Tax Planning Strategies: Is It Better to Owe Taxes or Get a Refund?
How should you plan for your tax refund? The age-old question remains: should you try to structure things to get a refund or cut it close and even owe a bit at tax time?
Some people prefer planning such that they get a sizable refund every April and never have to worry about a large tax bill. Other people do not want the IRS holding their money during the year, and would prefer to have that cash in their pocket each month — and then pay any difference to the IRS each year. We have put together some important information so that you can decide which path is best for you:
Your Refund is YOUR Money
Getting a refund from the IRS each year actually means that you have overpaid your income taxes throughout the year. The money that you receive via your refund is actually the IRS giving you back the money that you overpaid.
They have held it for you all year and you receive it in your refund check. This is money that you could have used throughout the year on bills, debt, or even a vacation. You are effectively letting the government save your money for you during the year.
When you work for a large company, they take out money each pay period to pay your federal and state taxes. Your employer uses your W-2 and your salary to estimate your taxes and then divides the annual amount by 12 months so you pay an equal amount to the IRS each month.
If you happen to underpay the IRS over the course of the year, you will have to “settle up” at tax time. Owing the IRS at the end of the year is almost like an interest free loan in a way — you have that money in your pocket throughout the year to use for what you need, but then you pay it back by April 15th.
Making Your Decision
The decision about whether to owe money to the IRS or get a refund is a personal one based in part on your spending and saving habits. If you have trouble saving throughout the year, you may want to err on the side of getting a refund so that you do not have to worry about a big tax bill. If you prefer to manage your own money throughout the year, then trying to keep your refund to a minimum is a better idea.
Enlist the Experts
If you still have questions about whether you are better off getting a refund or owing taxes each year, you can always seek the help and advice of a professional tax firm. Success Tax Relief can review your tax documents and talk to you about your financial preferences and help you come up with a plan that fits your spending and saving habits. Give our team a call at 1-877-825-1179 or contact us here for the help you need!