Taxes and savings

Why you don’t want a tax refund is an article by Peter Diekmeyer at Bankrate.com. Every year there is an article like this one saying we should not be getting refunds, or at least not large refunds, because the money is ours to start with and there’s no point in leaving it in government hands, where it can’t gain interest. I always check them out in case there is something new, but I haven’t seen that happen yet.
Indeed, if I were to write that type of article, the title would be Why you don’t want a tax bill or Why you don’t want to wind up owing taxes. I can still remember having to deal with this about 25 years ago when my wife and I were still not officially married. I thought “common-law” was good enough, so I claimed her as a non-working spouse on the form you fill out when starting a new job. Only when I received the Tax Return kit did I realise that common-law spouses didn’t qualify. No matter how much I reread the accompanying guide, the message was the same.

I wound up owing just over $120. It may not seem like a large sum today, and I suppose it wasn’t all that large back then either. But I was only working part-time, and $120 was huge from my viewpoint.

Things have changed. Common-law spouses are now accepted for tax purposes. I married in the meantime, but it’s nice to know that common-law partners are now recognised as eligible dependents. All the same, it can be a balancing act when you never know from one year to the next whether both partners will be working or if you may be the only breadwinner. Therefore, I have made a practice of only having money deducted from my paycheque that I can reasonably expect to deduct when the time comes to file a tax return. In other words, I assume that my wife will find a job during the year and have more tax taken out of my pay. This means living with less from week to week, but it also brings rewards every spring.

Quote from the article: Many Canadians regard their lump-sum refunds as a sort of forced savings plan, which they spend on special items such as vacations or furniture when the cheques come in.

And I’m one of them! It’s easier to not spend money when you can’t touch it. For all of the experts’ opinions to the contrary, it’s a fact that many of us live in situations where money can’t just be stashed away. Something always comes up and usually can’t wait until the next cheque. So if the money is there, it WILL be used.

I see where the “experts” are coming from, and if they want to describe me as undisciplined, they can go right ahead! I plead guilty as charged! Perhaps I should take some of the money and pay down debts more quickly. But I would need a second income to make this happen, and I know it’s not in the cards anytime soon. So this will have to do.

This isn’t my only “forced savings plan.” I also have a sum deducted from each pay for a Canada Savings Bond. Unfortunately, this is too easily cashable in times of crisis. One year, when our out-of-province medical trips became far too numerous to bear, we made use of that money regularly. It was good to know it was available, but I still wish we could have left it untouched.

In any case, I’m not sure it would have been all that safe in the bank. These days, there are service fees and administrative fees for everything, and with the help of computers, staff are now stuck having to tell their customers that, “Once it’s done, we can’t undo it.” This wouldn’t happen with a government refund! Unless, of course, it was left in the bank.

It takes money to make money. If you’ve got it, good for you. I don’t, so strategies like deducting less for larger refunds make a whole lot of sense. And I doubt I’m alone in that category.