No Refund, No Additional Payment, Perfect Scenario
No matter if you are self employed or work for another, you will pay taxes during the year. The amount you pay, in correspondence with deductions, tax credits, etc., will determine how much you owe or what type of refund you will receive when you file your final return. Most people would rather receive a refund than owe the IRS additional money; and who can blame them? But this is not the best way of thinking. Instead, the perfect scenario is to receive no refund and owe no money but to hit a break even point.
If you receive a refund it means one thing: you paid too much in taxes during the year. Consequently, you were lending money to the IRS when you did not have to. This is money that you could have saved, put towards debt, or anything else that would have worked to your advantage.
On the other hand, if you owe money it means that you came up short and didn’t pay enough. The IRS doesn’t mind this because they will get theirs when you file your final return. This is even worse than lending the IRS money because in the end you have to send an additional tax payment. And that is never fun.
Hitting a break even point and reaching the “perfect scenario” is never easy to do. But if you have a grasp on your tax situation you should be able to come close. This will go a long way in easing your tension and putting a smile on your face when tax season arrives.
