February 5th, 2016 | Miller Advisors

Tax season – owing vs. receiving

February 1 marked the deadline for employers to have provided their employees with their 2015 Form W2’s. If you have yet to receive your form in the mail, it’s time to nudge your boss.

If you are lucky enough to be receiving a tax return this year, you’ll want those funds back sooner than later, and if you owe money to the IRS, you should at least have some perspective as to how much you’ll owe. But is it better to receive or to owe?
This is a question that will be disagreed upon, so it’s best to weigh the pros and cons of both:

Tax Planning Strategy #1—Owing on Your Taxes

Pros:

  1. You’ve minimized the amount you pay to the government throughout the year.
  2. You can grow this money in an interest-accruing account.

Cons:

  1. Your taxes will likely be more complicated, so you will need to be thorough and accurate when filing your tax returns.
  2. You don’t want to take investment risks if you’re unsure of what your tax obligation will be come April.

Tax Planning Strategy #2—Waiting on a Federal Tax Refund Check

Pros:

  1.  You will receive a nice lump sum once your tax return has been approved, assuming you’ve maximized your refund by filing correctly.
  2. The money you receive can be looked upon as a savings account—it’s money you have not had in your hands all year, so there has been no temptation to spend it.

Cons:

  1. You end up paying the government more out of each paycheck than necessary.
  2. There is a chance that you will be tempted to spend your return in an irresponsible way.

If you’re a spender, it might be best to file so that you get a refund—whereas if you tend to save, you’ll be OK to file so that you owe money come April. No matter what, it is best to sit down with your employer’s HR manager to discuss your tax withholding options in detail so that you opt for the best plan for your lifestyle.