Episode 40 - Big Tax Refund? Surprise Bill? Here's What to Know
You filed your taxes. And now you’re either breathing a sigh of relief… or wondering why you owe more than expected.
CPA, Certified Financial Planner™, and host Deb Meyer shares top lessons from the 2024 tax season, especially for busy parents and small business owners. If you got a refund, you’ll learn how to make the most of it. Deb explains why it might not be your tax preparer’s fault and how to plan better next year if you owe.
Plus: a simple framework to help you decide what to do with any financial windfall — from tax refunds to bonuses or unexpected gifts.
What You’ll Learn:
Why filing an extension doesn’t give you extra time to pay
What a big refund really means (and why it may not be a good thing)
Common mistakes with estimated taxes for small business owners and freelancers
How to decide between spending, saving, or giving
Pro strategies for maximizing your refund — or minimizing future surprises
Episode Highlights
(04:22) Tax Refunds
(12:01) Debt Payoff Methods
(15:36) Maximizing Tax Deductions Through Charitable Contributions
(20:59) Savings and Investing Strategies for Funds
Tools, Tips & Resources
2025 Roth IRA Contribution Limits
High-Yield Savings Options: Ally or Capital One
Connect with Deb Meyer
Subscribe to our YouTube Channel
Website: WorthyNest.com/podcast
Full transcript
Deb Meyer (00:00.974)
Hey, I just wrapped up tax season, and let me tell you, it was a doozy. I'm a Certified Financial Planner™, but I'm also a CPA. At WorthyNest, we have a select group of tax and accounting clients for whom we do year-round bookkeeping and help with their year-end tax support. And yeah, there were some cool takeaways from this past tax season for the 2024 tax year.
I'm going to share those with you today. First, extending does not automatically extend the amount of time you have to pay. For individual US based income taxpayers, the deadline was April 15th of 2025 to file your 2024 tax return. Now, if you believe you owed at that point and you were extending, you should have been paying in what you thought you were going to owe.
Penalties and interest are going to accrue after that 4/15 date for any amount that remains unpaid. Even though we're recording and releasing this episode towards the end of April, early May, please know that you should get that payment in as soon as possible if you extended and didn't make a payment.
The number two lesson or takeaway was that balance due amounts don't automatically mean your tax preparer did a poor job. I think for a lot of people they assume, well, if I owe money, whoever's preparing my taxes must not have done it right. And that's not necessarily the case. So I just want to explain a little bit of a primer on estimated taxes because it's a very confusing area for a lot of people, especially if you're a small business owner and your income is irregular. You're often going to need to pay estimated taxes if you're filing as a sole proprietorship and you have a healthy profit or even if you're an S Corp owner and you're trying to get a max equalizer between your W-2 salary and your profit in the business. Because that business profit, it's still generated and there's no tax paid on it throughout the year. Even when you're taking those distributions or those draws, you still need to be reserving some amount for taxes … knowing that you're gonna have those estimated tax requirements.
So let's just assume a business did well in 2023, but it did even better in 2024, and it's organized as an S-corp. Well, the vouchers for estimated tax are gonna be based on that 2023 tax year. Let's assume the business generated $100,000 of profit and you paid your 2023 taxes based on that.
Well, now if your business generated $150,000 of profit, that means you had $50,000 more of income that needs to be accounted for. And it wouldn't be due at those quarterly estimated tax deadlines. It's going to be due when you file your personal return in April. The business tax return in this case would be due March 15th. But the business tax filings, you don't normally have any balance dues outside of some states have branch ties tax and things like that.
So just to understand that estimated tax rule again, most preparers are going to be basing your estimated tax vouchers on your prior year tax liability, not what they project that current year to be. Now some, especially if they're doing more proactive planning like my firm does, we're going to prepare a year in tax projection, but we might not have all the data we need to accurately project that tax liability. And even so, we want you to hold on to your money as long as possible.
Even if we know there's a balance to, if you don't technically have to pay it until April, we're not going to have you pay it in prematurely three months early. So that's kind of lesson number two is follow the vouchers, but also understand that there might be a bigger liability, especially if you're a small business owner and you generated much more profit in that business. Or even if you're a W-2 employee and let's say your compensation is highly structured around bonuses,
Well, if your 2023 bonus wasn't nearly as big as the 2024, depending on what the company is doing for withholding, you might have a bigger tax liability come 2024 and that really wasn't accounted for. So the third point is refunds. And I think this is also a misconception. People assume, yay, I got a refund. This is so exciting. Unfortunately, you might be withholding too much if you're a W-2 employee.
