Income Tax Refunds

When you receive an income tax refund it feels like a free gift.  The heavens open up and money just pours into your hands.  Sadly, that’s actually your money that you’re just getting back.  When you get an income tax refund all that means is you just gave the government an interest-free loan of your money (unless you pay so little tax you receive a credit refund).  I believe it is better to pay in very little when tax time comes along.  That means that you paid in just about what you had to in order to meet your tax burden.  So, if you receive an income tax refund you should do what should be done to ensure you don’t receive a refund in the future.

If you are an employee, check with your Human Resources department about adjusting your W4 – that is the document that dictates how much should be withheld from your paycheck.  You can use calculators for this online or talk with your tax adviser (CPA or Enrolled Agent preferably) on how to calculate this.  If you are self employed in some fashion and pay estimated taxes then I recommend you fully prepare you projected tax return each quarter until you get a handle on what your effective tax rate is over time to help you estimate your payments (once again, seek good counsel from your tax adviser).  No matter your situation, do your best to lower the chances you will receive a big tax refund because most likely all that means is the government had your money when you should have already had it.

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