How to calculate your tax refund
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When it comes time to file your taxes you probably go into stress mode. However, if you are expecting to receive a tax refund it is a good idea to know how much money you can expect to receive.
By using a tax refund estimator, you will have an approximate number to keep in mind regarding your tax refund. Additionally, when you use a tax calculator you will be able to tell if you have not paid enough in taxes for the current year and how much you can expect to have to pay the IRS on April 15.
If you are one of the lucky taxpayers who will be receiving money back, using a tax calculator will allow you to know how to plan your finances. You could see which bills can be paid off or even start an investment account. However, in order to utilize the tax calculator to receive the most accurate tax estimations possible you will want to be sure to enter the information below:
Tax filing status
The tax calculator is going to have a drop down menu available that allows you to choose one of the four tax filing statuses. It is important to insure that you select the correct one so your estimation can be as accurate as possible.
Gross annual income
You are also going to have to enter the amount of your gross annual income into the tax calculator. This includes all of the money that you have made throughout the year, such as tips, self-employment incomes, and bonuses.
Qualified plan/IRA contribution
If you do not participate in a plan that is sponsored by your employer such as
a SEP IRA or Simple IRA the contributions that you make to the Traditional IRA are usually tax deductible. If your employer does sponsor your plan, you will deduct your contributions based on your modified adjusted gross income and your tax filing status. The total contribution is going to have to be entered into the tax calculator.
If you have many deductible expenses such as, mortgage interest, state/local taxes, medical/dental expenses, or charitable contributions it may be in your favor to itemize your deductions.
Number of personal exemptions
You are able to claim personal exemptions for yourself and your dependents. When calculating taxes your exemptions are deducted from your income so you pay less money to Uncle Sam. However, the personal exemption amount can adjust annually for inflation. The tax calculator is going to ask you your total number of exemptions to provide you with an accurate estimation.
Number of dependents
You have to report all of your dependents who you provide support for. However, you have to make sure that they are eligible to be considered a dependent based on the IRS guidelines.
Federal taxes withheld
You have to enter the amount of federal income taxes that were withheld from your paycheck. Keep in mind that if you have under withheld you will have to pay the IRS more money, which could result in you not receiving a refund. Once this has been done you are able to press the submit button and your estimations will present themselves.
When using the tax calculator for an estimation of your refund, keep in mind it is basing the estimation off the information that you type in. If you put in the wrong information, you cannot expect your refund estimation amount to be accurate.