Deb Meyer (04:41.134)
Refunds are actually an interest-free loan to the government. you're essentially giving money to the government without expecting anything in return until after you file your tax return much later. So if you have a really large refund, you're probably withholding too much. In the case of estimated tax, know, small business owners, that's going to be a much more convoluted thing because we can always credit that to future estimated tax and
you might want to consider doing that. But again, that's something you'd want to discuss with your tax preparer. I don't really recommend if you have a small business not having a tax preparer because there can be a lot of nuances there. Self-preparing when you own a small business is difficult. So those are the kinds of considerations on the refund that if you have some control over it, you might want to consider adjusting your withholding.
So if you're a W-2 employee going and filling out form W-4 and the way that form works, if you have more dependents, they're going to withhold less in tax. So let's just say you had too much withholding, you have a really big refund for 2024, you want to prevent that from happening in 2025 and hold onto that cash longer. In that situation, you'd want to claim more dependents even if you don't technically have them.
so that you, you know, aren't having the same issue again when you file your 2025 taxes. And when I say large refund, I'm talking thousands of dollars. I'm not talking a couple hundred dollars here or there. I'm talking thousands of dollars that could have been put in a savings account or used for some other financial goal and you didn't realize you had it until after you filed taxes.
Then the other thing to keep in mind for W-2 employees is that you might have big bonuses if that's part of your compensation package. And with larger companies, you know, they tend to have their own schedules on what they're going to withhold for federal and state income tax withholding on bonuses specifically. So
Deb Meyer (06:55.564)
whatever your withholding is on your normal salary might not match what they're withholding for the bonus. So that you might not have as much control over. They may say, sorry, this is the percentage we do it. And then I guess you could try to kind of back into it in a different way where you're adjusting your regular withholding down. But I wouldn't try to play it too much because bonuses aren't guarantees.
So you never want to be in a position where you don't get the bonus and then you end up having a much bigger tax bill than you expected because you, you changed your withholding prematurely. So if you're confident of, you know, steady income, really have clarity on your salary, including bonuses and what that withholding looks like, go ahead and consider readjusting that W-4. If you're not sure, probably best to just kind of keep it as is and understand that, yeah, you might've forgotten having that cash for a little bit of time, but it's not.
end of the world as long as you file your taxes timely and get that refund processed. If you are a small business owner though, as I was talking about with estimated taxes, typically you're going to follow a different protocol than a traditional W-2 employee. So for small business owners, if they have overpayments, typically we're trying to apply those to that 2025 tax year in this example.
If you're listening to this episode a year from now, it would be applying it to the 2026 tax year. So the first quarter estimated tax deadline always coincides with the tax filing deadline for that prior year. So in this case, 2024 tax returns were due on April 15th of 2025. Also in this case, Q1 2025 estimated tax was due that same date.
there was a overlap there and that's in a position where you could be saying, hey, instead of making that separate Q1 2025 estimated tax payment, I'm just gonna take the overpayment I have on 2024 and credit it forward into that 2025 tax year. So you're not holding onto the cash, but you're not having to like wait for the deposit to come from the government and then send the money right away again.
Deb Meyer (09:10.062)
So you're essentially avoiding an administrative step. On Q2, that's due June 15th. For Q3, that's due September 15th. And then Q4 is due January 15th of that following year. So in this case, for 2025, quarter four estimated taxes, those will be due January 15th of 2026.
And I do have a little small business hack for those who are extending. If you're making that extension payment, you might want to consider doing what you think is that balance due amount plus that Q1 estimated tax liability all as one single extension payment. And that way, if you got any of the, that estimate wrong on what you owe for the current tax year, you're able to get that as a nice little credit forward instead of being messy with
making two separate payments. So that's only for people that are extending, but they could do just one single extension payment and get a little bit of extra benefit there. All right, so if you do actually have the refund, what should you do with that? It's a substantial refund. There are plenty of different avenues you could take with that. that really...
