At the end of the year, is it better to owe the IRS or for the IRS to owe you?

Or to try to maneuver things so that neither owes the other?

I have a friend who puts 0 on her W-4s because she loves getting a huge refund check around April. I always thought there was something wrong about letting the government hold my money, interest free, although the possibility of owing a large amount scares me a little. Hopefully I can scrape up enough deductions this year. :scared:

if at the end of the year they are +/- $300.00

you should be earning interest on. They don't pay you interest on over withholding.

I work as a tax preparer and I have seen people get messed up either way, so I offer these ideas.

If you owe the IRS the interest and penalty on past due payments is worse than most loan sharks. So:

Best - If you have the willpower, you can save your money and earn interest on it during the year and then pay up to $1000 for the calendar year without any penalty. If you owe more than $1000, the IRS will expect you to increase your withholding, or pay estimated taxes, as applicable, or you will have a 10% penalty the next tax year. You have to be sure to save the money instead and then give yourself the "refund" above what you owe the IRS. But keep your tax due to the IRS under $1000.

Next best - break even - owe no more, or refund no more than $300 - works best if you don't have the willpower or the financial capability to save it yourself during the tax year.

Worst - owe the IRS and don't have the money to pay by the deadline and get an installment agreement with the IRS. You may never recover!

reality is such that, for some people, if they do not "over withhold" and go for the big tax refund, they would have no vacation savings at all and end up either not going anywhere or not visiting family that year or (more likely) running up credit card debt

so i have stopped scolding people who go for the huge refund check, it works very well for them

money that is taken off the top for "taxes" is not missed or spent, it is a primitive form of forced savings but it seems to work