I Like Owing at Tax Time

You read that title correctly: yes, I do like to owe at tax time, even if I actually don’t plan for it.  You see I actually plan to get a close to zero refund as I can with my tax planning.  So I fill out my TD1 forms, calculate my RRSP contributions and guess a little at the year ahead in order to get no tax refund or owe anything.  Yet as you are likely aware life never works out that way.

So owing tax at the end of the year is a good sign to me as that means I earned more than I was guessing at the start of the year.  While yes that does mean I end up having to consider paying a lump sum payment after I file my taxes I really don’t mind for the most part.  After all I usually keep some money in saving to cover off this issue if I start to notice that I’m earning more than I would have guessed.  Actually in late 2011 I made an extra lump sum contribution to my wife’s RRSP since I noticed I was doing much better on income than I thought I would.

I used to tax plan like most people and be very conservative on my estimates and would often get a refund at the end of the year.  Then it occurred to me that I was giving the government an interest free loan of ‘my money‘ ever year that happened.  So I decided to change my plan and aim for the zero refund.

I would caution that aiming for a zero refund in general takes more work.  After all I often have to change my TD1 form at work in order to adjust for any changes that will occur in the year ahead.  I also intentionally keep my taxes taken off my second job low in order to give me a bigger cash flow during the year which makes saving in our RRSPs easier.  By the way, in case you were not aware of this fact the easiest way in the world to owe taxes is to have more than one job, since each job only assumes you only work for them you never get enough tax taken off at the second job. (In technical terms what happens is both work places assume you can use your basic tax deduction, when in fact you can only claim that once.)  In order to compensate for this you either have to ask for extra tax be taken off on your TD1 form or contribute most of that second income to RRSPs.  I personally go with the second option as saving is easier with a larger cash flow during the year.

How do you plan for you taxes?  Do you like to owe money or get a small refund? Also can you tell I’m getting ready to do my taxes since this has been on my mind lately? 😉

8 thoughts on “I Like Owing at Tax Time”

  1. “Then it occurred to me that I was giving the government an interest free loan of ‘my money‘ ever year that happened…”

    Even better when you owe at the end of the year, the government has essentially given YOU an interest free loan of “Their Money”. 🙂

  2. When I was working, I almost always owed at the end of the year due to taxable investment income which had nothing withheld in taxes. Most of the time, I had to pay a few hunderd dollars at the end of the year in estimated taxes if the December mutual fund distributions were unexpectedly high (in the late 1990s this common).

    On the state tsx side, however, I usually paid as much as I could (in estimated taxes) in December while still owing a little in April because I could then deduct the state taxes on my federal return the following April instead of waiting another year to deduct them.

    Now that I no longer work, I have nothing withheld and pay only estimated taxes so I can always make sure I owe a decent blob while find one of those “safe harbors” to avoid any tax penalties.

  3. This will be my first year having to pay the Government at tax time. My father always taught me to contribute a little extra to my RRSP in February “Just in case” I owed any taxes.

    This year I took a good hard look at the future, weighed in interest rates, the economy and how the baby boomers are starting to retire. Right now there are 4 taxpayers for every 1 retiree. After the baby boomers all retire there will be 1 taxpayer for every 4 retirees.

    In the future, taxes will have to be heavily increased to offset the lower amount of taxpayers when I retire and start withdrawing from my RRSP.

    I would rather face the music now and pay the extra taxes for the EXTRA money I made and keep my RRSP contributions to a minimum.

  4. For the first time, I am not getting any money back this year. While it is disappointing not to receive a lump sum, I realize its actually good that I’m not giving the government an interest free loan! I worked a second job this year and had them take a small lump sum per pay period for taxes. I estimated pretty well as my refund totals $5!

  5. I have owed at tax time the last two years, and expect to again this year. As long as it’s less than $2000, the government doesn’t mind. More than that, and they start asking for quarterly instalments. That’s probably what I’ll have to do this year 🙁

  6. I generally get a $1500/1600 back mostly due to income splitting with the house spouse and I don’t mind the government gets the money interest free, I can feel patriotic, heh.

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