It is impossible to avoid the radio and television commercials for H&R Block and Turbo Tax this time of year: And they all pretty much have the same theme: We get you the maximum refund possible!
They've got it all wrong.
I can get you the maximum refund possible too. That's easy. Just have 100% of your paycheck withheld. Everything goes to taxes and you will get the maximum refund possible. If you want to go beyond the maximum, then you can make quarterly estimated tax payments too. Come tax time you'll get all of the excess you paid in back. Which means you made an interest free loan to the government, by the way.
The idea is to pay the least amount of tax legally possible. It is actually better to pay on April 15 the largest amount possible while avoiding any penalties. That way you hold onto your money longer, and earn some interest off of it too. Planning for a big refund is taking the easy way out.
You also do that through planning major transactions, ideally with the assistance of a qualified professional. The money you pay the professional will be far less than the tax savings you will realize.
While I'm on the subject: I think refund anticipation loans are horrible. I don't know what the interest rate is, but it must be sky high. But what really bothers me about them is that they put the interest of the tax preparer against that of the client. If I'm doing the return year in, year out for a client, it would be in my interest to do the tax planning to make sure the client gets a big refund. Then I can offer the refund anticipation loan and make money off of that too.
I don't sell investments or insurance, and I'll never offer refund anticipation loans.
Now don't get me wrong. H&R Block and Turbo Tax provide a valuable service to the American taxpayer. But they are not providing a good service when they misinform people on the real goal.