Given the choice, almost anyone would prefer to have a tax refund than owe more to the government. After all, you've been paying your dues all year long, presumably.
But the ideal circumstance is to owe or be refunded less than $50. Anything beyond that on your 2005 federal return, which needs to be postmarked by Tuesday for Maryland taxpayers, and it's time to adjust your withholdings. (April 15 falls on Saturday and tax returns sent to Massachusetts won't be processed on Monday because that is a state holiday.)
"That's the sweet spot," said Cindy Hockenberry, tax information analyst for the National Association of Tax Professionals. "Then you know you had your money all throughout the year and weren't giving Uncle Sam an interest-free loan."
Many of us, though, are overpaying.
Last filing season 78 percent of individual returns received by the end of April were due a federal refund, according to the Internal Revenue Service. Though complete data are not yet available for the full year, the average cash back was about $2,100.
And through March 24 of this year the average refund has been $2,344.
All too often this sizable bonus is seen as a convenient way of saving, paying off credit-card debt or financing the next splurge.
But it's a habit worth breaking.
For one, you miss out on the earnings you would receive from investing the cash.
And if your tax situation changes you could get back nothing to pay off that credit-card debt, or potentially owe big.
For tax year 2003, the latest period for which the IRS can provide data, the average amount due was $2,166.
With your tax return and other files at hand, now is one of the best times to make adjustments. So follow these steps to ensure that come next April, you're square with Uncle Sam.
Like a tax return, you can get help filling out your W-4 by using an online program, in this case provided by the IRS at www.irs.gov (go to "Online Tools, IRS Withholding Calculator"). A W-4 is the tax form you submit to an employer instructing how much tax will be withheld from each paycheck.
The IRS calculator takes you through what seems like a mini-return, asking questions about your tax situation, including the credits you expect to take and estimates for itemized deductions and 401(k) contributions.
If you are unsure what numbers to use, turn to your most recent tax return.
You will also need your latest pay stub to determine how much federal tax is being withheld.
Once you complete the questionnaire the calculator will spit out a diagnosis, showing what will be due or refunded if you do not modify your withholding.
Even better, it gives explicit instructions (as in, "put zero on line 5") on how to alter your W-4 so that your balance or refund is less than $25.
Do regular updates.
You can adjust your W-4 form as many times as needed during the year.
In particular, you should make changes after so-called life events, such as getting married (or divorced), buying a home or having a baby, because they trigger tax changes.
Note that even if you get married or become a parent in the fall or winter, your new tax situation applies for all of that year. Your W-4 also should be revisited if you obtain a new source of income, such as a second job.
Worried about getting it all straight? The real test, of course, will be next tax season when you again figure how much you owe or are due. But, said IRS spokeswoman Sue Hales, "A lot of people find the online calculator to be more accurate and easier to use than going through the work- sheets attached to a paper W-4."
Carolyn Bigda writes for Tribune Media Services.