Normally, just about everyone in the personal finance world is going to tell you to avoid overpaying the IRS. I’m usually one of them.
While you want to avoid penalties for late payments or underpayment, it’s also important to remember that the IRS won’t give you a penny of interest for any overpayment. (Though it has little compunction about charging you interest on underpayment.)
For that reason, most people want to make sure they don’t pay more than they owe.
That said, there are times that you can profit from overpaying the IRS. To be exact, you can get a 100% return on that overpayment.
As the 1040 season hovers ominously ahead of us. car dealerships are starting to roll out the “Double your refund” offers. Essentially, you sign over your expected return and they double it as a down payment.
The closer we get to April, the more places will probably make these offers. Furniture stores, travel agencies and other such spots want to lure customers in, despite a bad economy. What better way than giving folks “free” money… that they have to spend at your establishment? Especially when the original funds are still an abstraction to the consumer.
But what if you haven’t overpaid this year? Well, there’s still time. Sort of.
Even if you’re not self-employed, you can send in an estimated tax payment. This is good for people whose situations have changed and worry that they’ve underpaid their tax liability for the year. You just print out a voucher from the IRS site, write out a check and send it in.
A few caveats:
First, be smart. Your refund is real money — no matter how abstract it is right now — and so could be going into your savings account. Make sure the dealership is offering a good enough deal. When they have something to offer — credit for a trade-in or a special promotion — dealerships are less likely to haggle down to lower prices.
Second, do your research. Not all stores will make this offer. Check to find out where the deals have been offered in the past, what those stores’ reputations are and what limits there are. No sense in draining your savings account by $5,000 if they’ll only double $3,000.
Finally, whatever you do, don’t overpay throughout 2012 for a planned purchase in 2013.
The IRS doesn’t give mid-year refunds. Need funds in September that you overpaid back in April or June? Tough. You won’t see those til next year.