As sure as the arrival of spring occurs in March is the need to file the IRS return on or after April 1. And since there is no way to avoid it, it is best to deal with this tax obligation as soon as possible, so as not to leave it for the last day, which is June 30.
One of the things that all families really want to know is whether they will receive IRS or, the worst news of all, whether they will have to pay. If you cannot wait for the simulation that you can do when you finish filling out the declaration, and that gives you an approximate answer to this question, it is best that you get a calculator right away and follow the three steps that we indicate. indicate below.
In the end, and if the result is what we all want, that is, there will be a refund from the IRS, we leave you with suggestions on how to make the most of that extra money. If you have to pay IRS to the State, we also indicate a way to do it, using the UNIBANCO credit card, without causing any damage to your personal finances. But for now, let’s do the math.
1st stage – Determine the tax base
The part of the income that the IRS will collect on is called collectible income. To arrive at this value, it is necessary to know the annual gross income and subtract specific deductions and allowances.
gross income -> It is the sum of the income free of taxes and Social Security bonuses of the different elements of the household during the year to which the declaration refers. For its calculation it is necessary to add the salaries and pensions, as well as the allowances (in the rest of the legal limits of exemption) and the allowances (in what exceeds the limit of 4.77 euros per day, when paid in cash, or 7.63 euros when delivered in vouchers or meal cards).
Deductions/discounts to consider -> Specific deductions, which vary by income category, must be subtracted from gross income. For example, in the case of employed workers (category A), this value is set at 4,104 euros, which must be subtracted from gross income.
Joint taxation -> Once the subtraction is done, married or domestic partners who choose to file the IRS return together must also divide the result by two, this is called the family quotient.
Step 2 – Estimate the collection
The amount that each taxpayer must deliver to the State is designated by collection, which is calculated by multiplying the IRS general rates by the taxable income determined in the previous step.
To find out what rate to consider, see the IRS Tier Table, published annually. Each level of taxable income (there are nine in total) corresponds to two tax rates: a standard rate and an average rate. To understand which IRS scale you fall into, you need to look for the one that your calculated taxable income fits into. This is the table with the IRS tax brackets for 2023, as published in section 68 of the IRS Code:
In practical terms, if it is, for example, a tax base of 20,000 euros, the minimum limit of the upper bracket that fits in this tax base is 15,992 euros, that is, the limit of the 3rd step. This is the first portion of the rent to which the average rate of 19.579% is applied. The remaining 4,008 euros (20,000 euros – 15,992 euros) are subject to the normal rate of the 4th tranche, that is, 28.50%.
Step 3 – Calculate the IRS
From the collection obtained in the previous step, it is now important to subtract deductions and withholdings. Only at the end of this calculation will it be possible to know if you will receive or pay IRS. It is important to mention here that when you receive the IRS, in fact the State is not giving the taxpayer anything, it is just giving them back the tax they overpaid throughout the year. Likewise, when there is a need to pay IRS, it means that the taxpayer has not paid all the taxes owed to the State during the whole year, so he must do it now.
Deductions -> It is at this stage that deductions are subtracted from the collection (to the value found in the previous step), which are the expenses incurred throughout the year with education, health, real estate, housing, alimony and family expenses in general, among others. . Donations made are also deductible, as well as investments in pension funds and retirement savings plans (PPR). Additionally, those with dependents benefit from an automatic deduction, as do those with low-income ancestors living under the same roof.
Withholdings at source -> It is also necessary to subtract the withholdings made throughout the year. These withholdings are the amount of the tax withheld at source by the employer, an amount that is communicated annually by the employer, in the case of employees. Self-employed workers must pay special attention to this aspect, which can cause surprises in the tax to be returned to the State.
After these calculations, if the balance is positive, you receive a refund. If the balance is negative, the missing amount must be paid to the State.
If you want to do your calculations manually, we leave you an example at the end of this article to guide you.
Will I get a refund, what can I do with the money?
This is the good news we all hope to receive after filing the IRS return. After all, receiving a refund for taxes paid throughout the year proves to be an oxygen bubble in most of our finances. Chances are, you already know what to do with that money (pay off debt or book a summer vacation, for example). Even so, if you want to monetize this amount, we leave you three suggestions:
Create or reinforce a PPR – To ensure that you have a calmer old age, it is best to start preparing as soon as possible, that is, by creating a supplement to your retirement pension. If you have already done so, now is the best time to reinforce it with the amount (full or partial) you received from the IRS.
emergency fund – Our grandparents always had some money hidden under the mattress, and the truth is that they were right to do it. It’s important to always have some money set aside – an emergency fund – to deal with unforeseen events, so this year’s reimbursement could be used for that purpose.
Invest safely If you want to invest, but prefer not to risk too much, you can always subscribe to guaranteed capital products, such as public debt products, that is, Savings Certificates. You can also optimize the gain beyond the interest rate inherent to the Savings Certificates if you buy them with a credit card. The UNIBANCO card, for example, offers cashback, which means that you can recover a percentage of the purchase price.
Help, I’m going to have to pay the IRS back! And now?
If the worst happens, there are several ways to pay the IRS. You can do it online through the APP or Homebanking of your financial institution, ATM, check, in the CTT or in Finance. If the amount is too high, there are credit cards that allow you to divide it into installments. This is the case of the UNIBANCO card, which offers the possibility of splitting payments of more than €300 into three installments in the UNIBANCO APP, without interest, if the customer pays the installments in full. So when the IRS settlement note arrives, you can take a deep breath with this option.
Source: Observadora
