Kevin McCoy, CPA

If you’re anything like me, I hate giving the government an interest-free loan all year only to get a huge refund when I file my income tax return.  Or maybe you like getting a refund and want to know an estimate of the amount in advance.  Here’s a quick and easy way I use to estimate my anticipated refund or balance due for 2009*.

1) Find your “total tax” from your 2008 return.  If you filed a Form 1040, this will be line 61.

2) Find your latest paystub and locate your current pay period and year-to-date Federal withholding.

3) Figure out how many pay periods you have left this year.  Example, I am paid bi-weekly and have 9 paychecks remaining.

4) Take your current pay period withholding from step 2 and multiply it by the number of pay periods left from step 3.

5) Add the result from step 4 to the year-to-date withholding from step 2.

6) Compare the result of step 5, to the figure in step 1.  If step 5 is greater, that is your estimated refund.  If step 5 is less, you may owe that much come April 15th. (If it’s too low, you may be subject to penalty, so watch out.)

Other considerations:

-if you have a spouse that works, before going on to step 6, go back to step 2 and figure his/her amount, then add it to your step 5.

-if you receive a bonus or other irregular income, you may want to subtract that withholding out at the beginning (since it is not recurring) and then add it back in after step 5

-if you pay estimated taxes,  figure the number of estimates you have left to pay and add those amounts to what you’ve paid so far

*Note this works well for those with W-2 withholding and other income that is fairly consistent from year-to-year.  I’m thinking of items like interest & dividend income, capital gains, etc.  If you have a more complicated tax situation or something out of the ordinary this year feel free to contact me at kmccoy (at) cdnscpa (dot) com.