“Don’t ever get an income tax refund. You’re just giving an interest-free loan to the government.”
If I had a nickel for every time I heard that, I’d probably have enough to double my last income tax refund.
Yes, I’m a bad personal finance aficionado. After years of owing a little bit of tax at the end of the year -- which is exactly as I planned -- I’ve gotten tax refunds the last couple of years. I don’t sweat them, either.
Yes, it’s true that an income tax refund is the equivalent of giving the government an interest free loan. But in today’s world of 2% GICs and so-called “high interest” savings accounts paying even less than that, the net result is hardly worth sweating.
Say I get $2,000 back at the end of the year. If that money was invested in a GIC earning 2%, I would have earned a whole $40. Big deal.
Besides, taking off too much tax can act as a quasi savings account for some people. They’ll spend an extra $200 per month but $2,400 coming all at once motivates them to do something smart with the money like put it into a TFSA or RRSP.
There’s also the risk of coming up short at tax time. Many people fail to plan for the increased tax expense of having a side hustle. Getting a little too much taken off your paycheque can mitigate the danger of being forced to come up with thousands of dollars in April.
Yes, ideally you’d put yourself in a position where you don’t get a big tax refund. But if you do get one, don’t sweat it. Just make sure you do something smart with the cash.
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