Suze Orman: Don't Make This Big Mistake On Your Taxes

That refund check may seem exciting, says Orman, but it's actually a red flag.

As tax season continues, many Americans look forward to a hefty refund. But Suze Orman, financial expert and the best-selling author of “Women and Money,” says getting that check from the government shouldn’t be a reason to rejoice.

“If you’re getting a tax refund, you are making one of the biggest mistakes out there,” she tells CNBC Make It.

That’s because a refund is an indication that you’ve basically given the government an interest-free loan.

Here’s why: If you typically receive a substantial refund, it means that more taxes are taken out of your paychecks than you actually owe. The government uses that money throughout the year and then, when you file your taxes in April, it pays you back the extra amount you contributed.

If you adjust the amount that’s withheld from your income so less is taken out, you’ll get a smaller refund, or no refund at all, but you’ll see more money in each paycheck.

Though getting a refund may feel like a windfall — the average one is around $2,600 — Orman argues that you could put that money could to better use throughout the year. After all, “it’s not as if the government pays you interest on that money,” she says. “You have money that they are holding for you just to get a refund, when you could be getting that extra $100 or $200 a month.”

That money could be going straight into a retirement account, where it could start earning interest, for example, Orman suggests. Or you could pay down your credit card balance or student loan debt and avoid racking up additional interest there.

You could “do all kinds of things with that to create more for yourself,” she says.

For Orman, the bottom line is that getting a tax refund is “the biggest waste of money that you will ever get.”

Adjust your withholding so you’ll get more over the course of the year and less at tax time, she suggests. To do that, you’ll need to review your W-4, which is the form that determines how much income tax is withheld from your pay.

If you’re not sure how much you should be withholding, the IRS calculator can give you an idea.

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Suze Orman: If you get a tax refund, you’re ‘making one of the biggest mistakes out there’ | CNBC Make It.

[lemontea]

"adjust everything"

Okay cool. How?

[Je.rone_]

I try to explain this to people but they are conditioned to believe this is not a refund but some magical gift from the gov't because you work

[ReppinCTandATL]

I disagree. Most people find it easier to save money when they get it in large chunks. Plus you run the risk of owing when you start messing around with exemptions.

[HostDotPromo]

Love it or hate it, you can learn a lot online.

[richardwalker]

While she is technically correct, it's been a long time since she has earned at or below the median income. For those at or below, it's very hard to save. Just as soon as you save a little, something comes up and it's just to easy to put that money to use. If we allow the IRS to hold it for us, it can add up to large enough balance to replace that broken down washer. And, for those lucky enough to not need the washer, a vacation to some place other than your backyard would be nice.

[unleashingpotential-psycho]

I definitely need to avoid this tax mistake!

[UncleJu]

Would be nice if she explained how to do so, but hey I don’t want to ask for much.

[tonysteel]

Suze is absolutely correct; yet I don’t mind the annual windfall. I’m debt-free, and I manage to reserve at least $20, 000 a year. 🏛

[tcshy]

It makes sense! I love getting the refund too.

[jeanp.]

2021 is goin to be the first year I do my taxes by myself and I did not work in 2020. Who can I get to walk me through the process. And yes I will have to file taxes because I contributed and earned dividend from my Roth IRA and my individual brokerage account.

[XKillerX]

Just be like her, expense everything and dont pay taxes so in the end of the year u dont get a dime

[blablabarb]

I lost respect for Suze years ago when she said people should get jobs based on their credit score. Also, this is not new tax advice, who doesn't know this information.

[HeyitsKimberlee]

I already did my taxes...let me watch anyway.

[khandibaugh]

Sounds good in theory, but most people will waste it.

[devinmekeletiongco-martone]

Short answer..

Write the word EXEMPT in the exemption box!
And Voila, problem solved.