How do some people get so much back on their tax returns?
 

I just don't get it. I have a friend who makes less than me but always seems to get more back each year. What am I doing wrong?

Why? Because you're whining and they know it! :D

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No, seriously... there is an exact science to it... but it eludes me.

I've found one thing constant: The more I work, the more I get back.

My return rate this year was nice. 1 dollar for every 6.8 I made.

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The military is kinda nice in this regard: I didn't have to pay taxes for the entire years of 2003 and 2006 due to being in a combat zone.

As I said in the other post about if you do your own or have an accountant, I think that may make a difference a bit. I tried it on my own one year and compared it to what the accountant got, and he got back double what I did. Now I do not think all accountants are equal too. The one I go to is a cheap man who knows every single loophole every way to declare a deduction so that you maximize your return. He somehow can rub 2 nickels and get 2 quarters seemingly. He is a bit more then some other accountants but he does not take on mass clients, so he can do it right for the ones he has.

The one thing I learned is how to document any type of expense that can be business related, and then how to term it. Business meal vs entertainment (one is 50% less), business gift vs entertainment (like tickets to a show), etc...

It kind of reminds me of medical billing, it is a whole profession to know how to claim things just right, and you have to learn how to do it.

You don't WANT a big tax refund. What you want is to come even, and pay nothing or very little on 4/15.

Getting a fat refund check might feel good, but what would feel even better would be to put the extra that's getting withheld into an interest-bearing instrument of some kind and let it grow. Getting a refund check means the government has been earning your interest all year.

That ratbastid... he speaks the truth.

Exactly. What you may really be asking is "How can I minimize the total amount of taxes that I pay, including the amounts withheld over the year?" But that's completely different from what you asked.

While that is true, it's not always effective for a good number of people, including myself.

It's the same reason why Ron Popeil can sell things in just 4 easy payments of just $29.99 instead of $119.96. Many people don't have the fortitude nor the discipline to do such a thing with each paycheck.

People see they have the money, and they spend it. Or for some, accumulate that money to $400 then see iPods on sale and figure they can blow the wad on that.

The net event at the end of the year is they don't have any of that money at all.

What also cannot be done during the year, is to take depreciation on rental properties, mortgage interest, and itemized deductions such as transportation, car mileage, food & entertainment, magazine subscriptions, membership dues, etc. Those itemizations can net you a refund even if you "broke even" as suggested by ratbastid.

Mostly, to insure that I don't worry about having to pay taxes, when filling out your W4 and submitting to your employer I request the higher withholding of Single 0 dependents. If I selected Married 2, I'd take more money home as ratbastid suggested, but the difference would be small and squandered on small things I wouldn't be able to even recall at the end of the year.

I wouldn't worry about other people and their tax returns. If they're getting a big fat refund, as ratbastid has said, they've given the government an interest-free loan for the entire year. Not exactly in everyone's self-interest.

What I would worry about is educating yourself on your own tax situation. I don't know how much you know already, but make sure you know the basics. Figure out how to reduce your own personal tax liability. Talk to others and figure out how they save on their tax bill. Donate more to charity to get the tax deduction, etc. Though I personally think that most people should do their own taxes, talk to a tax professional to get some more advice and help if you feel like you need it.

The IRS has a helpful basic publication, as well:

http://www.irs.gov/pub/irs-pdf/p17.pdf IRS Publication 17 "Your Federal Income Tax" [~3 MB file]

It could also be as simple as the way he's done his W-4.

OMG I started to read that... and my brain started to hurt. 298 pages of that stuff????

There are so many ways to answer the question. The most simple is how your W-4 is filled out. I like a nice refund. This year's was actually a lot more than I was expecting. We had a second child and this was the first year that we had enough deductions to use the itemized deductions (deducted interest from our mortgage). I ended up with a refund of about $3000. However, half of it is going right back to pay my property taxes.

