shutterstock_792887599-scaled-e1669411089935.jpg

Is it a terrible idea to rely on tax refunds or bonuses for budgeting?

In the spirit of tax season, someone recently asked, “Is it bad to rely on tax refunds and bonuses when budgeting?” They clarified that revenues had been stable over the past few years, but were not sure whether it was appropriate to include them in the budget. Here are the answers with the most votes.

1. None of them should be enabled

One person suggested that you refrain from calculating bonuses and tax returns for planning purposes. Instead, consider adjusting your W-4 withholding to reduce your tax refund. Another argued, “For some people who are bad at saving, a refund is better than letting the government keep their money interest-free.”

2. You never know what will happen

Another explained that his wife had a substantial large pre-COVID annual bonus. So even if it used to be constant, it doesn’t mean that something unexpected won’t change it.

“I just think about National Lampoon Christmas Holidays and Clarke writes a check he can’t cover for the pool, planning to pay it off with his bonus, and then gets the Club Jelly of the Month instead,” confessed another. “That there is a gift that keeps on giving.”

3. Depends on the circumstances

One user suggested, “A budget for a home? No. When planning a vacation, you can shorten it or cancel it if your bonus does not come. Of course. If it’s debt that you can’t get rid of in an emergency (house, car, baby, credit card), you stick to your paycheck.”

4. Base budgets based on base pay

“Budgets should be based on base wages (net wages),” one responded. “Anything you receive on top of that, such as bonuses, gifts, stimulus checks, rebates, refunds, etc., should be treated as extras that you can use to save and invest. It’s not what you pay your rent with because you’ll go broke if someone fails.”

5. Only in writing

“I have a guaranteed bonus in my contract. I plan for this bonus when budgeting because it is an expected part of my compensation. I wouldn’t include any bonuses that weren’t spelled out in writing,” one suggested.

“I also agree with what others are saying about tax refunds. If you’re not trying to get paper bonds or whatever out of your refund, stop giving the government a free loan and adjust your deductions.”

6. Never include uncertain money

Many in the thread agreed that you should never count dollars that you don’t already have in your bank account. One elaborated: “I have made this mistake too many times and will never do it again.”

7. Tag them

One person suggested not relying on it for daily budgeting, but felt it could allocate or plan with them. They continued: “Therefore, planning how to cover the rental or repair of a car through a tax refund is not very good. But planning major improvements to your home (like upgrading an outdated but functional bathroom) around your refund makes sense.”

8. Changes in tax legislation

Many in the thread suggested that tax laws change and it’s never good to rely on income as income that should be budgeted. One elaborated: “I had a constant return of 30-50 thousand until this year, when I owed 80 thousand. Sometimes tax laws change and strange things happen. It’s better not to rely on it.”

9. Adjust your retention

Several users in the thread agreed that if your tax refund is significant enough to factor into your budget, your deductions are screwed. One of them added: “Stop lending to the government at 0%, especially when there is inflation.”

Another added: “Life Pro tip: If you want to pay every year and not get a refund, talk to your employer to adjust. Then open a money market account and deposit 25% monthly in your tax bill. You should be making money by saving/investing it, not the feds.”

Popular Reading: 47 Amazing Ways to Earn an Extra $1,000 a Month

10. It depends on the job.

Finally, one of them explained: “When I worked in sales, my bonus was 40-50% of my total remuneration. It was part of my budget that I couldn’t live without. This has also been guaranteed in writing based on specific performance measures. Now, as a software engineer, my bonus is more like 15% and depends on the results of the company. So I’m planning without it because it’s not guaranteed.”

We hope you enjoyed this discussion on Reddit about whether tax refunds and bonuses should be budgeted. This article is inspired by the Internet and does not necessarily represent the views or opinions of Wealthy Nickel.

More from Rich Nickel:



Tags: , , , , , ,
Previous Post
shutterstock_618433028-1.jpg
Credit Cards

The best credit cards for grocery stores and supermarkets

Next Post
shutterstock_1811805988-scaled-e1674535474521.jpg
Credit Cards

10 tips for people with $100,000 credit card debt

Leave a Reply

Your email address will not be published. Required fields are marked *