You did a great job submitting your taxes on time! The only problem at hand is that the outcome is not what you expected.
You are not alone. Due to inflation, the IRS increased the standard deduction and tax rates for 2023, resulting in higher refunds this tax season. At the same time, a new study shows that taxpayer expectations about returns are all over the place this year. People in Alabam have a good option to hire tax preparation services in Alabama, since there are many popular agents. If your tax return is small this year, you should contact a tax preparation service, too.
What is the reason behind your small tax rerun?
Let us get started by going over the very first reasons why we get a tax refund. What influences the amount you get after filing?
For a great deal of individuals, their tax refund includes the exact amount that they were overpaid in taxes for the year. This may be a consequence of overestimating your self-employment tax liabilities or withholding more tax from your regular paycheck than you owe.
Your refund amount might rise if you are qualified for a refundable tax credit. You will receive the credit balance due, which is less than the tax due. For example, if you qualify for a $1,000 credit and owe $400 in taxes, the remaining $600 will be refunded.
Here are some reasons why your tax return is small:
- Changes in income
Your refund this tax season may be smaller if your income was different last year. Here are a few examples:
- Salary rise: You might get a reduced tax refund when you file if you got a salary raise the year before but failed to update your tax withholding.
- New side income: Let us say that you started getting additional income all through the tax year, but you failed to pay the planned taxes owed on it. Any additional tax that you had deducted from your normal paychecks will be retained by the IRS to cover it if you were unable to pay taxes on your freelance income during the year. This will result in a lesser tax refund.
- Current economic environment
Something else that might impact the amount of your refund? The economic system. Here are a few more things to think about:
- Inflation: Every year, the IRS modifies a number of factors to adjust for inflation, such as raising the standard deduction or the income thresholds for each tax bracket. However, not every tax break takes inflation into consideration. The capital loss deduction allows investors with net losses to reduce their taxable income by a maximum of $3,000. Every tax year is an important one that can have an effect on you this year. This amount is the same as it was last year, even if expenses have risen.
- Layoffs: Your taxes may be affected if you were fired in 2023 and got a severance payment. Receiving a severance payout could put you in a higher tax bracket since they are taxable.