5 Reasons You Might Not Want The Lowest Tax Bill

Most Americans would agree that a big refund is a good thing. And if you can't get that big, fat refund check, the lowest tax bill is the next best thing. But is this always true? Are there reasons why you may not want to pay the lowest tax possible in the current year? It may sound strange, but it could be the case. Here are a few reasons why. 

1. To Preserve Future Deductions. Just because you can take a deduction this year doesn't mean you should. For example, a sole proprietor might be able to use accelerated depreciation to deduct the entire cost of a piece of equipment. But this means you can't take any deductions for it over the next few years. If your income goes up later, that deduction could be more valuable in the future, so a slightly higher tax bill now may be worth it in the long run.

2. If You're Really Overpaying. Many big refunds come from a taxpayer overpaying their taxes throughout the year. If you have too much withheld or pay too much in estimated payments, that big refund is essentially your own money being returned annually. This can be a good way for some to save, but could you benefit from keeping that money all year long instead? You might be able to invest it or spend it on something you can use now.

3. To Meet Income Thresholds. Your income — both gross and adjusted — isn't used just to figure your taxes. It can also end up being part of calculations ranging from qualifying for government benefits and student financial assistance to which tax credits you can claim and for how much. So you may not want the lowest income possible if you'll need it for other reporting purposes. 

4. To Prevent Personal Issues. On the surface, income taxes are a purely financial matter. However, there can be personal and family issues involved too. While you might pay lower taxes by filing jointly, for example, you may be better off not signing a return you don't trust or dealing with a shared tax preparation appointment. Similarly, those co-parenting might compromise on how tax credits are divided in order to preserve harmony. These are legitimate concerns for many with taxes and should be weight against the financial costs.

Where to Start

Could you benefit in the long run by not chasing the lowest possible tax bill this year? Find out by meeting with an experienced tax preparation service in your state today.