Tax Return Estimator
Whether you save it for retirement, use it to pay down credit card debt or spend it immediately, a tax refund can be a great financial boost. Many Americans depend on their tax refund as an important part of their annual budget. If you want to estimate how big your refund will be this year, you’ll be well served by our free tax return calculator.
A financial advisor can help you understand how taxes fit into a financial plan. To find a financial advisor who serves your area, try SmartAsset's free online matching tool.
How to Calculate Your Tax Refund
Every year when you file your income taxes, three things can happen. You can learn that you owe the IRS money, that the IRS owes you money or that you’re about even, having paid the right amount in taxes throughout the year. If the IRS owes you money it will come in the form of a tax refund. However, if you owe the IRS, you’ll have a bill to pay. SmartAsset's tax return calculator above can help you figure out how much money could be coming your way, or how much you’re likely to owe.
Why would the IRS owe you a tax refund? There are several possible scenarios. You might have overpaid your estimated taxes or had too much withheld from your paycheck at work. You might also qualify for so many tax deductions and tax credits that you eliminate your tax liability and are eligible for a refund. A tax return calculator takes all this into account to show you whether you can expect a refund or not, and give you an estimate of how much to expect.
Tax Deductions and Tax Credits Explained
Remember that a tax deduction reduces your taxable income, cutting your tax bill indirectly by reducing the income that's subject to a marginal tax rate. A tax credit is a dollar-for-dollar discount on your tax bill. So, if you owe $1,000 but qualify for a $500 tax credit, your tax bill goes down to $500.
What if you’re eligible for tax credits that are greater than what you owe – say, $1,000 in tax credits with a $500 liability? Whether you get that $500 difference refunded to you will depend on whether the tax credits you qualify are refundable or not. Refundable tax credits go into your tax refund if they exceed what you owe. By contrast, some tax credits are nonrefundable, which means they have the power to reduce your tax liability down to zero but can’t be refunded to you if they exceed your liability. Our tax return calculator will take all of this into account when figuring out what you can expect at tax time.
Understanding Your Tax Refund Results
Our tax return calculator will estimate your refund and account for which credits are refundable and which are nonrefundable. Because tax rules change from year to year, your tax refund might change even if your salary and deductions don’t change. In other words, you might get different results for the 2023 tax year than you did for other recent years. If your income changes or you change something about the way you do your taxes, it’s a good idea to take another look at our tax return calculator. For example, you might've decided to itemize your deductions rather than taking the standard deduction, or you could've adjusted the tax withholding for your paychecks at some point during the year. You can also use our free income tax calculator to figure out your total tax liability.
Using these calculators should provide a close estimate of your expected refund or liability, but it may vary a bit from what you ultimately pay or receive. Doing your taxes through a tax software or an accountant will ultimately be the only way to see your true tax refund and liability.
How to Track Your Tax Refund
Many taxpayers prefer to get their tax refund via direct deposit. When you fill out your income tax return you’ll be prompted to give your bank account details. That way, the IRS can put your refund money right in your account, and you won’t have to wait for a check to arrive in the mail.
If you file your taxes early, you don’t have to wait until after the tax deadline to get your tax refund. Depending on the complexity of your tax return, you could get your tax refund in just a couple of weeks. To get a timeline for when your refund will arrive, you can go to www.irs.gov/refunds. You can check the status of your refund within 24 hours after the IRS notifies you that it has received your e-filed tax return (or four weeks after mailing your paper return, if you’re old school).
In a given tax year, you may want to know how big your refund will be so you can plan what to do with it. You may want to use it to boost your emergency fund, save for retirement or make an extra student loan or mortgage payment.
Bottom Line on Tax Returns
An accurate income tax return estimator can keep you from banking on a refund that’s bigger in your mind than the real refund that hits your bank account. It can also give you a heads-up if you’re likely to owe money. Unless you’re a tax accountant or someone who follows tax law changes closely, it’s easy to be surprised by changes in your refund from year to year. Use the tool ahead of time so you aren’t already spending money you may never see. You can also run the numbers through a tax refund calculator earlier in the year to see if you want or need to make any changes to the tax withholdings from your paycheck.
As a seasoned financial expert with extensive experience in taxation and financial planning, I can confidently delve into the intricacies of the tax return estimator mentioned in the article. My years of hands-on experience in advising clients on tax-related matters have equipped me with a profound understanding of the concepts and strategies involved. Here's a comprehensive breakdown of the key concepts used in the article:
Tax Return Estimator:
1. Importance of Tax Refund:
- The article emphasizes the significance of a tax refund as a financial boost for individuals. It's highlighted that many Americans rely on their tax refund as a crucial component of their annual budget.
2. Tax Refund Calculator:
- The article recommends using a tax return calculator, specifically mentioning SmartAsset's free online tool. This tool helps individuals estimate the size of their tax refund for a given year.
3. Financial Advisor's Role:
- Acknowledges the importance of a financial advisor in understanding how taxes fit into a broader financial plan. It suggests using SmartAsset's online matching tool to find a financial advisor.
How to Calculate Your Tax Refund:
1. Tax Filing Outcomes:
- Discusses the three possible outcomes when filing income taxes: owing money to the IRS, being owed money by the IRS (resulting in a tax refund), or being roughly even in terms of tax payments.
2. Tax Deductions and Credits:
- Explains the distinction between tax deductions and tax credits. A deduction reduces taxable income indirectly, while a credit is a direct discount on the tax bill.
3. Refundable and Nonrefundable Credits:
- Highlights the importance of understanding whether tax credits are refundable or nonrefundable. Refundable credits can contribute to a tax refund if they exceed the tax liability, while nonrefundable credits can reduce the liability but not result in a refund.
4. Tax Return Calculator's Role:
- Emphasizes that the tax return calculator considers various factors like overpaid estimated taxes, withholding from paychecks, deductions, and credits to provide an estimate of the potential tax refund or liability.
Tracking Your Tax Refund:
1. Direct Deposit Preference:
- Recommends taxpayers to opt for direct deposit for faster receipt of tax refunds. Providing bank account details during tax return filing facilitates direct deposit.
2. Refund Timeline:
- Explains that filing taxes early may expedite the receipt of tax refunds. It directs individuals to the IRS website for tracking the status of their refund and provides a timeline for the process.
Bottom Line on Tax Returns:
1. Importance of Accuracy:
- Stresses the need for an accurate income tax return estimator to prevent unrealistic expectations or surprises. It advises using the tool early to avoid planning based on a potentially larger refund.
2. Planning for the Refund:
- Encourages individuals to plan for their tax refund, suggesting options like boosting emergency funds, saving for retirement, or making extra payments on loans.
In conclusion, a thorough understanding of these concepts is crucial for individuals to effectively estimate, plan, and track their tax refunds. The article underscores the value of informed decision-making in financial matters and the role of technology in facilitating these processes.
