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What is a Tax
Refund
In the United States, a
tax refund is the result of having taxes withheld on earnings that
amount to more than a person owes in income taxes for a calendar
year. Federal and state taxes are withheld at a specified amount
each pay period, and when the year ends, each tax payer must file
income taxes by submitting the proper filing forms. In many cases,
people have paid more than they were required to pay. When the
federal government or state treasurer receives the tax forms, they
issue checks for overpayment. This is a tax refund.
Some people view a tax refund as forced savings, while others
consider a tax refund to be money they allowed the government to
borrow interest-free. Those who wish to receive a large tax refund
each filing year may purposely have their withholdings set higher
than necessary. This increases the amount of money they get back on
their tax refund. However, many people mistakenly view their tax
refund as free money, forgetting that it was money they earned in
the first place. Unless a large tax refund is treated as savings or
is invested, it is often better to receive your money each pay
period rather than in a lump sum at the end of the year.
Those who view a tax refund as an interest-free loan to the
government take time to do careful tax preparation and planning each
year to avoid paying more in taxes each pay period than they have to
pay. Tax preparation involves estimating your eligible deductions
and credits each year to get an approximate tax total.
In some situations, tax planning and preparation is complex, while
in other situations it is simple. Computerized tax preparation
software used to prepare a tax return prompts users with questions
to help prepare for the following tax year. While this software can
be useful to some, many require the assistance of a professional
service. For people with interest income, self-employment income, or
other unique situations, consulting with a tax professional can also
increase your tax refund for the filing year. Fees for services will
range with the complexity of your tax situation, but the more
complex the situation, the better off you will be in the hands of a
professional who is familiar with all current tax laws.
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