change, he says "okay, the company accounting department will mail you a check for your change next April." You'd never go for it. You'd probably stop doing business there if you could, and if you simply could not avoid the store you'd bring exact change next time.
That's how taxes work. The IRS takes money now, and refunds the amount you
overpaid sometime next year. Getting a big refund just means you loaned your money to the IRS all year at 0% interest.
You're actually coming out just right if you sometimes owe a little and sometimes get a small refund. If you can't stand the idea of owing even a little bit, then reduce your allowances on your W-4 by 1 so you'll always get a small refund, but it will mean slightly lower paychecks all year.
One good option for reducing taxes is always to invest in a 401k or IRA. However, if you do some research on investment products you'll find that a ROTH IRA is actually the best option for most young people. It doesn't give you a tax deduction right now, but the money you put in is allowed to grow tax free, which can save you hundreds of thousands of dollars. Just remember all these types of accounts are for retirement savings only, and you'll pay stiff penalties if you take money out before retirement age.
SmartA$$ · 6 years ago