Getting taxes to $0

[riverwed070707]

I'm sure this thread will peeve some, but I'm stumped. Last year we got a $3k tax return. Paid in $5k total.

This year, I wanted to work toward breaking even since our budget is really tight and every penny is allocated each month. I increased my allowances and Mid-year I did an assessement that indicated I would only need to pay in about $1500. At that time I was right about that amount so I increased my allowances to 22 in order to stop paying in.

Well I did a quick run through on turbo tax yesterday and it says I'm getting a $2,600 refund ($1,700 fed, $800 state). How is it that I would get a refund larger than the amount I paid? Something seems off. Further, as I plan for next year, assuming our deductions are going to be the same, should I plan to pay no federal taxes for the year? That seems risky and I don't want penalties. Help.

[disneysteve]

Originally Posted by riverwed070707

Further, as I plan for next year, assuming our deductions are going to be the same, should I plan to pay no federal taxes for the year? That seems risky and I don't want penalties. Help.

I'm not an accountant but I believe you only get penalized if you underpay by more than a certain amount relative to your previous year's tax liability. If you owed nothing this year and you pay nothing next year in anticipation of the same result, I don't think you'd be subject to any penalty even if you actually ended up owing some money.

[MonkeyMama]

Originally Posted by riverwed070707

I'm sure this thread will peeve some, but I'm stumped. Last year we got a $3k tax return. Paid in $5k total.

This year, I wanted to work toward breaking even since our budget is really tight and every penny is allocated each month. I increased my allowances and Mid-year I did an assessement that indicated I would only need to pay in about $1500. At that time I was right about that amount so I increased my allowances to 22 in order to stop paying in.

...should I plan to pay no federal taxes for the year? That seems risky and I don't want penalties. Help.

Refundable tax credits - maybe child tax credit? Effectively makes your tax rate negative - the government pays you.

In order to legally claim exempt on your paycheck ($0 income taxes withheld), you have to have $0 tax liability in the prior year. That's the kicker. In this case, you meet the qualification. (To clarify - taxable income must be $0 or total taxes must be $0). If you expect taxes to be $0 again in 2012, is fine. If you owe a lot of tax for 2012, could cause issues. So the question I would ask is do you expect everything to be mostly the same in 2012? Same income? Most the tax law is the same for 2012, so I'd just worry if your income increases - you may want to withhold something if that happens. Keep in mind for rest of year.

[photo]

Originally Posted by riverwed070707

How is it that I would get a refund larger than the amount I paid?

That's an excellent question. Of course you can't get a refund on what you didn't pay. It's the government's way of spreading the wealth.

[Shewillbemine]

Originally Posted by photo

That's an excellent question. Of course you can't get a refund on what you didn't pay. It's the government's way of spreading the wealth.

Correct me if I'm wrong, but this response seemed more politically charged rather than didactic.

OP, it is literally impossible to answer your question without getting all the details of your financial situation. Did you receive any tax credits? Are you itemizing? Furthermore, we can't vouch that your TurboTax entries are entirely correct.

If you never get to the bottom of this, I guess you can just be thankful it's a $2600 refund as opposed to owing $2600 (yes, I'm aware of the 0% loan mentality for the gov't but I'll happily take a refund any day over owing Uncle Sam).

I gladly pay an accountant once a year to ensure my taxes are done right and in the event of complications or an audit, I have a professional to speak on my behalf.

[photo]

Originally Posted by Shewillbemine

Correct me if I'm wrong, but this response seemed more politically charged rather than didactic.

A refund is receiving back something that you paid. If I give you $10 and you give me a "refund" of $15, it isn't a refund; that extra $5 is simply extra money. When someone receives more in a tax "refund" than was paid in, that money is simply given to them from the government. There are different ways to receive the money -- for child care credit, stimulus money, low wage compensation, etc.

[jpg7n16]

Originally Posted by riverwed070707

Well I did a quick run through on turbo tax yesterday and it says I'm getting a $2,600 refund ($1,700 fed, $800 state). How is it that I would get a refund larger than the amount I paid? Something seems off.

Sounds like you could use this: What is Audit Defense? - TurboTax® Software Support

[feh]

Your federal income tax liability may be a negative number.

Note, of course, that doesn't mean your overall tax liability is negative; it surely isn't:

• sales tax
• property tax
• payroll taxes
• gas tax
• etc.