I think of it as like an escrow account for my property taxes. After that, sure I could get an extra $60 per paycheck but honestly, if I took in an extra $60/paycheck I'd probably just waste it on stupid shit like more expensive food. Instead, I'd rather withhold the money and get a nice lump sum payment and do something special.

The way I see it, the IRS doesnt pay me interest for having my money all year, but yet if I owed and had to pay over time they would charge me for it....I prefer to have my money during the year rather than a refund.

I

Charlatan speaks the truth about ratbastid speaking the truth. You're better off with the money in the first place, which you can invest.

hrm, so is it wrong to claim more dependants than you really have then for the sole purpose of retaining money to put into savings?

I imagine it would be more effective to just flat out not pay a cent in taxes and then report your income and be told what you owe then, but I dont think employers have that as an option.

Unless you didn't pay a time in taxes and somehow still got some back. ;)

I owe money for the first time ever. $900! Something is fucked up here...

ROFL...if you can afford it, do what I do. I take out an extra $40 for state and federal per check so either you pay LESS at the end of the year or you get MORE back.

I have been doing that since 99 and I have always got $300-$1000 back combined. I claim 2 or something like that but if I wasn't lazy I could have gotten more back by going to someone to do my taxes instead of filing online. I got my return on the 2nd of February and it was for $1154. I could have gotten more but I earned $18K more from the year before so I jumped a tax bracket. Rat Bastards!!!!

No, but the IRS will charge you a fee for doing that.

Um, I'm pretty sure that's tax fraud. Not sure if that leads to PMITA prison, but I doubt you should take your chances.

Besides, you need to list SSNs for your dependents when you claim them. I imagine 5 dependents with the SSN of 123-45-6789 might raise a few red flags. :-P

In the W4 which you fill out for withholding purposes, you can claim as many as you like.

http://www.irs.gov/pub/irs-pdf/fw4.pdf?portlet=3

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http://img.photobucket.com/albums/v1...q/2c33576d.gif

There's no fraud until you get to filing for April 15 and using fake SSI.

http://img.photobucket.com/albums/v1...q/aa9fa9c5.gif

But to Shauk's attempt, you could pay for it at the end of the year, but again, people tend to like to pay a little at a time, rather than a large lump sum.

Look at your last paystub of any year, and think if you'd like to pay that amount at the end of the year as a lump sum. Most people would rather not, since it "feels" like you're paying more, even if it is the same amount.

To that end a small editorial, people who claim that they'd like all these social programs and such I believe would feel differently if they had to pay a lump sum upfront as opposed to the small percentage they pay for in taxes.

Interestingly, they do not deduct taxes from my pay cheque here. Taxes are due on receipt of your Certificate of Assessment. You can either pay it out all in on chunk or you can have it withdrawn in equal installments through the following fiscal year (interest free).

It's a great system made better by having low taxes.

Ah, ok. That's what he meant. I suppose you _could_ try pulling that off, and as long as you're paying your correct share to the government, I guess Uncle Sam wouldn't care (?) in the end. Though I suppose technically you're committing perjury, according to the W-4 form.

I do think that there should be the option for those with enough self-discipline to allow no withholding. I'd rather keep all of my paycheck, put aside the money I'll need for taxes in a high-yield online savings account and pay the lump sum come Apr 15.

You do have this option, with at least one exception. You are allowed to elect to have not enough withheld to pay what is due on 4/15. However, if you end up owing more than 10% more than the eventual tax due, you will have to pay a penalty. Ex.1- Tax owed - $3000. amount withheld $2700. 4/15 - you pay $300. No penalty. Ex.2- Tax Owed - $3000. amount withheld $2600. 4/15 - you pay $400 + penalty.

There are so many rules and exceptions it is hard to give firm rules because everyone's situation is different. Ex. Me - I have my own business which is commission based. I pay no taxes on any income throughout the year. Because the commissions are variable in both amounts and frequency there is a form that I can complete and include with my tax form so I do not have to pay any penalty. Result - I pay all of my tax due with my return on 4/15. The extra money is nice but, damn, writing that check on 4/15 is getting harder every year.