Is a Big Tax Refund Really a Good Thing?
A recent Wall Street Journal article caught my eye because it raised a question taxpayers rarely ask:
Should getting a large tax refund actually be the goal?
A large tax refund does not necessarily mean you SAVED money on taxes. Often, it means you paid more than you owed during the year (and gave the government an interest free loan!).
Suppose your final tax liability is $50,000 and you paid $70,000 through withholding and estimated payments. The $20,000 refund is money coming back to you. Your tax bill was still $50,000.
Before celebrating the refund, ask whether some of that cash could have stayed in your hands.
What Could That Money Have Done Instead?
For a business owner, an unnecessary overpayment might mean less cash available for payroll, debt repayment or reserves. For a real-estate investor, it could mean less flexibility to cover repairs or fund the next purchase.
That does not make every refund a mistake. Refundable credits can produce money back even without an overpayment, and changing income or deductions can affect the final result. If you receive a large refund year after year, review how your payments are being calculated.
Owing at Filing Is Not Automatically a Problem
I like owing a little bit come tax time. That means the government gave ME an interest free loan for X months and I got to use that money either to reinvest in the business or invest it personally. A planned balance due can be reasonable when you have met the applicable payment requirements during the year and pay the remaining tax by the April 15 deadline. Another common theme is that taxpayers think if they file an extension that means that they don't have to pay until October 15 - that is NOT the case. The extension is to FILE, not pay taxes due. Avoiding an underpayment penalty does not necessarily require paying your entire final tax bill in advance.
Timing matters. You can owe an underpayment penalty and interest for insufficient or late estimated payments even when your return shows a refund. Sending extra money at year-end does not automatically fix earlier shortfalls. The amount you pay and when you pay it both need attention. As I tell clients, the meter starts running in Q1 and if you don't withhold or make quarterly estimated payments timely, you will get hit with those penalties and interest.
Review Your Numbers Before the Next Payment
Before changing withholding or reducing an estimate, update your tax projection. Last year’s return is a starting point, but changes in income, deductions and credits may call for different payments this year.
You should start with three questions:
What has changed? Review business profits, wages, bonuses, investment gains and property transactions.
What have you already paid? Confirm withholding, estimated payments and credits, including payment dates.
What decisions remain? Evaluate retirement contributions, charitable giving and planned transactions. Set aside cash for any projected balance due.
For business owners, this work starts with current books. Outdated financials make it harder to judge how much cash is available and what to reserve for taxes.
Know What You Owe Before Filing Season
At Realm Business & Tax Advisory, we connect tax planning with business results, cash flow and personal financial decisions throughout the year. There is still time for business owners and Individuals to do implement creative tax mitigation strategies to lower their tax bill. We are currently scheduling these tax planning meetings before year end because once the new year hits, there is nothing that we can do to change 2026 income and expenses.
An actionable planning review will leave you knowing what you will owe, what (and when) to pay next and which strategies you can implement. Just getting a refund does not equal a great tax plan.
Schedule a 2026 tax planning review with Realm Business & Tax Advisory before making your next estimated payment.