When you see headlines saying that the IRS has paid out greater than 96 million tax refunds price greater than $292 billion, it may possibly make any taxpayer pause and take discover.
2022 Filing Season Statistics
According to the tax submitting statistics ending on May 20, 2022:
- Total Returns Received are down by 1.8%
- Total Returns Processed are up by 3.8%
- The Number of Total Refunds is up by .1%
- The Amount of Total Refunds is up by 8.2%
- The Average Refund of $3,039 is up by 7.5%”.
Recommended: A Common Tax Conundrum Answered: “Is It Better to Overpay Taxes?”
Graphic: 2022 Filing Season Statistics
Table: 2022 Filing Season Statistics
The thought of getting an extra $3,039 has some taxpayers asking a common tax conundrum: “Should I overpay my taxes to get a refund subsequent yr?
Retirement Daily’s Robert Powell sought out solutions to that query and sat down for a video interview with Jeffrey Levine, CPA and main tax professional from Buckingham Wealth Partners to higher perceive the professionals and cons of overpaying and underpaying your taxes.
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Levine stunned us within the video above when Powell requested him “Is it better to underpay one’s taxes and owe the government money or to overpay and give the government an interest-free loan?”
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Video Transcript| Jeffrey Levine, CPA and Tax Expert, Buckingham Strategic Wealth
Jeffrey Levine: Are these my solely selections? Is that it? My selection is both to dramatically underpay, so I’ve a penalty, or overpay, so I’ve a large refund. How about I simply do good tax planning, and I pay about what I’m speculated to?
Here’s the deal. Lots of people know roughly what their tax invoice will likely be from yr to yr. They have a W-2 revenue, the place they’ve a comparatively steady enterprise, they usually take a normal deduction or they’ve itemized deductions, however they provide about the identical to charity annually. Their mortgage deduction is not altering dramatically from one yr to the subsequent. So for lots of people, their tax invoice, it is pretty determinable even early within the yr, proper?
So as an example, proper now, we’re early in 2022. You might inform lots of people about what they may owe in 2022. Now, definitely, for others, that is not the case. At a naked minimal, what folks ought to attempt to do is to keep away from the estimated tax penalty. In most instances, you need to keep away from paying any greater than it’s important to. And so to do this, there are a few methods.
Quotes| $292 Billion In Tax Refunds
Jeffrey Levine, Chief Planning Officer, Buckingham Strategic Wealth
Jeffrey Levine, Chief Planning Officer, Buckingham Strategic Wealth
One means is you could possibly pay 90% of this yr’s tax legal responsibility all year long, both by means of estimated tax funds or withholdings or some mixture of these. The problem, in fact, Bob, is that if you do not know what this yr’s tax invoice seems like, how have you learnt how a lot to pay? How have you learnt how a lot 90% of the unknown quantity is?
Safe Harbor Tax Estimate & Examples
And so the higher means for lots of people, the secure harbor means, if you’ll, is to base this yr’s estimated tax funds on final yr’s tax invoice. For most individuals, that simply means paying 100% of final yr’s tax invoice all year long. If you’re a excessive earner with greater than $150,000 of revenue, then it is 110 %.
So for argument’s sake, should you had a $20,000 tax invoice final yr, most individuals ought to pay $5,000 per quarter this yr, and that can eradicate any penalty, even when they owe much more on the finish of the yr. So even somebody who wins the lottery, Bob, on May 1st of this yr wins $100 million {dollars}. If their tax invoice final yr was 20,000, they solely must pay 5,000 every quarter, and they’re going to keep away from the estimated tax penalty. Now come subsequent April, will they owe lots? Yes, however they will not have any estimated tax penalty.
Proactive Tax Planning
And I’ll end up with one final thought, Bob. It’s that, will they owe lots? Yes, however that simply requires some planning, doing a little proactive work, and never ready till March or April when your tax return is due to have a look at your taxes. But doing it all year long, your revenue, your deductions, and doing an estimate and saying, are we paying sufficient in?
I would definitely say that in case you have a really massive refund, that is not nice tax planning since you are giving the federal government an interest-free mortgage. And the extra rates of interest rise, which we’re seeing now, the extra pricey that turns into to you. Similarly, you do not need to underpay to the quantity the place you’ve a penalty.
Tax Planning Advice
So one of the best tax planning, in my estimation, is to pay what you’ll want to do to keep away from a penalty, after which understand how rather more if any, you may want so as to add in in March or April once you file your taxes, so as to have one of the best money circulation all year long, but additionally keep away from these pricey penalties.
Editor’s Note: Reviewed for tax accuracy by a TurboTax CPA professional.
Source: www.thestreet.com”