Check your tax refund status

By Connie Brezik, CFP

As you can tell by the abundance of tax software commercials on TV, tax season is upon us once again. No pressure, but your job is to file your tax returns correctly and on time. Simply put, your total tax payable — minus what you’ve already paid for 2021 — is what you’ll owe when you file your 2021 returns. If you’ve overpaid, you’ll get a refund.

Connie Brezik

If you’re a glutton for punishment and preparing your own tax returns, the first step is to gather all your documents. This may include:

  • Employer W-2s
  • 1099 from interest, dividends, sale of investments and real estate
  • K-1 of partnerships and S-corporations you own
  • 1098 to show mortgage interest paid
  • Letters from charities that document your charitable contributions.

And the list goes on and on.

Taxes can be paid during the year from payroll deductions, minimum required IRA distributions, Social Security, and pension income. Many taxpayers also make estimated quarterly tax payments. The hassle of making these payments four times a year can be avoided by paying all of your tax payable by withholding tax. Please note that taxes withheld at any time during the year are considered paid pro rata throughout the year. Therefore, you could make up for any shortage of payments on your last paycheck of the year.

Of course, getting a tax refund is nicer than writing a check. However, paying an appropriate amount of tax when you file your return is a good thing! A refund means you let the government act as your interest-free piggy bank.

If you don’t contribute enough during the year, you could be assessed an underpayment penalty. You can avoid this by planning fiscally throughout the year to know how much has to be paid and when.

To avoid underpaying and overpaying the government, I suggest employing these strategies:

  • Instead of letting the government hold on to your hard-earned money throughout the year, it’s a good idea to open a savings account and make a deposit with every paycheck. This can be set to happen automatically like clockwork. It’s a great way to fund your vacation, save for a car, or pay for college. By doing this, you have control over your money. You have no control over your funds deposited with the government/IRS.
  • Be intentional with your money. You get a gold star if you start planning now for 2022. Since you’re already in “tax mode” working on your 2021 tax returns, you might as well make things better for this year. You decide how much of your income will be withheld for tax purposes. Estimate what you’ll owe for 2022 and adjust your deduction now for the rest of the year. Don’t forget to complete a new W-4 and turn it into your payroll department. If your income or deductions change during the year, you can make further adjustments at that time.

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As a citizen of the United States, we all have to pay what we owe, but we don’t need to overpay. Do some upfront planning to minimize your tax liability. This can be done by:

  • Consolidation of charitable deductions every two years to exceed the new increased standard deduction.
  • Defer some income to the next year when you expect to be in a lower tax bracket.
  • Make a Roth conversion or take more than your required minimum distribution (RMD) from your traditional IRA to take advantage of low tax brackets.
  • Multi-year tax planning can allow you to use the tax law to your advantage. The goal is to pay as little tax as legally possible over your lifetime. If you don’t strategize over multiple years and focus only on this year, you could end up paying more taxes than necessary.

Being in control by managing your own taxes is smart! However, if you don’t want to become an income tax expert, hire a tax professional (CPA or EA) and consult your financial advisor. Good deposit!

About the Author: Connie Brezik, CFP®, CPA, PFS

Connie Brezik is a Casper-based wealth advisor at Buckingham Strategic Wealth.

For educational purposes.

Do you have questions about your taxes, personal finances and investments? Get answers!

Email Jeffrey Levine, CPA/PFS, Director of Planning at Buckingham Wealth Partners at: [email protected].

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