Uncle Sam to You: “Thanks for the loan”

When you need to borrow money from a bank or lending institution to buy your house, you get a mortgage. It’s a loan and you pay that money back over time with interest.

When you need to borrow money for a car, you get financing or a bank loan. Both are loans and you pay that money back over time with interest.

When you want to buy something on credit, you pull out your credit cards and buy it. Guess what. Your credit card is a kind of loan and you pay the money back with interest.

Throughout the year last year, you paid taxes to the government. After filing your tax return, you might be expecting some money paid back to you. Guess what. That’s a loan, too. It’s a loan you made to the government. Now here’s the bad news: It’s interest free. You overpaid and you’re getting your money back. But it was yours to begin with.

At this time every year, I go on a mission to tell people not to get too excited about their tax return. They didn’t get money from the government. Instead, the government paid them back what they had overpaid.

So, when you get your money back from the government, you should do three things:

First, you can celebrate (but just make sure you’re celebrating for the right reasons).

Second, you should do a few things with that money (and this article gives some good suggestions).

Third, make arrangements to reduce the amount of taxes you pay through the year so that next year you don’t get as much back. The perfect tax return should be one where nothing is owed and nothing is refunded – “absolute zero”, so to speak.

Jessica Routier, IAC-EZ