Large tax refund may be no cause to celebrate, expert says


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SALT LAKE CITY — Those Utahns getting a whopping refund from the IRS this year might want to start planning for a zero refund next year, experts say.

Three weeks into the tax season, the IRS says it has received more than 14 million returns. The average refund is $3,539. There are countless ways to spend it, but is a big tax refund really any cause for celebration?

"It feels more like a lottery than it does the actual tax return," said Shane Stewart, a certified financial planner with Deseret Mutual. "You have to ask yourself, where does the money come from?"

The most likely answer is you, he said. A big refund means you paid too much tax to the IRS, and essentially gave the government an interest-free loan.

"That's money you could have used during the year to live on, to reach your goals, whatever it might be," he explained.

Some taxpayers hope for a big refund this year and have some goals in mind.

"I'm launching some music, so it would be nice to have a little extra capital for merchandise and recording, things like that," said Drew Rindlisbacher.

Lee Workman said he planned to use it "probably toward paying bills and some house renovations. We own an older home."


You have to ask yourself, where does the money come from?

–Shane Stewart, financial planner


And Russell Sweeney said, "We're hoping to put that toward a little bit of a vacation, then toward savings and then education for our little one."

Stewart said one of the best things taxpayers can do with a big refund is pay off credit card debt, especially if they're making just the minimum monthly payment on a high-interest card.

"If you put some toward the principle, that will cut the time you have to pay that debt by years," he said.

He also suggests using the refund to start or boost an emergency fund. A recent Bankrate.com survey found 3 in 5 Americans do not have enough money to handle an unexpected car repair or trip to the emergency room. A good rule-of-thumb, Stewart said, is to save three to six months worth of what you spend.

"No matter who you are, that's no small amount of money," he said. "It takes time to build that up."

Instead of a shopping spree, Stewart said taxpayers can put their refund to work. Drop $2,000 into a Roth IRA now, and in 30 years it could be worth more than $20,000, he said.

"The compounding effect of money is really amazing," he said. "The sooner you can get those monies in, the longer they have to grow. Compounding wise, it can be a significant amount of money when you go to retire, depending on your time frame."

So, if a person get a huge refund but don't want to be so generous to the government next year, get a new federal W-4. Stewart said while the form itself isn't helpful, the IRS website has a calculator that will help people fill out the form so they'll get a smaller refund.

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Bill Gephardt

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