Do you, like many American taxpayers, wait anxiously to see if you will get a tax refund each April? Do you worry about having a tax bill instead? And would you like to be more in control of the size and timing of your refund? If so, here are a few things you can do to right-size your income tax refund.
1. Target a Goal
To determine what is the right size refund for your situation, begin by deciding on a goal to pursue. This should be more than just seeking the largest refund possible. Consider questions like whether it would be better to get your refund each month or once per year. If you have financial goals for the upcoming year, think about how to best use your potential refund to meet them.
2. Adjust Withholding
One of the easiest ways to reach any tax refund goal is adjusting your tax withholding at work. You generally do this by completing a new Form W-4 for your employer. Increasing the amount you claim in dependents and tax credits results in less money withheld from each check and a smaller refund. Doing the opposite means more money taken from each check and a larger refund.
3. Reconsider Quarterlies
Taxpayers who have other sources of income, such as a side business or retirement withdrawals, may need to add quarterly tax payments to their strategy. Sending additional prepaid taxes each week, month, or quarter reduces your tax bill or increases your tax refund in the spring. On the other hand, a taxpayer who gets a big refund already may opt to discontinue quarterly payments.
4. Stay Updated on Rules
Tax laws change every year. While many of these changes won't affect your personal tax return, at least one or two changes will likely impact everyone in some way. You can learn about tax law changes in a variety of ways, including by signing up for IRS newsletters and communicating with a qualified tax preparer on a regular basis.
5. Have a Midyear Planning Session
Most taxpayers meet with their tax preparation service only when it's time to file in the spring. but you should schedule a midyear planning meeting in the summer. At this meeting, you will assess your withholding levels, income changes, changes in deductions and tax credits, and whether you're on track to meet your tax goal made earlier.
Want to know more about targeting the right refund size to improve your finances and avoid any surprises? Make an appointment today to meet with an accountant who offers tax planning services in your state today.Share