Tax advice?

Question

I've always thought that receiving a refund meant my tax professionals were giving me good tax advice. I just found out from a relative who is a tax pro that I'm NOT getting good service just by always getting a refund from my tax returns. Why is this the case and what should I do to fix it?

Answer 1

If a client comes for tax preparation, and there has been no tax planning, then a preparer that can get the client the biggest refund possible has done a good job.

If your income is mostly from wages, you can go to any tax prep firm right now and have them do a new W-4 for you, so that you do not get such a large refund.

You need to let your tax preparer know that you do not want a refund next year. The preparer should be able to tell you what you need to change to accomplish this.

Answer 2

Getting a refund just means that you overpaid during the year. It's just like when you go to the grocery store - if your bill is $12 and you pay with a $20 bill, you'll get $8 change but that's not extra the grocery store is giving you, or the cashier being nice to you - if you just give them a $10 bill, they'll expect you to pay the other $2.

If you are getting a small refund, leave it alone. If you are getting a large refund, several hundred dollars or more, then change your W-4 so less is taken out. That way you won't give the government an interest-free loan of your money for the year.

Answer 3

Getting a refund means you have overpaid what you owe and the government is giving the overpayment back to you without paying interest. If you don't want to loan the government money interest free, adjust you W-4 to reduce your income and increase your takehome pay. As a generalization for people in the 15% marginal tax bracket, an increase of one allowance on your W-4 will increase your takehome pay by about $10 per week and reduce any tax refund by the same amount.

A tax professional will try to help you structure you affairs so that you pay the least amount of tax possible. This means the tax due on the return before considering your withholding.

Answer 4

What would you rather have (1) more money throughout the whole year with a little refund or (2) taking out more than your fair share for the year and getting a big refund at the end of the year? Personally, I can care less about getting a refund as long as I do not have to pay any additional taxes at the end of the year. I can use my money throughout the year. People who get big refunds are letting Uncle Sam have their money for free and they get no interest.

Answer 5

Read the answers that have been sent so far because they are correct. I just wanted to add that the name of the game is to break even with the IRS. Some people like those big refunds, I think they could use that money during the year, like paying charge cards at 20+% finance charges rather giving the IRS that interest free loan. I try to convince my clients to change their W-4 form. Big refunds doesn't mean your tax preparer is creating magic, it means you're overpaying.

Take care and good luck in the break even game.

Answer 6

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