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, which is the refund.
Some people view a tax refund as forced savings, while others consider it to be money they allowed the government to borrow interest-free. Those who wish to receive a large 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 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.
