Financial Insights

Which is better on tax day, a Refund or Owing Money?

With April upon us, this marks the final stretch for folks to file their taxes before April 18th (or choose to delay if an extension is appropriate).  We’re already reviewing completed tax returns, for those who choose to file early, and have observed that it’s an even split between folks receiving a refund or having to owe money to the IRS/State.

Which is better – owing money or receiving a refund?  There’s no right or wrong answer and it depends on your individual circumstances.  Some folks may view a refund as a forced way of saving while others view a refund as a 0% interest loan to the government. Those choosing to receive refund may have been previously burned in a prior year by poor tax planning.  If you’ve had to write a large check to the IRS in the past, it’s understandable that you don’t want to be put in that painful situation again.

It is easy of us to get caught up in daily headlines from various media outlets as we’re inundated by technology.  Alerts on your phone or via emails and on TV highlight inflation, the threat of war, divisive politics, indictments, etc.  The majority of the time, it’s clickbait designed to pique your curiosity and encourage you to further explore something that you have no control over.

On the contrary, income taxes are an aspect of financial planning you can manage over a lifetime and which we can review with you here at ACM.

Tax planning begins with transparency and by being proactive.  You should review your tax return every year to understand your gross/total/adjusted and taxable income, withholdings, deductions and credits.  Once you’ve done this, then review all your sources of projected income for the upcoming year and existing or expected withholding amounts, and deductions and credits so that you can proactively plan for the upcoming tax year.

Instead of wishing or guessing, you’ll feel more in control if you understand the tax implications of an event before it happens. And the above is a process you should repeat every year.

We’re here to help.  Income taxes are a complicated area for most of us as the IRS and individual state income tax codes are constantly changing.  At ACM, we look to be proactive and communicate how each change may affect your individual situation. For instance, recent changes were made to the initial RMD age, as well as annual contribution amounts into retirement plans.

Again, individual investors cannot control who invades what country and when the stock market goes up and down, but we can control our annual and lifetime tax planning strategies with a little bit of effort.

To answer the first question, which is better owing money or receiving a refund, my answer is simple.  Neither.  What is more important is to know what to expect so that when you file your taxes next Spring, you don’t have to be holding your breath and wishing for the best.

If you have any questions, please reach out to your ACM Wealth Advisor.

The foregoing content reflects the opinions of Advisors Capital Management, LLC and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.


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