When you see headlines saying that the IRS has paid out greater than 96 million tax refunds value greater than $292 billion, it may make any taxpayer pause and take discover.
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%”.
2022 Filing Season Statistics
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 12 months?
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 raised 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?”.
TheRoad Q&A:
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 an enormous refund. How about I simply do good tax planning, and I pay about what I’m speculated to?
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Here’s the deal. Lots of people know roughly what their tax invoice will probably be from 12 months to 12 months. They have a W-2 earnings, the place they’ve a comparatively steady enterprise, they usually take a regular deduction or they’ve itemized deductions, however they provide about the identical to charity annually. Their mortgage deduction is not altering dramatically from one 12 months to the subsequent. So for lots of people, their tax invoice, it is pretty determinable even early within the 12 months, proper?
So for example, proper now, we’re early in 2022. You may inform lots of people about what they’ll 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 circumstances, you need to keep away from paying any greater than it’s important to. And so to try 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 approach is you possibly can pay 90% of this 12 months’s tax legal responsibility all year long, both by way of estimated tax funds or withholdings or some mixture of these. The problem, after all, Bob, is that if you do not know what this 12 months’s tax invoice appears to be like 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 approach for lots of people, the protected harbor approach, if you’ll, is to base this 12 months’s estimated tax funds on final 12 months’s tax invoice. For most individuals, that simply means paying one hundred pc of final 12 months’s tax invoice all year long. If you’re a excessive earner with greater than $150,000 of earnings, then it is 110 %.
So for argument’s sake, for those who had a $20,000 tax invoice final 12 months, most individuals ought to pay $5,000 per quarter this 12 months, and that can eradicate any penalty, even when they owe much more on the finish of the 12 months. So even somebody who wins the lottery, Bob, on May 1st of this 12 months wins $100 million {dollars}. If their tax invoice final 12 months was 20,000, they solely have to pay 5,000 every quarter, and they’re going to keep away from the estimated tax penalty. Now come subsequent April, will they owe rather a lot? 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 rather a lot? 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 take a look at your taxes. But doing it all year long, your earnings, your deductions, and doing an estimate and saying, are we paying sufficient in?
I will surely say that when you’ve got a really giant 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 will have a penalty.
Tax Planning Advice
So the very best tax planning, in my estimation, is to pay what it’s essential to do to keep away from a penalty, after which understand how way more if any, you may want so as to add in in March or April whenever you file your taxes, with the intention to have the very best money move all year long, but additionally keep away from these pricey penalties.
Source: www.thestreet.com