During the year, you pay taxes through your payroll taxes and/or through estimated tax payments.
Based on how much you pay and what deductions you get, sometimes you’ll owe more taxes at the end of the year. And sometimes the government will owe you money because you’ve paid too much. This is known as a tax refund.
After you file your tax return, if you are due a tax refund, it can take a few weeks or more before you get your refund check (or the electronic deposit hits your bank account).
One you get that money, it’s yours to spend however you want it!
But what if you know you’re going to have a big tax bill the following year? Can your refund help you there? This is why many people wonder “can I apply my tax refund to next year?”
Below you’ll find the answer to that question (the short answer is yes!) and cover some benefits of doing that.
Can I Apply My Tax Refund To Next Year?
Yes, you can apply your current tax refund amount to your next year’s tax refunds. This is a completely legal thing to do.
If you choose to apply your current tax refunds to the next year’s taxes, your estimated refund amount will apply to your first estimated tax payment for the following year.
If the amount of your refund is more than your first estimated tax payment, then it will just keep rolling forward to the other estimated tax payments until your refund amount is used up.
Benefits to Applying Tax Refund to Next Year
There can be great benefits to applying your current tax refunds to next year’s taxes.
First, you can reduce the burden of having to save up money to pay your estimated taxes each quarter.
Second, you can avoid the penalties that are charged with anyone who has not paid their full taxes.
There are many other benefits you can get by applying your current tax refunds to your next year’s taxes. In general, this approach is a protective shield against bankruptcy.
For example, if you applied some or all of your 2020 tax refunds to next year’s taxes and come back to do your taxes in 2022, the amount you applied will show up as a credit. Now how exactly do you do this?
How Can Your Taxes Show up as Credit?
As a working basis, let’s assume that we are in 2021 and we are applying my 2020’s tax refund to this year.
Provided below are the steps on how to determine if you have applied last year’s taxes for this year:
The first step is to check your last year’s tax returns. Determine if you have any overpayment (refunds) that were applied to this year’s estimated payments.
And if there were, check what amount of that refund that was applied to this current year.
Next, report the amount that was applied on your this year’s form: Form 1040, Schedule 5, line 66.
It is advised that you do not include any overpayment you received as tax refunds in the amount disclosed. Additionally, do not include any balance due from last year’s return that you have already paid in the previous year.
And there you have it! We hope that this article informs you more about how to apply your tax refund next year. As you can see, this approach can be beneficial for you in a lot of ways. It is all just a matter of preference.
If you find taxes confusing or boring or you’d just rather spend your time doing other things, you can always hire an accountant to help. You can find local accountants near you with this free search tool.