I have to say that this year, I am loving big tax refunds. We will be receiving over $5,000 back in state and federal income tax refunds. Even though this means that we gave the government a $5,000+ interest-free loan, I’m so happy we’ll now have $5,000 in one lump sum. In the words of the great British intelligence officer, Austin Powers, yeaaaah baby!

This is the biggest tax refund we/I have gotten since, well, ever. I doubt we will see a similar-sized refund anytime soon. This year is an anomaly because I only worked for 1/2 of a year, and I went back to school and so qualified for the Lifetime Learning Credit. A alum told me that our tax refund would be especially high this year, and I’m glad that turned out to be the case. The money, especially in its lump sum form, will be much appreciated.

Even though many personal finance experts argue against a large tax refund and counsel folks to adjust their deductions so they have more money with each paycheck, I think that big tax refunds, when used appropriately, can be an effective personal finance tool.

Why big tax refunds deserve some love:

1. It forces you to save for a big-ticket item such as a down payment on a car or a summer vacation, or even topping off your Roth IRA contributions.
2. By being conservative on your deductions, it minimizes the risk of having to make up taxes at filing time.

So big tax refunds, do you love ‘em or hate ‘em? And what is the biggest tax refund you have gotten?

Given that the tax filing deadline (April 18) is less than a week away, I think it’s safe to designate everyone who hasn’t filed his/her taxes yet a tax procrastinator.

Yes, I count yours truly in this category. But I have a good reason! I owe $1,300 on my taxes for 2010, so I am not eager to transfer my cash over to the IRS. I actually have put in all my information in my tax software program, now all I am waiting to do is to click the button.

I would much rather get a tax refund than to owe money, even though with a refund I am technically giving the government an interest free loan. The truth is I LIKE tax refunds – they are an enforced way of saving. Not to mention that given today’s historically low interest rates, the interest you would have missed out on probably can’t even buy a cup of latte.

Who is a tax procrastinator here? Are you procrastinating because you owe money or because, well, you are just dawdling?

When you are a W2 employee, your payroll taxes (normally 6.2%, 4.2% for 2011) are automatically taken out of your paycheck. The employer pays another 6.2% payroll tax. The difference between 1099 vs. W-2 is that as a 1099 employee (i.e. you make freelance income), you are responsible for the full employer and employee portion of the payroll tax. So while I am happy whenever I see a freelance check, I have to caution myself that my net earnings is significantly lower than the gross number.

If I don’t remember to set aside some money for taxes, I will be in for a rude surprise come spring time. For now I’ve been putting 25% from every check into a special account I’ve earmarked just for taxes (I believe I’ve named this account The Tax Man Commeth. I crack myself up!). I think this is enough, but I won’t know how much taxes I need to pay until I file. To err on the side oversaving for taxes, I know freelancers who put away 30% to 40% of their income for tax time.

Do you have a special account for freelance taxes? What percentage of your gross do you put away for taxes?

It seems that Dog Ate My Finances has created another uproar within the blogosphere by refusing to apply for unemployment insurance after a recent job loss.

Her feeling (that unemployment is equivalent to a hand-out – which I don’t agree with) may tick people off, but her action (not taking unemployment, which, in some teeny tiny way, lessens the strain on the whole system) should be something that benefits everyone in her state who is taking unemployment.

So I say, each to his/her own. If you qualify for unemployment assistance, don’t be ashamed to take it. Being on unemployment is not a sign of weakness nor a personal failing. If you decide not to take unemployment for whatever reason, then good for you, and don’t be ashamed to stand behind your decision.

In the end, we’re all just trying to do the best we can, by making decisions that mesh with our financial and personal goals and beliefs, right?

I owe close to $1,000 for federal and state taxes.

This is due to lack of a 401(k) this year – I could’ve brought down my taxable income by $15,500 if only my employer offered the 401(k) option to me. (Do you see why I am such a huge fan of a “universal” or “private” 401K? Any policy wonks listening? We need non-employer-based income-deferral program outside of IRA, please.).

I will have to wait for my paycheck to come in (April 15) before I e-file my return (April 15) and pay up to Uncle Sam.

Dear California,

I love so many things about you. The sunny weather of Los Angeles. The beautiful lights of San Francisco. The seaside breeze of San Diego. The quaint charm of Santa Barbara. I love your food and people and even your moniker, the Golden State. And I think Arnold has a legitimate claim to the title “America’s Toughest Governor.”

But… as a denizen of the Golden State, might I just offer a couple suggestions for improvement?

First, what is up with your taxes? 9.3% state income tax, then up to a 8%+ sales tax? Sure, you’ve got low property taxes, but let’s be serious. A low property tax won’t help if I can’t even afford the property.**

Can’t you offer some relief to us working folks? How about a state tax deduction for 529 Plans? Lots of states do it already… isn’t it time that CA joined in the fun? You’ve got one of the preeminent public university systems in the UC, but let’s face it. Even for a public school, UC’s aren’t getting any cheaper.

**Where’s this impeding real estate bust that I’ve been reading about? Why is the 2-bedroom condo next to me still selling for $450,000 (down from $475,000!) even with a “motivated seller”?

Sincerely,

Loyal (but over-taxed) Californian

Sigh. So, I would not be eligible for the Economic Stimulus refund because my parents claimed me as a dependent on their return. (Not that I’m complaining.. they did support me for 22 years, after all).

My tax obligation for 2008 will be high because I can shelter only ~$5,000 of my income (the standard deduction). A 401(k) wouldn’t be available for me until 2009 and I choose a Roth IRA over a tax-deductible traditional IRA.

My estimated state + federal refund for 2007 is a measly $800. (Yes I know about all the arguments for a low refund – free loan to the gov’t – yada yada yada… but still!)

I don’t regard taxes as just a necessary evil – taxes enable the government to fund “public goods” that markets simply cannot provide (not to discount the fact that waste or fraud can and do occur or that taxes don’t create inefficiencies). Taxes can create positive incentives (hello tax-advantaged retirement accounts!) and discourage negative behavior (taxes on pollution, for example).

Despite my very rational (and common?, I’d imagine) thought on taxes, the visceral reaction to difference between my gross income and my take-home pay is not a pleasant one. I think of every dollar on my paycheck as MY hard-earned money, and I don’t like to see this FICA dude take MY money.

Bah humbag.

So I got my tax returns back from the accountant, and this is what I found in the client notes section:

“Your projected economic stimulus payment is $0 because you are ineligible for the rebate or your federal Adjusted Gross Income exceeds the economic stimulus payment AGI limits.”

!?!?!?

Let me repeat that.

!?!?!?!?!?!?

According to my understanding of the economic stimulus package, single filers with an AGI of $75,000 or under will generally receive $600.

I most certainly did NOT have an AGI of $75,000+ in fiscal year 2007.

The most likely explanation is that the accountant plain typed wrong. If so, I need not worry. According to the IRS website: “You do not need to calculate the amount of the stimulus payment. If you qualify, the IRS will automatically figure it and send it to you. The IRS will also send you a notice showing the amount of your payment. You do not need to call the IRS or fill out any other special forms.”

This is what I’m going to do: give Mr. CPA a call and sort this whole thing out. But I’m fairly confident that I WILL get a $600 check back and do my part for the good ol’ US economy.

Still. A call for my peace of mind won’t hurt.