About 75% of people that submitt their tax returns are expected to get a tax refund. This percentage isn’t any different from previous years; however, the average amount of money that the taxpayer gets in their return continues to grow steadily through the years. It has grown from an average of $1,698.00 in 1999 to of $3,003.00 in 2009. This implies that government refunds have become increasingly ascending (about 100%) in only a decade. There are several explanations for this improvement in refund averages, which are discussed here:
New Tax Breaks
Throughout the same period, there have been many tax breaks that have been introduced; for example, the Bush tax cuts, among other tax credits (the majority of which had been produced in efforts to revamp the economy). These breaks range from the home-buyer credits, American Opportunity Education credit, and larger child credits. Many men and women elect to apply these new tax credits inside their returns, which results in higher refund checks.
Poorer Performing Markets
The stock exchange market and interest rates on various investments have performed dismally between 1999 and 2009. These reduced returns on investments kept taxpayers from wanting to manage their tax withholdings better, as there is nothing much you lose when it comes to investment returns by waiting for a tax refund. Therefore, fewer men and women are keen to produce withholding adjustments.
Changing Perceptions on Refunds
In the past, the notion of overpaying your taxes and looking forward to a tax refund was seen as a bad deal, since it basically meant that you needed Uncle Sam to provide you with an interest-free loan. People worked to match their withholdings to ensure that they got the smallest possible tax refund. In reality, a survey carried out about tax refunds and taxpayers revealed that the older taxpayers aged 50 years and above, still hold this notion and can always manage to adjust their withholding to match actual taxes. Younger taxpayers, however, appear to have a different attitude towards their tax refunds. Several of them will intentionally overpay their taxes to be able to get a larger tax refund. The refund comes more like an added bonus and also the funds can be used towards a specific thing, such as setting up a crisis fund, making an asset down-payment, or simply saving up for a vacation. Many young tax payers feel that the burdens of bills are high and saving up throughout the year can be hard to do. Getting a hefty tax refund from the IRS seems preferable over receiving small funds distributed right after a given tax year. This new trend of how tax refunds are viewed might have contributed to the rise in number of tax refunds overall.
Expense of Withholding Adjustments
Another reason that can explain the rise in tax refunds is the complex process for calculating and making withholding tax adjustments. You’ll have to use three worksheets and two tax tables on the W-4 to produce the right adjustments in your withholdings. You then must forward your W-4 from your employer to have them update the alterations. Numerous individuals find this approach challenging and choose to just accept their tax withholdings. Once again, most tax preparers provide free help in preparing the W-4 to make tax withholding adjustments.
Job and Investment Losses
Through the same period of 1999 to 2009, there had been lots of people that have lost returns on investments and became unemployed, especially in the 2001 and 2007 economic recessions. Because of this, the expansion in refund averages may reflect the deductions on losses, unemployment benefits, and adjustments on reduced incomes.
With the previously given information in hand, we’d like to encourage anyone that is looking for a bigger tax refund to visit our website at Cohesive Tax. We can help you come up with a tax strategy and explain tax codes and withholdings, so e-mail us now and let us help prepare you for the future. Please take advantage of the plethora of information on our website and get in contact with one of our skilled professionals for a bigger tax refund or advisors and/or Enrolled Agents that may help you use the tools you will need for a bigger tax refund.