Submitted by ChickenCheeks7 t3_10nob2k in LifeProTips
windstride3 t1_j6a1kwh wrote
Reply to comment by ChickenCheeks7 in LPT Request: Why is my tax return so low? by ChickenCheeks7
Yes - the idea is that you want to hold onto your money, rather than overpaying the government in taxes, only to have the government refund you the overpayment at the end of the year / when you file your taxes. You keep your money.
Bandosj15 t1_j6ajn4o wrote
Exactly you don't want to give them an interest free loan
werepat t1_j6cof25 wrote
If you are owed a refund and file incorrectly, your money the government still has accrues interest. But the interest only starts accruing after you file incorrectly.
I just got notice that my refund accrued $23.
ChickenCheeks7 OP t1_j6a2en0 wrote
So if I put at $20 withheld on my w-4, that’s better than a $0?
tim36272 t1_j6aw1iv wrote
No, the optimal strategy is to shoot for a $0 refund every year. You can use the IRS's calculator at https://www.irs.gov/individuals/tax-withholding-estimator to try to make that happen.
Just because it is mathematically optimal doesn't necessarily mean it is right for you, though.
If you get a refund at the end of the year you basically gave the government a loan and they are paying it back. You can use that as a kind of hidden savings account if you'd like, and that may be psychologically better in your situation. But financially it is always better to shoot for a $0 refund.
seanmharcailin t1_j6byuj4 wrote
That’s a good strategy IF you have a steady income. I work in film. I had 24 different employers this year. I had all my W-2 jobs keep extra, so they’d balance out with my 1099s.
Which… I guess is actually still trying to have the refund/owed be $0, but since I’m guessing and have no idea how much I’ll make each year, I’d rather get a fat refund than owe come tax time.
I know it’s an interest free loan to the gov but I’m shit at saving so it works out okay for me
Kurokotsu t1_j6cf5yr wrote
I do this last bit. My current job pays better than any of my others. I have a really hard time saving money. So I put some extra toward tax stuff, keeping my money only slightly higher than my normal quality of life, to keep me on a shorter leash. That way my return feels more like an occasion and a chance to buy things I otherwise couldn't have saved for.
tn69c1935 t1_j6bcyxk wrote
Why 0$ ? If we owe money and pay it a credit card with points or cash back do we not come ahead ?
Downvote_me_dumbass t1_j6boaai wrote
No, because you have to pay a service fee when paying on a credit card. I had to pay last year and decided on the credit card route you pay approximately 2%, so unless your rewards card gets you better than that, you aren’t finding some kind of benefit by paying with a CC.
https://www.irs.gov/payments/pay-your-taxes-by-debit-or-credit-card
tim36272 t1_j6bnuv3 wrote
Yes that's better, but you can only really do that if you're making substantially more money every year. There is a penalty for underpaying, so you're risking a penalty if you underpay by too much.
love_that_fishing t1_j6dfz4o wrote
I purposely owe 3-4k a year. It’s never been a problem. I’m not sure where the cutoff is but that amount has been fine.
wilderop t1_j6hwe8a wrote
The tax software doesn't highlight the penalty. Do you read through your entire return before submitting? You may be paying a penalty each year without knowing.
love_that_fishing t1_j6j24an wrote
Yes i print out the entire return and review It. Have not been paying a penalty. They also may look at percentages. I pay 50k in federal taxes on average so being short 3k is not a large percentage.
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