How to reduce your tax refund next year

Looks like the Sky will bleed with Colors tonight @ Marina Bay... Wishing everyone a wonderful evening of fun & excitement! Happy New Year from Singapore!

A tax refund is no reason to celebrate

Are you getting a juicy tax refund this year?  If so, don’t get excited because you should never have paid it to the IRS in the first place.

Our tax system works on a “pay as you go” basis.  This means that as you earn money, a percentage of it is taken away and sent to the government to cover your taxes.  (i.e. two for you, one for Congress, two for you, one for Congress, etc.) You might never see that money except as a figure on your paycheck stub.

Your annual tax return merely reckons whether you already paid too much or too little to the government.  If you paid too much, the government sends you a refund.  If you paid too little, then send your government the difference.

Ideally, you should not overpay (and later receive a refund), because this means that you unintentionally loaned some of your own hard-earned cash to the government.  If you want to loan money to the government, you should buy savings bonds, which pay interest.

Therefore, if you got a sizable refund, then prepare a more accurate form W-4 and give it to your employer.  If you’re self-employed, reassess your estimated taxes.

About Mark P. Holtzman

Chair of Accounting Department at Seton Hall University. PhD from The University of Texas at Austin. Worked at Deloitte's New York Office. BSBA from Hofstra University.

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