Some people have asked me whether they should file a tax extension (tax form 4868) if they can’t afford to pay their tax bill. Unfortunately, being unable to pay your taxes isn’t a reason the government accepts to file an extension. Neither is procrastination.

The only reason I can think of for filing an extension is if there’s a delay in receiving one of your tax documents that will materially alter your taxable income. The most common form that’s sometimes late is the K-1 form from a business partnership, S corp, or trust and estate beneficiary. You should always be able to receive your 1099s and W2s on time.

The K-1 form from my venture debt investment won’t be coming out until the summer. As a result, I’m forced to file an extension because there’s several thousand dollars in pass through income I’ll receive, which requires tax payments. I’m owed refunds of about $1,000 from both Federal and California, so waiting several more months to file isn’t a big deal. If I owed, then I’d still have to pay at least 90% of what I think I owe to avoid penalties. Extension filers have until October 15 to submit their returns. 

The average tax refund is around $1,850 in America according to the IRS for 2018. That’s down 8.5% from the year prior due to Trump’s Tax Cuts And Jobs Act which raised taxes on Middle Class Americans.

Since saving, or not spending $154 a month is difficult for many, I’m OK with such a refund.

With basic savings interest rates around 2.4%, your opportunity cost is not huge.

If we are to compare the average tax refund to the average per capita income in America of $61,000 (~$40,000 after tax), $1,850, or roughly 3% of income is a pretty meaningful number.

Your goal should be to not only max out all your retirement plans (401K/IRA), but to also then save another 20%+ if you’ve been a long time reader of this site.  With 7% out of 20% down, you’ve only got to find a way to save 13% more!  Not bad at all.

There’s a big debate on whether you should have a tax refund at all, given that simply means you overpaid our incredibly inefficient and wasteful government.

Since most people can’t save for cookies, I’m of the opinion that a tax refund is good for most people.

A QUICK MENTAL EXERCISE ON YOUR TAX REFUND

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This post is sponsored by H&R Block.

In 2000, I paid a CPA $500 to file my incredibly simple tax return because I had no idea what I was doing. Granted, I had a lot of trades in 1999 to calculate since it was the dotcom mania back then.

After realizing $500 was expensive, I paid $250 for an H&R Block CPA to do my taxes and show me the ropes for a couple years. After getting comfortable with all the forms and jargon, I started doing my taxes myself using H&R Block’s tax software. They started with a CD-ROM that I had to buy at an electronics retailer, but now everything is online, thank goodness.

I’m probably never going to pay a CPA to do my taxes again because H&R Block’s tax preparation software is so easy to use from home. It will ask you questions about your situation before getting started so it has the right forms for you to fill out. Further, the tax software is always up to date with the latest tax rules.

For those of you who want to have a H&R Block tax professional do your taxes remotely (because who wants to go to an office), they’ve come up with the H&R Block Tax Pro Go program. I tried them for one year because I had questions regarding a couple K-1 filings from my private investments. It was very helpful to talk to a tax professional who inputted the information for me when I was stuck.

I firmly believe tax policy changes behavior. The higher your taxes go, the BETTER your life becomes! Why? Because at the margin, the less money you keep, the less motivated you’ll be to work. Since the love of money is the root of all evil, the less time you spend chasing money, the happier you will be.

One of my catalysts for leaving work in 2012 was because the finance industry was in a structural decline. We were working longer hours for less pay. At the same time, we faced a progressive tax system where we had to pay a 39.6% Federal tax rate plus a 3.8% Net Investment Income tax plus a 0.9% Medicare tax plus an Alternative Minimum tax plus a 13% State tax plus Social Security tax plus Sales tax plus retroactive State taxes to pay for government overspending. Instead of complaining about paying a 60%+ marginal tax rate, I just negotiated a severance to make no money as a writer.

My life since leaving work has never been better, all because I decided to focus on maximizing freedom instead of maximizing net worth. When you’re in the grind, it’s hard to fathom the benefits of giving up a steady paycheck. But the benefits truly are incredible.

For those of you who naturally like to work more when you can keep more of your money, here are three items from the new tax plan that will ruin your life or your family if you are not careful.