Richard A. Lindsey, CPA

Lindsey & Waldo, LLC – Certified Public Accountants

  • Oct 7

    My guess is that most people reading this said, “Well, yes I do!”  Some may have said, “The bigger the refund the better.”  But is that the best answer?  If you have a tax return with lots of tax credits then a big refund might be the right answer.  Credits such as the child tax credit, earned income credit, and education credits will make that refund grow.  However, if the big refund you usually get is solely due to the fact that you over withheld from your paycheck or paid in too much in estimated payments, the big red light is blinking “WRONG ANSWER!” If you pay Uncle Sam too much money during the year, then you are giving the government an interest free loan while they have your money. Why would you want to give your hard earned money to the government interest free? You probably don’t. Ideally, most people should want to break even with Uncle Sam. By doing this you are paying in enough taxes so that you do not pay anything in April but you aren’t giving any loans to the government. How do you break even with the government?  There are a few things you can do. They are the following: 

    1. Evaluate your withholding form (W-4) each year and determine what the best withholding situation is for you.  If you are currently allowed a child tax credit and a dependent care credit, you may be able to increase your exemptions.

    2. If you had an extraordinary taxable event one year and were given estimated tax payment coupons, you may not need to make those. If you sold a lot of stock and had capital gains that won’t happen this year, let us know and we can adjust that out of the estimated payments.

    3. In October, go to www.IRS.gov and use the withholding calculator to evaluate whether you have paid in too much or not enough.  Often, it is helpful to perform this task later in the year because things change. You may get a raise, have a child, or get married. This online tool will help you determine where you will be on your current year’s tax return.

    So, just because your friend or co-worker gets a big fat refund, doesn’t mean they are using their money wisely!