Many people receive tax refunds each year. In fact, the average refund in 2023 was $2,903 as of the week ending March 24, 2023. That’s a substantial amount of money, and it means many people look forward to filing their taxes so they can get a big check.
I am not one of those people.
In fact, I end up writing a big check to the IRS each year, and this year I’ll be writing an even bigger one out of my checking account While this may sound like it’s not very fun, the reality is that I’m happy to have to pay when the tax deadline rolls around (April 18 this year). There’s two reasons why that is the case.
1. Owing a lot in taxes means my income has increased
The first big reason why I’m very happy to owe the IRS a lot of money this year is because the fact I have to pay a lot means that my income has increased.
Since I am self-employed, I send in quarterly estimated payments to the IRS every few months. My estimated payments are based on what I made and how much I owed in the prior tax year. If my income goes up, the estimated payments will not be enough to cover my full tax costs.
That’s what happened to me this year, and in most years. As I have made more money, my estimated taxes have not been sufficient to cover the amount due for the upcoming year. I’ve also moved up into a higher tax bracket so that means I end up owing even more.
While I’m not necessarily happy to be paying the government extra, the reality is that with a progressive tax code, higher earners pay more. So, I’m happy to owe more money since it means my income has gone up. I’d much rather have that outcome than make less than I did before, even if that meant I’d get a refund.
2. Having to write a check to the IRS means I didn’t provide the government an interest-free loan
Another big reason why I am happy to owe the IRS money is because having a tax bill means I didn’t give the government an interest-free loan.
Each year, I try to pay the minimum I need to in order to avoid penalties. I don’t want to give the IRS anything extra above and beyond that until my taxes are actually due. The IRS doesn’t pay interest when you pay taxes early, so I’d rather keep my money and put it into savings where I can earn returns on it until I have to send it in.
The money also remains accessible to me that way so I can use it if I need it — which wouldn’t be the case if I sent it to the IRS and had to wait until after I had filed a return and secured a refund to gain access to my own cash.
For all of these reasons, I’m happy to owe the IRS money this year and I hope I keep owing it a lot every year for a long time to come.
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