Answer:
Business owners should avoid receiving a large tax refund if they would rather have that money on hand to reinvest in their business. However, some people might decide they like receiving a refund because it allows them to save a bit extra—especially if they don’t have any pressing business expenses.
Getting a big tax refund from the government each year has its pros and cons. On the one hand, you’re getting an injection of cash which you can reinvest in your business, which seems nice. But you might actually be making a financial mistake if you are getting a big tax refund every April.
Downside of Receiving a Tax Refund
There are some real downsides to receiving a large tax refund as a small business owner. We’ll list them here:
Interest-Free Loan to the Government
It seems weird to think getting a big tax refund could be a negative thing for your business. But the thing is, when you get a refund, you’re really just getting your own money back that you overpaid in taxes throughout the year. When you think about it, all you really did was lend the government your money, interest-free. If that had been money you didn’t pay in taxes, you could have reinvested it in your business. At the least, you could have put that money in an interest-earning business savings account. But when people receive a tax refund, that’s not always what they do—which brings us to our second point.
People Like to Splurge on Their Tax Refund
A fat refund check feels like “found money” to most of us emotionally. Therefore, the tendency is to treat it carelessly and spend it on something discretionary—like a vacation, new home furnishings, or some other splurge—instead of putting that capital to better use. Although many people will spend their tax refund wisely, there is still a sizable percentage that will spend it on a major purchase, vacation, or luxury item, according to a recent survey.
What if you needed that money at some point during the year to deal with an emergency business expense? Wouldn’t it be better to have the money available when you need it, instead of treating yourself—or lending that money to the government?
Step-by-step explanation:
I got a 100%. Source is https://www.fundera.com/blog/pros-cons-tax-refunds
