JustSarah
Semantics issue: a tax return is what one files; a tax refund is the money one receives from the IRS in the case of a surplus payment after the tax return has been filed. Moving on:
People who are fiscally savvy will absolutely try to neither owe taxes nor receive a refund after filing their returns. You are absolutely correct, BDG, that a person who receives a tax refund has basically given the government an interest-free loan with their money over the previous year. On the other side, if one does not have enough taxes withheld from each paycheck (or pay enough in estimated quarterly taxes, if self-employed), he will owe when it is time to file his return. If the amount owed is over a certain amount, the IRS can penalize the taxpayer. Basically, one can’t simply have nothing withheld all year and then pay all taxes in one lump sum, as this is akin to the government giving the taxpayer an interest-free loan.
Smitty likely has just enough withheld to not have to pay a penalty, but is able to earn a return on some extra funds before he pays those taxes. For example, if he made $40,000 and should be taxed 25%, he may choose to only have 24% withheld, and invest those other $400.00 for the year. Let’s say he earned a 20% return on that $400: when it comes time to file his taxes, he pays the remaining $400 owed to the IRS, but pockets $80. Sweet deal! He just has to make sure he’s not going to be subject to any penalties. :-)
The other side of the argument is that people who are not fiscally responsible and don’t put money into savings may wish to over-withhold from their paychecks; this “forces” them to save, but they are earning no interest on that money. For some people, it’s worth it to get this “unexpected” chunk of cash back. I understand the thrill, but I’d rather sock away my money throughout the year in an interest-bearing account.