There are many people in an uproar over this, here January 18, 2011. So many Americans are in the rut of over withholding all year long, they are desperate to get this big payoff, right in January. This is the same as it always is, except, before Taxpayers could rush in, with partial information, getting large loans on a projected income, that never comes, saying they will just do a 1040X.
In order to itemize, when you prepare, or pay someone else to file your 2010 taxes, you will be required to produce that evidence to the preparer, or IRS. Tax preparers, will no longer take the risk that the taxpayer has all of the figures needed, and lets file those taxes. It has become a mad game of give and git. The American taxpayers are doing themselves a grave injustice with financing the US Treasury.
Many American Taxpayers do not realize they can be fined for over withholding as easily as under withholding. The IRS does not prefer taxpayers to use the US Treasury as a savings account. Why, would anyone loan out thousands of dollars per year interest free, while paying around 23% interest to use their own purchasing power or money?
For those who think they are benefiting their financial means at all, I must say, NO! You are robbing yourself of Double the money!
I have heard, listened and given some understanding to the practice, but it is a very harmful financial practice. What has started taxpayers on the road to poverty, are these type of practices, without realizing how much they are shorting themselves. Most Americans live on credit, or they did until 2009.
Millions of Americans loan thousands of dollars per year to the US Treasury, interest free. The thing that is strange, is that these same individuals pay around 23% interest to use their own money, all year long.
Paying tax on income, means you do your best to break even, or be very close. A taxpayer who has worked in the same income for more than one tax year, knows what he/she was required to pay in taxes. Or what their taxable income was for the prior year. This means, that the next year, you must pay in at least 90% of the taxes you paid the previous year. No more, no less.
There are reasons why one year can change drastically from the next. By keeping up with how much income tax, social security and Medicare, is being paid in through the year, one may stay within dollars of what they will owe, or be refunded when it comes time to divvy up at the tax table.
The IRS website, located at www.irs.gov has all the tools a taxpayer, or prospective taxpayer would need to keep up with how to optimize their entire financial outlook. The one tool that is rarely used, is the IRS Withholding Calculator. When using the IRS Withholding Calculator, found under the Individual Tab, and about 5 paragraphs down, you will know how much you have paid in, and how much is required, depending on your projected income. Projected is important, because you may like to do the majority of your withholding from day one of the new tax year. Something can happen, where your income increases, or decreases greatly. When this happens, it is time to adjust withholding correctly. At the end of each session of the IRS Withholding Calculator, you are offered an opportunity or chance to print off and download a new W-4.
It is important that the taxpayer keep up with their own withholding throughout the year. If an employer under withheld, or did not pay in the Social Security, and/or Medicare, the individual taxpayer will be held responsible.
I understand it is not prestigious to live within ones means. It seems an illusive image American taxpayers have created for themselves. Somehow it is more fab, more popular, more 'with it' to charge purchases, living on credit, until someone else pulls the plug.
The average refund of those getting money back is about $3,000.00 per year. That is about $57.00 per week, $250.00 per month extra each taxpayer could have throughout their year. The only thing is, it isn't flashy, or doesn't carry with it some kind of image Americans think they must fit. Double your money, stop over withholding, and cut up those credit cards. They are NOT for Emergencies.