Refund or Bust: The Conclusion of Wealth Club's Tax Guide Refund or Bust: The Conclusion of Wealth Club's Tax Guide

Refund or Bust: The Conclusion of Wealth Club's Tax Guide

by Michael Fleck

February 27, 2012

In our financial advice column for the centsless, Michael Fleck fields questions on how to get your money right.

Refill that drink, it’s time for part three of our tax tutorial. Two weeks ago, we laid the groundwork. Last week, we started working through the tax filing process by examining the 1040, the main tax form for individual filers. Today, we’re going to go through the second half of your 1040—deductions and credits—to figure out what you owe the government, or what the government owes you.

·      Line 62 – This shows the amount of tax that was withheld from all of your paychecks from all of your employers over the course of 2011. This is key in figuring out whether you receive of a refund (withholdings > tax liability) or get a tax bill (withholdings < tax liability). You see now why it’s not a terrible idea to have money withheld from your paycheck; otherwise, you’d be stuck with the full bill in April. 

·      Line 63 – Payments already made toward 2011 taxes. If you were owed a refund in 2010, you had the option to apply it to your 2011 tax liability. I’ve never done this, and don’t particularly recommend it. I suppose if you knew you were going to be receiving a large chunk of taxable income this year, and nothing was going to be withheld from this chunk, you could apply some of your 2011 refund to soften the blow next year. But honestly, take the honey.

·      Line 64 – Earned Income Credit. A tax credit for especially low-income earners. Your chosen tax preparation software will be able to calculate whether or not you can receive this. The credit is refundable, meaning if you owe $500 in taxes, and earn a credit of $750, $250 can actually be paid back to you in cash. Many tax credits work this way, and it’s one of the main reasons you should file a tax return even if you did not make a lot of money. You may be able to claim enough credits to be owed a refund. 

·      Lines 65-67 – More of those tax credits for additional children, more education and first-time home buyers. 

·      Line 68 – If for whatever reason you filed for an extension, and at that time paid some money towards your eventual tax liability, it would be entered here. I’m guessing this doesn’t apply to most of you.

·      Line 72 – Total payments.

Refund or What You Owe

The very last step requires comparing your Total Tax (Line 61) to your Total Payments (Line 72). If you overpaid, probably due to the taxes your employer withheld, you’re due a refund, and you can elect to have the money returned to you or apply it to you 2012 tax bill. If you owe, you‘ll have to cut a check to the United States Treasury for the difference. Hopefully this amount isn’t too high. If it is, and you’re hoping not to get stuck with a similar tax bill in 2012, now’s the time to request that new W-4 from your employer, and raise your exemptions.

You’ve pressed the final e-file button, and it’s now a waiting game. You wait for confirmation that the IRS has accepted your federal return. Save a copy of your return, and shut it down. Wealth Club Rule: Do not go back to not thinking about taxes for 11 months. You don’t need a running total of your tax liability, but you should know how weighty life decisions such as buying a house, having a child, going back to school, dealing with practically any type of investment, will affect your tax liability the following year. You may be surprised to find out what could be awaiting you on or before April 15th—for 2011, you actually have until April 18th to file. Thanks, Abe!

Congratulations if you were able to get through all three installments. Let me take this opportunity to express my frustration that specialized degrees and/or years of training are necessary if you want any hope in understanding the full tax code. I suppose that’s what tax accountants and lawyers are for, but c’mon, I find it hard to believe that it can’t be slightly more user-friendly. Top White House economist Austan Goolsbee once proposed an automatic tax payment program that would apply to 40 percent of Americans and save $2 billion a year in tax preparation fees, plius many people’s sanity. With any luck, policymakers will start listening to such advice and let ordinary Americans focus on working and earning money, not deciphering the IRS Rubik’s cube.    

Don’t hesitate to shoot an email to with any obscure tax questions, or really about anything affecting your wallet. I can’t guarantee that I’ll be able to find a perfect answer, but I’ll always do my best to point you in the right direction.

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Refund or Bust: The Conclusion of Wealth Club's Tax Guide