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Tax Refund Calculator

Tax Refund Calculator
It is difficult to pinpoint just exactly how must a refund you can expect from the IRS without the aid of a tax professional.  Luckily, there are free tax refund calculators available to help individuals such as yourself estimate your refund.  All you will need to do is input some important information on your income, dependents and deductions into the tax refund calculator to receive an estimate.  A tax refund calculator will also help you to determine what deductibles you will qualify for as well as display how that deduction will affect your refund.

Be aware that you will not get reliable results from some tax refund calculators.  For instance, some tax refund calculators provided by tax return preparing services will analyze your information and inform you that you do indeed qualify for a refund.  However, it will not tell you the amount of that refund or how that refund is calculated without prompting you to pay for the service.  Due to the wide availability of free and reasonably accurate tax refund calculators, you should be able to use a tax refund calculator to estimate your refund without making an obligation to a service.

When using a tax refund calculator, consider the source.  Ensure that the source is reliable and is unlikely to overstate or otherwise misrepresent the estimation to induce you into purchasing their services.  Ensure that the tax refund calculator you use is current, as there will be old tax refund calculators that will give you an inaccurate result, based on previous tax codes.  Also, be sure to double check the information you enter into the calculator as inaccurate data will cause wide fluctuations in your results.  Lastly, when choosing a tax refund calculator, never enter sensitive personal information, such as social security numbers, bank account information, names or addresses.  This information is irrelevant to determining your tax information and will be used to steal your identity instead.

What is the data that I will need to enter into the tax refund calculator?

Personal information:
Filing Status – there are a few options, of which will entail radically different results, reflecting the obligations of the individual in the household.  These filing status options are single, married filing jointly, married filing separately, head of household, qualifying widow(er).

Age – there will be different allowed exemptions, based on age.  The calculator will ask you for your age on 12/31 of that tax year

Number of Dependents – enter the number of people that depend on you financially, usually children.  This can be a complicated determination, so it is best to check with the IRS before assuming that you can claim a dependent.  There are additional distinctions for dependents and they can be qualified with the student, disabled and child residency categories.  Each will have special exemptions and other distinctions.

That’s it for personal information.  The tax refund calculator does not need to know anything else about you, personally.

Income

Total (20XX) Wages – here is where you enter the wages from your employment.  If you have filled out a W-2 form, it will be the number in Box 1.  Some calculators will ask you either immediately after or slightly after this question how much of your wages has been ALREADY withheld for federal tax purposes.  On your paystub, the FITW (Federal Income Tax Withholding) generally detonated the amount being withheld from this paycheck and withholding to date.  The amount withheld from your paycheck will be a major factor in the final determination of your tax refund.Income other that wages earned – in this section you will need to account for income earned on dividends, self-employment, capital gains, social security benefits, and non-taxable combat pay, if applicable.  There will be another section to report miscellaneous income that does not fit these categories.

Remember that you have to report all of your income to get the best and most accurate reading from the tax refund calculator.

Expenses

State taxes - Depending on the state, you will have paid state income tax or another tax to raise state revenue.  States without an income tax will impose sales or property taxes on residents.  For this section, you may need to consult with the IRS website to determine how state tax deductions will be calculated for your state.

Mortgage interest – This information will have been entered into your 1098 Form.  Here, if you own a home or other property, you will account for what you have paid, in interest, on the mortgage.

Charitable donations – donations to 501c(3) charities are tax deductible.  You will need certification of your donation to this organization in order to claim the deduction.  For items that have been donated, you must estimate their fair market value.  The fair market value is a reasonable estimation of the price the donated item would have if sold.

Job expenses and tax preparation fees – you may be able to claim costs associated with moving to a new location for employment.

Student loan interest – enter any interest paid on student loans this year as an expense.

Undergraduate degree program – enter the amount of tuition paid for yourself or dependents to attend an undergraduate institution.  The tax refund calculator may have a special section to enter tuition paid on post-graduate programs.

Childcare expenses – these are the costs associated with nannies, daycare and babysitters

Medical expenses - Enter medical expenses not covered by insurance here

Credits – depending on your situation, you may claim credits on home energy, adoption, savings, repayment of homebuyer credit, et cetera.  You may enter this into the calculator as a sum or item by item, depending on the tax refund calculator you will use.

With all of this information, the tax refund calculator will determine your taxable income, amount to be taxed, credits that will be applied to your refund and take into account federal income tax withholding.

How do I calculate my tax refund using a tax refund calculator?

For the purposes of this example, we will use a hypothetical person, John Doe.  John is 26 years old, a single father of a young child.  John works a full time job, but also runs a business venture on the side.  Additionally, John invests and reaps respectable dividends from those investments.  Clearly, John is financially stable, but will have a hard time determining his tax refund without a tax refund calculator.  After all, with all of his financial obligations, that tax refund will represent a significant boost in his financial flexibility.

