Letter: Taxes

In his recent article, My Experiences And Lessons Learned As A Suburban Prepper – Part 2, by CGman, the author states: “Depending on my tax refund this year…”

Many people look forward to getting a tax refund from the government, seemingly because they regard this as “found money.” It is not; any refund on taxes paid is money you loaned the government tax free and have not had the use of some of it for as long as the full tax year.

I recognize there are those among us who lack sufficient self-discipline to manage their finances, or who do not understand they are making interest free loans to the government by overpaying taxes and getting a refund. I would think someone actively engaged in “prepping” would have a better understanding of how taxes and refunds work.

It is a valuable technique to perform a quarterly financial and tax review, especially as regards tax payments, whether they be done through withholding or quarterly payments. The IRS will levy penalties in the event one fails to pay at least 90% of one’s tax obligation by December 31 each year, but that does not mean one should pay over 100% of one’s obligations by December 31.

It is greatly more worthwhile to, first, adjust tax payments (however they are made) to pay between 90% and 95% of one’s obligation by December 31, leaving a small amount due on April 15. This prevents overpayment and allows use of the funds in the meantime.

If one must have a (pretend) “windfall” in April because of one’s lack of discipline or psychological needs, a better solution would be to have a percentage of that “windfall” extracted from one’s paycheck (or monthly stipend) and deposited in an interest bearing account at a financial institution. It is simple to set up automatic periodic transfers from one account to another. If one lacks trust in financial institutions (quite understandable, and I do not believe such mistrust is erroneous) one may withdraw the funds monthly and secure them in other vehicles (such as silver, gold, food, ammunition, tools, fuel, clothing, et cetera, or even the proverbial mayonnaise jar buried in the yard, if one is so inclined) as the year progresses.

This technique both controls risk– no more than one month’s amount is in jeopardy– and allows use of the funds yearlong. It is quite probable entirely that having 1/12 of a year’s “tax refund” on January 31 (and each month thereafter) is substantially more beneficial than having 12/12 of it in May of the following year.

It does, however, require a certain amount of self discipline, which is a topic for another time. – N.K.