Video instructions and help with filling out and completing How Form 2220 Refund

Instructions and Help about How Form 2220 Refund

Welcome to this session of big tax refund or breaking evening now what I want to talk about in this session is the question I get asked often as a tax professional is it better to get a big tax refund or is it better to break even well first I want to say that there is no right or wrong there's no right and no wrong to that particular question a lot of times when people talk to me about this especially those that are on the side of breaking even they have a tendency to say well why would I want the government to hold my money almost making it seem as if people are getting big tax refunds are doing something wrong and that's not what I want anybody listening to this to particularly take away from this for instance let's look at a scenario and I just want you to kind of play along with me will role play together if we're out at a restaurant for instance and we go get a burger place like Islands the bill comes in seven dollars I throw in a tip for three dollars the bill comes a total of ten I give the waitress or waiter 20 what am I expecting to happen next well at some point I'm expecting my refund to come back I'm expecting some change from my 20 a 10 dollar bill that's not anything that I'm going to get happy about that's not anything that I'm going to you know feel like the waitress did something or give me a favor about I'm expecting a 10 dollar refund to come back or 10 dollars and change that is an analogy or an example of getting back a big tax refund the flip side of that is follow me here a lot of times people get excited about getting money back from the government and in this particular example that I'm giving I'm not talking about people who are getting Earned Income Credit or low income I'm talking about middle America people who are earning between fifty thousand and two hundred fifty thousand anything in between you're not getting anything back from the government when you get a tax refund you're simply getting back what you overpaid just like an example I just use when I paid on my burger gave the waiter or waitress my 10 bucks or my $20 and they brought me back 10 dollars and change now let's go back to that for example breaking even how does that work well the bill comes is ten dollars or $7 $3 tip and I give her a $10 bill am I expecting anything back well of course not because the bill itself came to $10 well that's more like the break-even strategy so there's two strategies when it comes to taxes and it's important to have a strategy and again those are big tax refund or breaking even the one example of big tax refund we gave the 20 and got the $10 change back and the other example we got a bill came it was $10 we're getting a $10 bill we got no change back let's add a few zeros to that $10,000 is the tax liability we paid in $20,000 that's what was withheld throughout our paycheck throughout the year how much can we expect our refund to be not a trick question $10,000 simply put we overpaid now when it comes to taxes again there are two strategies to overpay or to not overpay again big tax refund or breaking even let's look at the break and evening strategy just a little bit more so it's more clear I'm going to take a tax refund of $6,000 let's just assume you get back a $6,000 refund we can divide that $6,000 refund by 12 months okay 12 months gives you $500 a month most people get paid to bi-weekly twice a month so that would be 250 dollars additional per paycheck now at the end of the year if we were doing this strategy of breaking even there wouldn't be any refund to get back all $6,000 would have been put on our paychecks at $250 increments throughout the year so there's no money to get back as a refund you follow me there now some people again will say that because they're breaking even they're not letting the government hold their money they're doing something that's a little bit more profound and somebody who let's say is getting back to $6,000 refund well the argument is I can do more with $6,000 then I could do with 250 dollars more per paycheck and I agree with people to say that it some people have told me hey when I get my refund back or $6,000 I can pay off some credit cards like I racked up from Christmas I can pay off my tax bill my property tax bill I can plan a vacation and I agree with them it is easier to do something or more with the $6,000 in one lump sum than it is a $250 every paycheck but if the person has taken that $250 every paycheck is really using it to save or put into an investment that's pretty savvy but for most people it doesn't quite work out like that at the end of the year now someone's asking what is it that I need to be paying attention to if I'm trying to break even well what is it I'm trying to I should be doing if I'm trying to get back a big tax refund for anybody who's self-employed your strategy across the board is going to be break evening it's pretty straightforward almost one size fits all very few if anybody I know who's self-employed is looking forward to a big tax refund and the reason is because you have to pay in the taxes throughout