Why Pay Taxes Before They’re Due?

Render therefore to Caesar the things that are Caesar’s, and to God the things that are God’s – Matthew 22:21

Taxes are a periodic expense      photo 3 1040
Most of us don’t think about taxes—until they’re due. Except for sales taxes, which might as well be considered a part of the purchase, payment is scheduled periodically, usually annually. But like all periodic expenses, they have to be budgeted each month. Actually, income taxes are collected periodically, with each paycheck, assuming your income is paid by an employer. Everyone knows that, but here’s something a lot of people don’t know apparently. They overpay, and do so deliberately, because they use this as their savings account.

How can I say this so I don’t hurt anyone’s feelings? This is D. U. M. B.

Since I worked in accounting, I got to know a lot of accountants. I didn’t know one of them to ever get a refund on their taxes. There was this one accountant who made it a ritual to wait until April 15 to start working on his taxes, and he was in the car line-up at the post office at twelve o’clock midnight. I don’t cut it that close, but I wait until the last week. I knew this other accountant who always filed for an extension. Why, I don’t know since you have to pay the amount you owe on April 15, whether or not you file for an extension to file the forms.

What does this tell you? That the people who know how the system works never overpay. They put off what they pay until the last minute because the money stays in their hands, not the government’s, and time is money. The government doesn’t pay you interest.

It’s complicated on purpose

The federal tax code is over 70,000 pages long and growing. Every page has been lobbied for and continues to be. Remember when Bill Cosby explained why they couldn’t get the children to leave home. With eyes bulging, he said, “These people are serious.” A funny line when referring to kids who want to keep living off their parents. Not so funny when it’s those who want breaks written into the tax code so they don’t have to pay as much as the rest of us. But make no mistake, those who lobby for their favorite part of the tax code are serious—a lot more serious than the American public who pay before they have to, then have to pay preparers because it’s too complicated to do their own and follow the rules contained in 70K pages. The preparers have their lobby too.

I doubt that anyone in government really wants this to change. The only movement to come around for the purpose of tax reform and reduction is the TEA Party. Taxed Enough Already. A catchy name. Some serious people got involved, serious enough that the supporters of the status quo started a media blitz to cut this effort off at the knees. Is it any surprise that the IRS targeted organizations associated with the TEA Party? It might be that the TEA Party is a serious threat to the tax structure, not because the members are conservative.

Since tax reform isn’t likely to happen any time soon, we’ll have to deal with the situation, which means budgeting for taxes–federal, state, and local. If these aren’t taken out of your paycheck, you’ll have to account for them in your monthly expense budget, but you can keep the money in your bank account until the taxes are due.

People who use tax withholding for savings do so because having someone else hold their savings keeps them from spending it. That does make sense, but it also indicates those people can’t control their money. No one can live richly unless he can control his money, so more on that subject later.

Get an instant pay hike

If you get a sizeable refund this year, do yourself a favor and have your withholdings adjusted to reduce the excess. You’ll get a pay increase just like that. But you’ll also have to put the increase in your savings to pay for that vacation or down payment on a car or whatever. Don’t do it expecting to earn much interest but simply for the principle of the thing. You’ll be on the way to using your money as it’s meant to be used—to serve your needs and wants.

Pay Caesar what he’s due, but not before it’s due.photo 5 tax clock

Next week I’ll discuss tax preparation for those who do their own, or even those who don’t. You may discover it’s simpler than you think, because most of those 70K pages of tax code don’t apply to most of us. Make sure you don’t pay more than is due either.

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