Vivian Tu: Why a Smaller Tax Refund Means You’re Doing Your Taxes Right
Written by
Nicholas Morine
Edited by
Jenna Klaverweiden
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
In a recent Instagram post, money expert Vivian Tu recently spoke to her audience about a topic currently on so many minds: tax refunds.
While it may seem like common sense that one would be overjoyed to be receiving a hefty sum in the form of a tax refund, Tu made it clear that it’s actually better to receive a smaller refund (or none at all).
Also see three tax questions that sound small but change your refund big-time.
Why Getting a Smaller Tax Refund Shows You’re Doing Your Taxes the Right Way
Setting up a one-woman skit in which Tu played both roles, an overjoyed person talking to their friend about their $1,500 tax refund this year, the finance influencer outlined a compare-and-contrast situation.
Upon hearing that her friend was actually happy to be getting nothing back in taxes, the refund earner asked exactly why that might be. Tu’s tax-savvy character said, “[Your refund’s] not free money; it’s your money that you’re getting back late.”
Noting that this is similar to loaning the federal government your money interest-free, the smarter tax preparer continued to say, “I got to keep my money in my pocket — and in fact, I invested it,” adding that over the past year, her $1,500 delivered a 16% return on investment, ending up with almost $1,750.
How To Reduce Your Tax Return
Tu then pivoted to offer up some practical advice to viewers as to how to keep more money away from the taxman, skipping a later return in favor of free cash flow that can be wisely invested.
In this case, that solution came in the form of IRS Form W-4, formally known as the Employee’s Withholding Certificate. By using this form, you can dial in the precise amount that should be taken out of your check.
There’s one caveat, though, as the money personality pointed out: Be sure not to lower your withholding amount too drastically. Nobody wants to be staring down the worst-case scenario of an immense tax bill next year.
For self-employed individuals or those with a more complex tax situation (or for W-4 filers who would like expert guidance to avoid costly mistakes), it’s best to speak to a tax professional before adjusting your regular payment schedule and amounts.
More From GOBankingRates
