Simple Guide to Estimating Your Tax Refund in Six Steps
Learn how to estimate your tax refund easily with this six-step guide. From calculating income to deducting credits and withholding, understanding the process helps you anticipate your refund or what you might owe. Use practical tips and tools to streamline your tax estimation process and stay informed about current tax brackets and deductions.
Six Easy Methods to Calculate Your Tax Refund
Once you complete your tax return, the refund you might receive from the IRS or state tax authorities is termed as your tax refund. This amount depends on the taxes you've paid upfront and your eligible credits.
Step 1 — Assess Your Income
Gather all income documentation for the year, including wages, bonuses, commissions, rental income, gambling winnings, and investment returns. Exclude non-taxable income like workers’ compensation, scholarships, welfare, and child support. Ensure your income totals cover the entire year since refund calculations are based on a 12-month period.
Step 2 — Choose Between Standard Deduction and Itemized Deductions
You can either claim the standard deduction or itemize deductions such as mortgage interest, property taxes, medical expenses, and student loan interest. Opt for the larger deduction to reduce your taxable income. Remember, some itemized deductions are subject to a 2% AGI floor, so calculating these carefully or using online tools can be helpful.
Step 3 — Estimate Your Tax Liability
Subtract your deductions (step 2) from your total income (step 1). Determine which tax bracket your taxable income falls into, considering your filing status. Keep in mind that tax rates and brackets may vary annually, so verify current rates from the IRS. State taxes may differ, and some states do not impose income tax.
Step 4 — Deduct Tax Credits
Add up all applicable tax credits, which directly lower your tax owed. Subtract this total from your calculated tax liability to determine your net liability.
Step 5 — Calculate Total Tax Withheld
Review pay stubs and accumulated withholding documents. Multiply your monthly withholding by 12 to estimate annual withholding. For example, if $100 is deducted monthly, your yearly withholding is approximately $1,200.
Step 6 — Determine Your Refund or Balance Due
Subtract your total withheld taxes (step 5) from your net tax liability (step 4). A negative result indicates an overpayment, resulting in a refund. A positive amount shows you owe additional taxes.
