What are some reasons why people pay the IRS?

Question

I am new at doing my income taxes, but I know some people end up owing the IRS. I want to know what are some reasons why people end up owing instead of recieving a refund. My boyfriend is one of those people who has had to pay for the past two years......well, that's how long I've known him. Someone speculated that it's probably because he travels so much, he spends more than he makes. Can someone please explain further....

Answer 1

Your annual taxes are calculated based on your income, and allowable deductions and credits. During the year, you have earnings withheld from your income to pay the taxes. If taxes are withheld properly, you will have paid approximately the tax owed as of the end of the year. The amount you owe or are refunded simply represents the difference between your total tax and the total amount withheld.

Lots of people look forward to a tax refund each year, and in their opinion, the bigger the better. The truth is that the refund they receive represents an interest-free loan they've given Uncle Sam. In other words, a big refund is a bad thing.

Answer 2

In a nutshell the amount you owe is greater than the amount taken out of your paycheck in taxes.

For example if you are a contract worker, taxes aren't deducted from your paychecks and you have you pay all outstanding taxes to the feds by the 15th.

Also if you have significant investments (say you sell stock that you've made a $1,000 profit on) you have to pay taxes on that.

Answer 3

I owe money, becase I am self employed, so it is not automatically taken out of my paycheck. People who make money on the side of their job can also end up owing money. If he pays and estimated tax, he may simply have spent all of his monry on himself rather than spending some in deductible ways as he thought he might have.