Matos And Myles: How To Get A Large Refund Or A Small Balance Due

Submitted By CristhianMatos1
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Pages: 7

Matos & Myles

How to get a larger Refund or a smaller Balance due

“Why such a small refund? They take out so much from my paycheck; shouldn’t I be getting back more money?” Or “Why do I have to pay so much? They took out so many taxes out of my paycheck; I should be getting something back? What about what I spend on metro cards, rent, food and clothes?” As a Tax Professional, these are the questions I have to respond to every year. Tax Laws are complex and perplexing, not to mention ostracized. I, however, take great pleasure unraveling some of the twists and turns of the Taxation System. Your financial planning to a larger refund or smaller balance due starts the day you fill out your hiring papers at your new job. One of the most influential forms in the hiring packet is a W-4 Certificate of Allowances; it prompts the amount of taxes to be withheld from your paycheck. The W-4, the filing status, different credits applied and Taxes paid are the catalysts which bring about the refund amount or balance due on an Income Tax Return.
In 1861 Congress introduced the income tax with the objective to raise revenue to fund the Civil War, back then a flat tax of 3% on annual income above $800.00 that’s equivalent to $19,490.00 dollars today. This was followed by a series of acts, such as the Revenue Act of 1862 which raised the tax rate to 3-5% with a condition to end taxation in 1866 but the notion did not disappear. In an attempt to liberate themselves from a concept that was benefitting the industrial and financial markets prospering while the farmers were stricken with higher prices for manufactured goods and lower prices for their products; Congress proposed a constitutional amendment legislating such a tax, much to their surprise it was approved by one legislature after another and in 1913, the 16th Amendment was positioned in the Constitution; it established Congress the right to impose a Federal Income Tax.(1)
Now that we know why and how taxes were developed, let’s take a tour around some of the twists and turns encountered in the daunting world of how to fill out your tax return arriving at a destination of a larger refund or a smaller balance due. When you’re first hired your employer hands you a packet of forms to fill out, in that packet you will find a Certificate of Allowances, also known as a W-4. With this form you can control the bottom line on your paycheck and Income Tax Return. There are a series of questions that you might think all apply to you, and they might but don’t get confused, number of allowances are not the same as number of dependents or exemptions. Allowances can be situations such as no one else can claim you as a dependent, this is1 allowance. You’re single and have one job, married with a non-working spouse or a working spouse with wages less than $1,500.00, this is 2 allowances. 3 allowances if you want to claim your spouse. How many dependents do you claim on your tax return let’s say 2 dependents, that’s 2 more allowances. Do you file head of household on your tax return? That’s another allowance. You pay a babysitter? That’s another allowance. You have 2 children? You multiply that by 2 (if you earn less than $61,000.00) =4 more allowances. For a Single taxpayer with one job-2, two children -4 and babysitting expenses-1, and filing as head of household-1, this taxpayer is entitled to claim 8 allowances and have very little taxes withheld from their paychecks.
A bigger paycheck as a result of little taxes withheld is an appealing concept for single taxpayer trying to support three children with one income but when this taxpayer files her taxes it could result a smaller refund amount or even a larger balance due. For argument’s sake, let’s assume this taxpayer’s annual wages are $31,000.00. As she fills out the form that applies to her filing status, which is the 1040A, according to the IRS rules(3), she wouldn’t qualify to file a 1040EZ, this form is for taxpayers with no