If you encountered the unexpected -- a big change in your tax refund amount (or balance due) -- when filing your taxes this year, you may be confused as to why. While some refund changes are obvious, understanding why your numbers changed this year can often be a little trickier to deduce.
To help you sleuth out the reason, here are 5 common reasons your refund may have changed significantly.
Higher Income. Many aspects of income taxes change as your income grows. You may find that you are in a higher "tax bracket" -- such as an adjustment in the percentage of tax due from 10% to 15%. In addition, high earners may become subject to additional taxes, like the Net Investment Income Tax or Alternative Minimum Tax.
Lower Income. On the other hand, reduced income for one or both taxpayers can result in new credits becoming available. This can include tax credits geared toward lower-income taxpayers, such as the Retirement Saver's Credit, Earned Income Credit, or the Credit for the Elderly or Disabled. Additionally, you may see an increased amount of many of these credits that are based on income. For example, the Child and Dependent Care Credit can be anywhere from 20% to 35% of your child care bill depending on your income.
Changes to Withholding. If you or your partner have made any adjustments to your withholding or changed jobs, this could affect your overall refund. Changing your withholding allowances on Form W-4 -- even by one exemption claimed -- can easily result in a bigger or smaller refund. Keep in mind that fewer allowances claimed on the Form W-4 means more money withheld by the taxing agencies and a lower tax bill at the end of the year.
Loss of Credits. Tax credits change as your financial and family situation changes. If you have kids, you may experience the loss of the Child Tax Credit as they reach age 17. Some tax credits must first be applied to any tax due, meaning that if you owe tax this year, you may also see less of that credit refunded to you. High earners can often be surprised to find that even when some tax credits are still available to them, those credits are reduced ("phased out") as their income passes certain dollar amounts.
Errors. Mistakes happen, especially if you've chosen to take on your taxes by yourself. The error could be either in the current year or it could be in prior years, making this year's numbers not match. Common errors that occur in tax forms include math or typing errors, claiming or not claiming tax credits, misreporting income or expenses, or not understanding the rules. Often, the tax authorities will correct math or typing errors by sending you a letter. However, other errors can persist unless you seek out a third party with experience in preparing taxes.
By understanding what may have caused your tax refund to change, you can better control how life events affect your financial picture. To ensure that you pay the lowest taxes and fully understand your tax obligations, you may want to work with a qualified accountant or tax preparer. Visit websites like http://www.tri-check.biz for more info.
Share23 February 2017
Adoption is a beautiful thing. Raising a child someone else had is a completely unselfish act of love. Do you want to adopt a newborn in the near future but are afraid you won’t have the necessary funds to do so? Consider meeting with an experienced financial adviser. This professional can sit down with you and recommend viable fundraising options. For instance, you might want to take out a loan. Or you may wish to sign up for a grant. Obtaining a tax credit is also an alternative. On this blog, I hope you will discover effective tips to help you raise money for an upcoming adoption.