Tax Refunds

Tax refunds are money owed to people when they pay more taxes than they actually owe.  Taxpayers can get an income tax refund if the tax liability is less than what they actually paid through withholding.  People set the amount withheld from their income for taxes by the answers they place on the W-4 form.  

Many people prefer to get a refund from the government instead of paying taxes in to the government.  However, people who receive a large income tax refund should consider increasing the number of exemptions on their W-4 form.  Essentially a large refund is giving the government an interest free loan.  By increasing the number of exemptions on the W-4, people will have more money in their paychecks and can use the money as they see fit.  

Items that decrease the amount of tax owed by an individual include buying a house, getting married, having a child, opening a tax-deferred savings or retirement fund, paying for college, and increasing the charitable contributions given during the year.  These things will increase the refund or decrease the tax owed for a person.  On the other hand, items that increase the amount of tax owed by an individual include moving to a rental property, taking money out of a tax-deferred savings or retirement account, cashing in investment earnings, and losing a dependent who becomes independent.  These things will increase the amount of tax owed and thus, decrease the amount of a tax refund or increase the amount of tax owed.