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How Do Tax Refunds Work? March 18, 2020

Crestview Hills, Covington
How Do Tax Refunds Work?, Covington, Kentucky

As April inches closer, people across the country prepare for a universal deadline: the submission of income tax returns. However, the process may provide you with a strikingly different refund than your friend or coworker. If you’re hoping to learn more about what influences your refund and how you can make the most of it, take a look at the tax preparation guide below.

A Brief Guide to Tax Refunds

Factors That Determine Whether You Get One

The only reason an employee would get a tax refund is if they paid more money to the IRS out of their paycheck that year than they technically owed. In other words, you owe the IRS a certain percentage of what you make. If you were having the taxes pulled immediately from your paycheck, the IRS might have taken a bit more than they were entitled to. Once you calculate what you owe and submit a tax return, they’ll send you back the difference.

On the other hand, if you paid less throughout the year than you owe—or if you’re an independent contractor who didn’t pay enough in quarterly estimated taxes—you won’t get a tax refund. Instead, you’ll have taxes due.

How to Maximize Your Refund

tax preparationThe more money you can deduct from your taxable income, the fewer taxes you’ll owe the IRS, and the larger your refund will be. You can do this by claiming deductions that equal a higher amount than your standard deduction.

For example, you could claim charitable donations or work-related expenses that weren’t reimbursed by your employer. Depending on your position and filing status, you might be able to subtract costs for transportation on the job, office supplies, and even a percentage of work-related meals from your total taxable income.

What to Do With Your Refund

If you are entitled to a refund after filing, use that lump sum wisely. If you have any credit card debt to pay off or student loan payments to make, apply the extra cash to catch up or get ahead. Alternatively, consider adding the money to a high-yield savings account that accrues interest. You could also put the money toward a short-term goal you’ve been saving for, such as a trip home for the holidays or a new appliance.

 

If you’re worried about getting the maximum refund back this year, turn to Hannegan & Associates for tax preparation services. This Edgewood, KY, accounting firm is proud to help clients get their finances in order for tax season and ensure they’re complying with IRS guidelines. For your convenience, they even offer clients meetings via Skype® or by phone. Visit the website to explore their services, and call (859) 291-0101 to begin tax preparation today.

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