For many, filing their tax return leads to a tax refund depending on their status and income. Working with a tax preparer, such as Bhatia & CO, INC, CPAs in Santa Clara, CA, you can find out the size of your refund prior to filing. Tax payers then have the option to receive this refund in either a paper check or electronic deposit. The federal government even allows you to split your direct deposit, thus giving you an opportunity to put some in savings, as well as their checking accounts.
Tax refunds are even given to individuals who might have zero tax liability, due to aspects of the tax laws that include their withholding calculation and the earned income tax credit. Withholding calculations are made on an annualized basis. An example is an individual who has just reentered the workforce or has been unemployed for a long period. They often may have more tax withheld than they would owe.
Below are some important facts to be aware of when it comes to your tax refund:
Receiving Your Refund – The speed at which you will receive your refund greatly depends on how you choose to file. For those that submit their return through the mail, it can take approximately six weeks to receive your refund. This is due to the hand processing that must occur with these returns. However, if your return is electronically filed, this time period is reduced almost in half.
Size of Your Refund – Depending on your personal preferences, a large refund might not be desirable. After all, it is essentially an interest free loan to the government. Instead, individuals who have larger returns will often work with their employer to adjust their withholding status so their refund is smaller, but their overall paychecks are larger throughout the whole year. Ideally, your taxes withheld should be just enough to cover your tax obligation without triggering a penalty. Here are a few ways to reduce that tax refund even further:
Better to Receive Than Owe – Another school of thought is that it is better to receive than be forced to come up with cash to cover a tax liability when filing. Others use it as a simple savings method to ensure they have funds coming every year at about the same time. However, an appropriately completed W-4 should withhold the appropriate amount of tax, making it breakeven, with no refund or tax liability.
Your refund can come to you in a variety of methods. If you do not have a bank account, your refund can come in a paper check, which can then be loaded onto your pre-paid debit or credit card. However, some states have begun the process of adding their refunds directly to these prepaid cards. Others choose the direct deposit method if they do have a checking or savings account within a lending institution. As we have mentioned, the government gives you several options to receive your refund and they are typically fairly timely in getting your refund to you.
Tax refunds are based on your tax liability and appropriate tax credits, which is determined once a year when you file your tax return. However, you are paying taxes on your income all throughout the year, in terms of your withholdings on your paycheck or if you are self-employed, your quarterly tax payments. Therefore, you are paying your tax obligation, even before you know what it actually is. Hence, it is important to work with a qualified tax preparer or accountant to determine the best withholding status for you. As a result, you can keep more in your pocket throughout the rest of the year!
Call or click on the link below to get in contact with a tax professional at Bhatia & CO, INC, CPAs, in Santa Clara, CA, to discuss your tax refund and how to manage your tax obligation throughout the year.
