Most people who get a big tax refund usually think that it is free money but in the real sense it is not. But getting a big tax refund is not a problem the question is how do you use the big tax refund? According to statistics most of the people who get refunds usually invest in businesses and other permanent project s but few of them use the money to pay debts. Huge tax refunds can mean that you have been overpaid on taxes on that year but it can also mean that you are giving the IFS a loan that is interest free. But the good part of the big tax refund is that it is an advantage to you.
What this huge tax refund means
Despite the fact that huge tax refund is good news to you it is important for you to know how you are going to use these refunds. The refunds is not a gift given to you from the IRS and that is why you must have a good plan on how you are going to use the money that you will get from your agency. When you get a fat refund check it means that you are getting money that the agency owes you. In other words, it can mean that the tax refunds that you get are as a result of loaning the government from your paychecks. But the government does pay your huge refunds with any interest. Tax refunds are a result of paying your government too much and now it’s giving back your money.
Know your withholding
Knowing your withholding from your tax agency is very important because it will help you to know how much money your tax agency owes you so that when you get a huge tax refund you are not confused. Ensure the right amount of money is withheld from your paycheck and you can know this by ensuring that you check on your form W-4 that you were given by your employer when you were hired. Getting tax back will not make you feel that you are getting free money because you can adjust your Form W-4 to help you know whether the right amount of income tax is withheld. Some of the information that you put on this form include note on your spouse, the number of dependants that you have and your filling status. We call then your personal allowances and the more the allowances, the less income tax to be withheld by the agency.
If you want to know the amount of tax that you withhold this year it is important for you to look at your previous year’s tax returns. Ensure that you are updated on the way you pay your taxes and you should not be penalized for underpaying your estimated taxes. There are instances when you find that your tax rate is increasing substantially and in such a case it means that much of your tax is withheld by the agency. Lastly, Tax return should be used in a proper way such as investing, saving and paying debts.