A tax refund (which, in most cases, is avoidable) is a state or federal reimbursement to a taxpayer who overpaid taxes. As I have stated and most other tax preparers:
"Taxpayers tend to consider a refund a bonus or a stroke of luck."
But to be honest with you.
it represents a taxpayer's "interest-free loan" to the government.
What Do You Mean Avoidable?
A tax refund is due primarily because of an error in filling out your federal Form W-4 given by your employer. For those new to a job, this form is used to estimate the correct amount to be withheld for taxes from an employee's paycheck. It is good to make sure you correctly fill the W-4 form out and make sure you keep it up to date (especially to reflect a change of circumstances, such as the birth of a child and, therefore, an additional Child Tax Credit Allowance). Also, note that self-employed people could avoid a tax refund by estimating their deductions more accurately. Other ways you may receive a refund:
As the taxpayer, you could have been eligible for refundable tax credits, reducing the amount owed. Most tax credits are not refundable.
A freelancer or self-employed person who has to file quarterly estimated taxes may over-pay before going through the laborious task of documenting deductible expenses
By Making The Necessary Changes or Having a Correct W4, What Does This Do?
If done correctly, your money would be paid to you - the taxpayer over the course of the year through your paycheck. Wouldn't you like to do something else with your monthly money? As I always say – start a savings plan if you do not already have one. Maybe you can pay off your debt quickly.
How Is a Tax Refund Normally Paid Out?
Tax refunds can be issued in 3 ways stated below, and most are issued within a few weeks of the date the taxpayer initially files a return
In the form of personal checks
U.S. savings bonds, or
Direct deposits to the taxpayer's bank account, among other options.
So remember:
"If you get a tax refund, it usually means you OVERPAID your taxes last year."
Comments