This Tax Season Pay Yourself, Not Uncle Sam
Every spring Americans are required by the IRS to file their tax returns by April 15 (it is actually April 18 this year). Those expecting a refund from the government are 
more likely to file their returns as soon after January 1 as possible. Before e-filing or mailing those forms, taxpayers often have plans for the money: save toward retirement, put a down payment on a car or maybe set money aside for a vacation.
Sounds good, doesn’t it? A big, fat check from Uncle Sam to spend on whatever you want! While it may sound like easy money in a “forced” savings plan of sorts, receiving a tax refund each year actually puts you at a financial disadvantage. Why? Because you are not getting the full value of your money, nor are you earning a return on those funds. Let’s look at last year’s numbers to illustrate how this works:
In 2010*, the IRS reported that 57,779,000 tax refunds were issued for a total of $175.4 billion. The average refund per filer in 2010 was $3,036. Here’s why that is NOT a good deal for you:
- Your dollar is worth more today than it will be on April 15. Inflation drives down its value. As an example, the average rate of inflation for 2010 was 1.64%. That means that every dollar you had at the beginning of the year was only worth $0.98 on January 1, 2011, so a $3,036 tax refund is only worth $2,986—you just lost over $50! (But you didn’t really want that lobster dinner anyway, right?!)
- Through tax withholdings from your paycheck, the government has the use of your money now. Meanwhile, YOU do not. In case of a financial emergency (or even just a good opportunity!), you cannot access that cash.
- The government does not pay you interest on the amount they are holding for you, so your rate of return is 0%. Not accounting for inflation, if you put the amount of the average tax refund into a “no fee” savings account at 1.05% interest, you would have $3,187.80 at the end of 12 months. (Whoa? How many lobster dinners is that?!)
Pretty grim, isn’t it? Fortunately, you don’t have to fritter away your money this way. You can regain control of it through Prosperity Economics, and you can avoid unnecessary transfers of wealth. If you are ready to make your money work for you instead of against you, call or email me today. I can show you how Prosperity Economics can secure your financial future now.
*Statistics provided by the IRS are cumulative and measure the weeks ending 3/13/09 and 3/12/10. Source: Internal Revenue Service.
