4 reasons why you never get a tax refund

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Do any of them apply to you?

Key points

  • There are different reasons why you might never get a refund from the IRS.
  • Not getting a tax refund is not as bad as you might think.

Most people who file a tax return end up getting a refund from the IRS. But there are also those who never get a refund. If you fall into the latter group, this could be one of the reasons why.

1. You collect higher paychecks up front

Your employer uses the information you provide on your W-4 tax withholding form to determine how much tax to deduct from your pay each pay period. If you claim more allowances, you will have less tax withheld. This means your paychecks may be larger, but it also means you may not receive a refund when you file your tax return.

2. You have a second job whose salary is not taxed

When you are self-employed, your employer does not deduct tax from your earnings as they would if you are an employee. If you maintain a side hustle as self-employed or self-employed, you may owe taxes on that income when you file your return – which is why you’re not seeing a refund coming your way.

3. You make a lot of money in a brokerage account

Investing in stocks could make you a lot of money. But if you sell investments with a gain, you are subject to taxes on them. If you generally benefit from gains in your brokerage account, this could lead to a scenario where you are not eligible for a tax refund.

4. You’re not claiming the correct credits or deductions

There are a host of tax breaks available to filers in the form of deductions and credits. A deduction exempts a portion of your income from taxes, and common deductions include mortgage interest, state and local taxes, and medical expenses provided they exceed a large enough portion of your income.

A tax credit, on the other hand, is a dollar-for-dollar reduction in your tax liability. Common credits include the Child Tax Credit and the Earned Income Tax Credit. If you don’t claim the credits and deductions to which you are entitled, you could lose a tax refund. It is therefore important to know what tax relief you are entitled to.

What to do if you never get a tax refund

If you find that you never qualify for a tax refund, but also don’t tend to owe the IRS a lot of money at tax time, you may not want to do anything. . It’s easy to think of a tax refund as a gift from the IRS, but in reality it’s anything but. When you get a refund, it means you paid more tax than the year before and you’re just getting your money back.

Your goal, in fact, should be to get as close to breaking even as possible when you file your tax return, so that you either owe the IRS very little or only get a small refund. If you never get a refund but usually owe the IRS a few hundred dollars, that’s not a bad situation to land in. This means that you haven’t been deprived of too much of your income during the year, nor are you facing a colossal tax bill.

On the other hand, if you end up owing a lot of money to the IRS each tax season, to the point that you incur penalties for underpaying your taxes during the year, some changes may occur. impose. These could include estimated quarterly payments if you have a side business or large earnings in your brokerage account. Or, they could include adjusting your withholding with your employer.

Hiring a tax specialist can also help you reduce your tax burden. So it’s a path worth trying if you’re tired of owing large sums of money and can’t find a way to avoid this situation on your own.

About Wanda Wall

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