How do people get big refunds at the end of the year? I have self-employment and I have 2 kids so why can't I?

Answer 1

Another thing you have to remember is that a refund is not money being paid to you (unless your income is low enough for you to get the Earned Income Credit or Additional Child Credit), it is simply a return of an overpayment. It is really nothing more than getting change when you buy something at the store.

If you bought $10 of groceries at the store, and you paid for it with a $20, you get $10 back. If you paid for those groceries with a $100 bill instead, you get $90 back. You are not making any money by paying with a $100, you still paid $10, regardless. A tax return is the same way. Taxes are withheld from your paycheck every pay period (if you are self-employeed, you probably have to pay estimated taxes every 3 months). When somebody gets their tax refund, they are getting a check for the difference for any overpayments they made.

If you really want that big tax refund, you should increase the amount you pay in estimated taxes. You will get all of that money back next April 15.

Answer 2

To get a refund, you have to overpay. If you are self employed, and file as a business you might get to take deductions for child care and other things which will reduce the amount you have to pay. Also, there is the Earned Income Tax Credit, which should give you a shot at some money. It is worth consulting a tax professional to see what you are entitled to.

Answer 3

Being self-employed, you not only have to pay income tax, but self-employment tax.

The people who get big refunds either have way too much withheld or they are poor enough to qualify for Earned Income Credit.