It's never too early to make sure your tax refund is in order. The last thing you want to do is wait untilto start preparing.
Instead of procrastinating until the last minute -- and possibly missing vital information in your tax filing -- you can start calculating your 2020 tax refund now before 2020 even gets here.
1. Consider if you're going to get a refund at all
Nearly three in four tax return filers in the US will receive a refund, which puts you in good company with millions of people. The rest of us will owe the government money.
Generally, your refund is calculated by how much money is withheld for federal income tax, minus your total federal income tax for the year. (There are other factors, too, like deductions -- more on that below.) Remember that thewithheld from your paycheck don't always go to federal income tax. You also pay into Social Security, Medicare and depending on where you live, state income tax.
If you received a lower refund last year or actually owed money, you might need to adjust your withholding to make sure you're getting enough money taken out in taxes now, while it still counts. Otherwise, you'll have a larger tax bill come April, which means you'll owe money rather than get it back. (There's also a chance your tax bracket may change; if you earned more, you could owe more, too.)
You can use the Tax Withholding Estimator from the IRS to make sure you have the correct amount of money withheld from your paychecks, whether they are weekly, biweekly or monthly. It's good to have a recent pay stub and tax returns on hand to get the most accurate information when using the estimator before filing your tax return. Keep in mind that it works for most filers, but not necessarily for every filer. Every family situation, gross income, exemptions, withholdings and other factors can completely change how much you receive -- or owe -- come tax time.
2. Gather your necessary documents
Before you start your math, you'll need a few different items for your calculations, including:
- Personal details: Your age, filing status (single, married filing jointly, married filing separately, head of household), if you have any dependents and if so, how many and their ages.
- Earnings information: Your pretax income, retirement plan contributions, how much you claim in deductions, and taxes you've already paid or had withheld so far this year. Some popular deductions include the child tax credit, student loan interest deductions and the home office deduction.
- Business expenses: If you work out of your home or have paid for work-related items, you might be able to claim it on your taxes or claim exemptions. Keep in mind that if you are a business owner, business taxes are filed separately or you'll need to account for that income on your personal return. Be sure to read up on what expenses qualify before filing with itemized business expenses.
- Other details: Consider things like medical expenses, donations, interest on your mortgage, student loan interest payments, childcare costs and more. You might also consider that your income puts you in a new tax bracket, which can change how much you get as a refund (and possibly owe money).
If you don't have this information readily available, you might not be able to accurately calculate your 2020 tax refund.
3. Find a reputable tax refund calculator
Major tax software companies offer tax return estimators and calculators to help you determine how much you can expect to get back as a tax refund. Find calculators from:
Aside from tax-specific companies, there are other places to calculate your return, such as:
While the layouts of these calculators might not be the same, much of the information requested is. Make sure you have all your necessary documents before starting your calculations. If you don't, it might take you longer to compute your refund, or you might not get an accurate calculation.
Don't wait until Tax Day to file
If you've done the math and found out you're getting a decent tax refund, don't wait until the last minute to file or e-file. Now that you're prepared, you can start filing as soon as you receive your W-2s from your employer. This usually happens around the end of January, but varies depending on your employer.
Since you've already gathered the necessary documents to calculate your 2020 tax refund, that means you're nearly set to actually file. Instead of waiting until April to file your taxes, the sooner you file, the sooner you get your refund. Also, keep in mind that you could receive your money even faster if you set up direct deposit. Don't waste time -- file as soon as you can so you can join millions of other Americans who are expecting a return.