Tax RefundTax Refund Scenarios

As we approach 2011′s tax day deadline for submitting your Federal Taxes for 2010, I know there are a lot of you that will really enjoy getting that 2010 Federal Tax Refund as income.  I on the other hand have always really enjoyed not getting that tax refund.  In fact what really makes me happiest is if I get a little tax refund back from State and send the money to Federal or vice versa.  My parents were the first ones who taught me this plan by example.  Sure there were times in their lives that they made mistakes in planning and had to either pay a lot at the end of the year to the Federal Government or they received a giant return.  But for the most part they really tried to stay the course of estimating exactly how much money the Federal government would require of them.

Scenario 1: The Big 2010 Tax Refund

There are some, however, who prefer the refund.  They in fact live in this scenario.

Let’s say that to live in Kellyology’s world you, by law, have to supply me, I mean the site, with a certain percentage of your income.   Let’s say to be on the safe side and to try to avoid paying too little, you decide to give Kellyology 25% of your income every pay period.  Don’t worry about having to remember to pay Kellyology.  We can set up an automatic withdrawal service.  Kellyology will take your money and invest it, making a certain percentage off of that money that you have loaned to them.  At the end of the year you can fill out a form telling Kellyology why you think you should get that money back. If Kellyology sees your form as valid, it will give you back the money you loaned it minus the portion you legitimately owed to cover Kellyology’s operating costs and the interest made off of your money.  Every year you will then get excited to get what money is left, given back to you in a large lump sum and calling it your “forced savings fund.”  You will brag to your friends about what a great investor you are to be letting me, I mean Kellyology, save your money for you.

How does that scenario sound to you?

Good?  Well then we’re done here, so why don’t you send me your information so that we can get started.  I would really, really love the extra income.

Scenario 2: Saving Your Own Money

But let’s say instead you’re all, “Forget you crazy woman.  That’s a horrible scenario.”  For you I offer scenario two.

This time why don’t you figure out exactly what Kellyology’s operating costs are and what percentage of your money is used for those operating costs.  Then why don’t you send Kellyology only that money because it’s the law and you’re a good citizen of Kellyology.  Then take the rest of the money you used to send to Kellyology, invest it, make your own interest, and then use that interest to buy your new big screen television, vacation, or any other perk that interests you.

Doesn’t that sound better?

I think so.

Let’s say you think so as well. So how do you go about figuring out exactly how much the federal government wants from you?  It’s really pretty simple.  Basically you have to run your income through these various tax liability calculators, and then you figure out how much to withhold per tax period.  How to Owe Nothing on Your Federal Tax Return is an excellent article that goes into more detail concerning how to do both things.  You will find that after the first time you do this, you will wonder why you ever even dreamed of paying your taxes any other way.

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Tomorrow in the next post of this series we are expanding upon one of the main problems in regards in trying to live with Scenario 2, finding the discipline to save.

Tax Refunds Part 2:  Better Ways to Create Savings

Stay tuned…


Kelly Kinkaid (1006 Posts)

Kelly Kinkaid enjoys writing about such topics as stretching a dollar, personal finance, diet and fitness, and living a life well lived. She spends all of her spare time in her many roles including but not limited to soccer, basketball, swimmer, band, and piano mom, runner and wife. You may contact her via e-mail kellyology(at)gmail(dot)com.


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2 Responses to Tax Refund Part 1 – Two Scenarios

  1. Vicki says:

    Great content, Kelly!

  2. [...] Taxes If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!In part one we discussed a couple of different scenarios in regards to managing your Federal Income Taxes and [...]

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