Laura Saunders (WSJ): Why I’m Trying to Stop the IRS From Giving Me a Tax Refund This Year

It is time to start year-end tax planning, and this year I’m doing something different. For the first time, I’m planning to owe taxes next April 15 instead of getting a refund.

Weiss says he’s considering avoiding refunds in the future, and Korbitz says he’ll be working with clients on this as well: “It’s often a lot easier to owe the IRS than to have them owe you.”

Going this route means threading a needle, however. Overpaying could risk refund delays, and it also provides an interest-free loan to Uncle Sam. But paying too little will bring penalties. The underpayment penalty is an interest charge that is currently 7%, and the rules for avoiding it are complex. There are workarounds, so here’s what taxpayers should know.

Use withholding strategically 

Many filers—especially employees and retirees—have substantial income that qualifies for withholding. The law considers withheld taxes to come in evenly throughout the year even if they don’t. So withholding can free filers from owing quarterly estimates. 

Say a filer is an employee with substantial interest and dividends. If he raises his paycheck withholding to include projected taxes on this extra income, he could avoid quarterly payments—even if his investment income is uneven.