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tim36272 t1_j6aw1iv wrote

Reply to comment by ChickenCheeks7 in LPT Request: Why is my tax return so low? by ChickenCheeks7

No, the optimal strategy is to shoot for a $0 refund every year. You can use the IRS's calculator at https://www.irs.gov/individuals/tax-withholding-estimator to try to make that happen.

Just because it is mathematically optimal doesn't necessarily mean it is right for you, though.

If you get a refund at the end of the year you basically gave the government a loan and they are paying it back. You can use that as a kind of hidden savings account if you'd like, and that may be psychologically better in your situation. But financially it is always better to shoot for a $0 refund.

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seanmharcailin t1_j6byuj4 wrote

That’s a good strategy IF you have a steady income. I work in film. I had 24 different employers this year. I had all my W-2 jobs keep extra, so they’d balance out with my 1099s.

Which… I guess is actually still trying to have the refund/owed be $0, but since I’m guessing and have no idea how much I’ll make each year, I’d rather get a fat refund than owe come tax time.

I know it’s an interest free loan to the gov but I’m shit at saving so it works out okay for me

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Kurokotsu t1_j6cf5yr wrote

I do this last bit. My current job pays better than any of my others. I have a really hard time saving money. So I put some extra toward tax stuff, keeping my money only slightly higher than my normal quality of life, to keep me on a shorter leash. That way my return feels more like an occasion and a chance to buy things I otherwise couldn't have saved for.

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tn69c1935 t1_j6bcyxk wrote

Why 0$ ? If we owe money and pay it a credit card with points or cash back do we not come ahead ?

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tim36272 t1_j6bnuv3 wrote

Yes that's better, but you can only really do that if you're making substantially more money every year. There is a penalty for underpaying, so you're risking a penalty if you underpay by too much.

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love_that_fishing t1_j6dfz4o wrote

I purposely owe 3-4k a year. It’s never been a problem. I’m not sure where the cutoff is but that amount has been fine.

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wilderop t1_j6hwe8a wrote

The tax software doesn't highlight the penalty. Do you read through your entire return before submitting? You may be paying a penalty each year without knowing.

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love_that_fishing t1_j6j24an wrote

Yes i print out the entire return and review It. Have not been paying a penalty. They also may look at percentages. I pay 50k in federal taxes on average so being short 3k is not a large percentage.

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