So before we start using the calculator, let us review John’s finances.  The information here is information you should have ready before you use the tax refund calculator.  Let’s assume that John is filing takes for the year 2011.

Since John is employed full time, then his employer most likely withholds his federal income tax as part of their payroll duties.  Therefore, when using the tax refund calculator, John enters his total, untaxed salary of $30,000.  He makes a net profit of $7,000 from his business and is paid $1,500 in dividends from his investments.  Although these amounts may be counted together as income, the tax refund calculator will have these amounts entered separately.

John would enter his status (head of household), age (26) and number of dependents (1).  Some tax refund calculators will not ask you for the number dependents right away, but we’ll assume this one does.  He will check the boxes next to dependents that indicate that the dependent is a child living with him.

John would then proceed to enter his income information. 
He will enter:

$30,000 for total wages
$5,700 in income tax withholding
$1,500 for dividend income
$15,000 for self-employment income, $6,000 for self-employment expense

Afterward, John will enter his expenses:
He will enter:
$2,000 paid in state income taxes
$1,000 in child care expenses 
$500 in charitable donations


Using these numbers, the calculator will determine that John is owed a refund of $2,815.  

The tax refund calculator determined the following things:

John’s adjusted gross income is $39,946
His deductions total $8,500
His personal exemptions are $7,400

Therefore, his taxable income is $24,047 and the tax on that is $3,000

John will receive a childcare credit of $220 and a child tax credit of $1,000, reducing the taxes to be paid at $1,750.  This is added to the tax derived from John’s business, which the tax refund calculator determines to be $1,105 make John’s total tax obligation $2,815.

Now John has had a substantial amount withheld from him through FITW.  The amount that John will be taxed, $2,885, will be subtracted from the $5,700.  The balances returned as a refund will be $2,815.

As you can see, using these calculators is easy, so long as the information is accurate.  However, not all calculators will come to the determination

How do tax refund calculators differ?

Not every tax refund calculator will produce the same results.  In fact, when we use another calculator, John’s refund may be as high as ---- due to the considerations that this calculator makes.

When entering John’s personal information, it automatically displays that John will be able to claim deductions up to $8,500 and exemptions as high as $3,700.  After adding Jon’s wages to the tax refund calculator, we see that his marginal tax rate rises to 15%.

After adding the business and dividends income, this calculator shows a lower refund, at $2,099.  The difference with this calculator however, is that is takes into stronger consideration the age and number of dependents as well as child care expenses.  John gets an instant $1,000 credit for having a child under the age of $16 plus an additional credit on childcare expenses.  

John would then enter how must is withheld from his paycheck in terms of federal and state taxes to make the final determination on how much tax is owed to the government.  After the calculation is tabulated, this tax refund calculator actually indicated that John’s tax refund will be $3,029, slightly higher than the other estimation.  It is best to use multiple calculators to estimate just how much you will be receiving in refund.

How can a married couple use the tax refund calculator?

Let us assume now that 20 years have passed and John Doe has married Jane Smith.  How will this affect the calculation?

John and Jane are both 46 and will be filing jointly.  We see that their deductions and exemptions have more than doubled with $11,600 now deductible and $7,400 in exemptions.  Their tax rate is now at 25%.John’s salary has improved and he now makes $50,000.  $9,500 of this is withheld by the employer.  Jane works the same job as John and also makes $50,000 with the same withholding arrangement.  John no longer has investments, but has expanded his business, with a net income of $15,000.  Jane makes about $10,000 from the business as well.  

John’s daughter has grown up and is no longer a dependent, but Joe and Jane have had another child, now 20 years old and attending an undergraduate institution, full time.  Childcare is not a factor in John’s taxation any more.  College tuition however, will be.  The child’s tuition totaled $10,000 that year.

The Doe’s contributed $2,500 in cash to a local charity and this is deductible from the taxes they will pay.Joe now owns a home, paying $4,000 in interest on the mortgage and $2,000 in real estate tax.  This is entered into the calculator accordingly.  Lastly, Joe and Jane both contribute the maximum $5,000 to the company retirement plan, which lowers their taxable income.

After all of this information is added to the tax refund calculator, Jane and Joe can expect a refund of $2,199.  This is an example of how a tax refund calculator may help a married couple in addition to a single filer.

Note

Tax calculators are for information purposes only and only consultation with a tax attorney can give you the most accurate sense of how much of your taxes will be refunded, if any.  Not all calculators account for all factors affecting taxation and a tax attorney will help you determine the accuracy of the sum gleaned from the calculator.

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