Do you pay estimated taxes? If you are supposed to pay estimated taxes and you don’t, there can be a penalty for underpayment. The penalty for underpayment is interest. Interest rates have been very low for many years and some people have underpaid their taxes and not been bothered by paying the interest to the IRS. This could become a lot less attractive as interest rates rise. How much is it worth to you to be able to use your money instead of letting the IRS use it for the year? Most of the time it is the small business owner who doesn’t want to pay estimated taxes. They need the cash to help with operating costs. It’s worth more to them to pay the underpayment penalty than to be strapped for cash. It’s always your choice of when to pay your taxes but you will pay them at some point.
The Large Refund
Maybe you’re the other kind of taxpayer, the one who has a lot more withheld from their income and always get a large refund back. Again, with interest rates so low, you weren’t losing out on much in interest. You could have saved the money in a savings account but they haven’t paid well for years. Now as interest rates rise, you might want to rethink that strategy. Once the savings accounts start paying better, it would be better for you to set up an automatic deposit. It won’t make sense to continue to give the IRS an interest free loan any more. Some people say it is the only way they can save for vacation or a home repair, but I think you can absolutely create an automatic savings plan that will work better. The interest you could earn could allow you to end up with enough money for something better than you anticipated.