The Internal Revenue Service projects that in the year 2023, taxpayers’ tax refund will likely be lower than in recent years.
This is possible for a number of reasons, including the fact that taxpayers did not get any more stimulus funds in 2022.
Smaller Tax Refund
The IRS also adds that the vast majority of taxpayers who do not itemize will no longer be eligible to deduct charitable contributions. Unfortunately, this means you may receive a smaller tax refund or owe money when you pay your 2022 taxes this year.
A lower tax refund may be only an irritation, however, owing money on your taxes might be emotionally damaging. Contacted financial experts to find out what they thought you should do if your tax refund (or lack thereof) puts you in a difficult situation.
1. Make Sure Your Tax Return Is Optimally Prepared
Maggie Tucker of the podcast Friends On FIRE asserts that consumers whose tax returns appear wrong should and should take efforts to ensure the accuracy of the data. A lesser refund could be the result of actual concerns, or it could indicate that the taxpayer neglected to include an essential item on their tax return.
If your refund is little or if you suddenly owe money, Tucker recommends scrutinizing your tax forms carefully for errors that could have a beneficial impact. Additionally, Tucker recommends using tax preparation software such as TurboTax to ensure that you’ve researched every tax credit and deduction for which you may qualify.
If you have a more complicated financial situation, it may be worthwhile to see a tax expert, she said. Examine the specifics to see what has changed between last year and this year and why you owe money this year when you did not in the previous.
2. Don’t Panic
First, you should understand that obtaining a lesser tax refund is not a catastrophe. In addition, it may indicate that your contributions are closer to the amount of taxes you owe for the year.
Natalia Brown, the chief client operations officer for National Debt Relief, advises taxpayers to keep in mind that obtaining a refund means the government took more money from you over the year than was necessary.
You could even take advantage of this chance to further reduce the amount of taxes taken from your paycheck with the goal of receiving very little back or coming near to the point of break-even.
This is an excellent time to consider these funds as part of your annual savings, Brown said, adding that you may use the extra income to pay off debt and minimize the total amount of interest you pay.
3. Adjust Your Spending
Generally speaking, Eric Bronnenkant of Betterment, a financial counselor, advises people not to rely on their tax refund to sustain their lifestyle. Ultimately, reimbursements will vary from year to year based on a variety of factors outside the control of the person.
When a tax refund is smaller than anticipated, Bronnenkant suggests pursuing additional sources of income, such as through a side gig. If a person was banking on their tax refund for a specific purpose, such as debt repayment or bill payment, they can examine their budget to determine where adjustments can be made.
If they can find areas to eliminate, such as dining out and entertainment, they may be able to rebalance their budget and make up the gap.
Know that you have options when dealing with the IRS if you owe money you do not have. In reality, the IRS says you can get into a payment agreement that allows you to pay what you owe in monthly payments, so if you need assistance, contact the IRS.
Read more: Social Security payments: Here’s when you can expect your February check!
4. Change This Up For Next Year
If your tax refund is accurate when you file in 2023, but you are still dissatisfied with the outcome, your best course of action is to ensure that things go more smoothly when you file your tax return for 2023 in 2024.
Patrick Di Cesare, a licensed financial education instructor who teaches basic financial literacy on Instagram, recommends boosting contributions to a 401(k) or similar retirement plan as a sound financial approach (k).
This action will lower your taxable income, reducing the amount of taxes you will likely owe for the year. For instance, if you earn $70,000 annually and contribute $10,000 annually to your 401(k), you are only taxed on $60,000, he explained.
Cesare adds that you may also be able to make an essential shift through your company’s HR department.
If your return is smaller than expected, it may be because your employer is not deducting enough from your paycheck, he explained. Reach out to your company’s HR/payroll department to determine what changes may be made to prevent this from occurring in the future.
Read more: Tax refund update: Is your inflation relief check taxable?
