A tax refund is what many American taxpayers are expecting. According to the Internal Revenue Service -IRS- many more people have decided to file their tax returns early. In this way, they can make use of the large checks they might have gotten from the IRS. Despite the fact that it is a burden to gather all the information and file your tax return, most a looking forward to receiving the money.
The thing is many taxpayers are paying much more than they ought to. Therefore, what the IRS is doing is giving you back through your tax refund the extra money you paid. There are many people that are in this same situation. For instance, if those citizens had not paid more than they owed, they could have saved that money. Or else, they could have invested it to let their nest egg grow.
Why did you get such a high tax refund from the IRS?
The main reason is that you overpaid taxes because your employer withheld too much. Withholding too much money from your payslip results in larger tax refunds. Obviously, those who are self-employed are in charge of these tax payments. So, it is your duty. You must work out the taxes to pay each quarterly payment.
In fact, there are many people who would prefer to overpay and get a big tax refund because they will avoid underpaying. Needless to say that no one wants to underpay since it will imply penalties. Having a fine from the IRS will be not good at all. Bear in mind that there is something you can do about your withholding. The IRS recommends using the Tax Withholding Estimator tool.
What do I need to use the Tax Withholding Estimator tool?
Gathering all the income that you and your spouse earn if married and filing jointly is a must. Then get hold of the last tax return to be able to get an accurate tax refund in the future. Apart from that, you will need your paycheck documents. This tool is just a guide, so make sure you include information that is accurate and right.
Making mistakes will alter the outcome. In this way, once you have everything ready, you will be able to find out an amount to pay on taxes making your tax refund close to 0. The IRS also informs taxpayers to make use of the W-4 Form. They encourage workers to update it regularly and adjusted whenever their situation has changed. This will be helpful for your employer to correct federal income tax withholding.
It should be done once per year or when you change jobs for instance. Make sure you do it to keep investing and making contributions to your retirement plans like 401(k). Make your money grow instead of getting a large tax refund check.