What’s behind a tax refund?

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Tax season is a happy season for most individuals because they receive a tax refund. But what’s included in your tax refund? Depending on the circumstances it may or may not be convenient to receive a refund.

Tax refunds can result from different situations. But most commonly, it occurs when you pay more tax during the year than you actually owe. From a financial standpoint, you are giving a zero-interest loan to the IRS when you could have investment that money elsewhere that will produce you some sort of interest. Since most taxpayers are employed, this happens when too much is withheld from their paycheck each pay period. This is because withholding only estimates your tax but does not always reflect every credit and deduction, you’re going to take at year end.

If you find that you are consistently overpaying your taxes each year, you can update your W4 to reduce your withholding. This will put more money back to your paycheck but will reduce or possibly eliminate your tax refund at tax time.

Another reason why people receive refunds is due to tax credits that they qualify for. A tax credit can create a refund for you even when you’d otherwise owe taxes. This is because some tax credits are refundable which means that if the credit amount is larger than the total tax you owe for the year; the IRS will give you all or a portion of the excess credit as an actual cash refund. Be aware though that you have a limited time to claim a tax refund. For most taxpayers, you must claim the refund no later than three years from the time you originally file the tax returns or within two years of paying the tax, whichever is later.

Even if you don’t qualify for a refund federal law requires that you file a tax return with all your worldwide income. Failing to file a tax return will get you into trouble with the IRS. It is important that you stay vigilant for any tax documents like W-2s and 1099s so that you can file your taxes.

Filing deadline f is April 15. My recommendation is to get organized and file early rather than waiting until the last minute which can cause you to make mistakes or not be prepared to pay your tax bill.

If you need assistance with your office finances or taxes feel free in contacting me at Business Solution Center | [email protected] | 956-466-4503 in Brownsville Texas.