It doesn't, it's not limited just to tax refunds. could be thinking of it as any financial windfall. If there's an inheritance or a large gift or something like that, you you have choices when it comes to having these extra dollars around. And it's really important to be intentional with those choices. Before I lead into those three main buckets of what you could do with that refund or financial windfall, I do want to take a quick break. So,
If you're loving this podcast, would really appreciate it if you leave a review or rating on Apple or Spotify, wherever you listen to your podcast. For those of you who have already left reviews, it really means so much to me and I'm super grateful. But for more people to find out about Beyond Budgets, it's important to continue leaving ratings and reviews on a more proactive basis.
Deb Meyer (11:26.674)
So even if you left one in the past, let's say a year ago or a year and a half ago, it would be great if you just hop on and leave a new fresh review or rating. Again, more people are going to find out about it and I really do pour my heart and soul into bringing great educational content to this channel. All right, so let's go into the three main buckets for that tax refund or financial windfall.
the first one is spend. And I think for a lot of us, we're naturally inclined, Ooh, we have this extra money. Let's, let's spend it. Right. but let's think about it pragmatically. So if you have some large debts, this could be a really good use to pay down that debt. And especially if you have a high interest rate associated with that debt, it really could be a wonderful tool. So I'm not talking about making extra mortgage payments, which
You know, could apply, but if you're at a, let's say a 3 % mortgage, because you got your house, uh, when mortgage rates were extremely low, um, using this refund to pay that off may not be the best use of money. But if you have an credit card with a 17 % interest rate, uh, yeah, this is going to be a great use for that money. Cause you're not going to be able to earn that elsewhere, uh, with investing and things like that, especially in this current economy that we're.
we're facing and market volatility. So when you're thinking about debt payoff, there's two main ways to consider debt payoff. The main way that Dave Ramsey has popularized is the snowball method. And that's really starting with the smallest debt first. So let's say you have a hundred dollar debt and a thousand dollar debt. You would be tackling the hundred dollar debt before the thousand dollar debt, regardless of what those interest rates are.
Now the other method is called the avalanche and that's actually focusing on the higher interest rate, regardless of that balance. So if the interest rate on, uh, let's say it's a $5,000 debt and it's a 17 % interest rate, that one would get paid off over something that's a $250 balance that only has a 5 % interest rate. Catch my drift.
Deb Meyer (13:48.92)
So the idea here is that you're focusing on that high interest rate, more bang for your buck, trying to get that pay down as quickly as possible and not really worrying about some of the smaller debts that have lower interest rates. Okay. Now the other thing you could be doing with spending beyond debt payoff is thinking about, you know, the future and like having fun. I know for some of us, I'm more naturally inclined to save. So it's actually,
more of a challenge for me to like go out and just spend on something that I would consider lavish. But in my case, like I love to travel. So maybe it's booking a trip for our family or doing some other kind of local adventure. I don't know, horseback riding or hot air balloon or something, something cool and unique that I wouldn't normally do. So those are the kinds of things that again, you could consider.
If you have this extra cash, your debts are paid off, you're living very conservatively and don't have a lot of credit card debt or other really high interest rate debt. And you might just say, hey, I'm going to take advantage of this and use this for something more fun. So that's spend. Now, if we turn our eyes to share, that's more the generous focus, right?
giving to those who are in need. And if you are faith-based, know, you might already be giving to your church and that's, that's great. You could continue giving even more if you feel so inclined. but there's also lots of other great causes that might be near and dear to your heart. you know, for my charitable giving, we give to our church, but we also give to a lot of other causes. but it was just, again, felt touched and motivated in some.
way, or form. And it can be really gratifying when you're like, hey, this really isn't mine to keep, but I'm very financially blessed with it. Let's figure out a way to give it to others who could use it even more than our family. Now I do want to give some nuances on the charitable contributions, because I think for most people they assume, charitable contribution, tax break. And that's not always the case.
Deb Meyer (16:09.268)
If you're itemizing deductions, yes, you should be able to take advantage of those charitable contributions. That's at the federal level. But if you're not itemizing, if you're taking that standard deduction, which is still very high, even for the 2025 tax year, that's a situation where you might not get a direct tax benefit from making that charitable contribution. So you're really doing it out of the kindness of your heart.
So most people are gonna be taking that standard deduction while it's high, but some people do itemized deductions if they have other mortgage interest and real estate taxes, state income tax, things that are setting them over that threshold plus other charitable contributions, then yes, they might be itemizing and all those dollars really do count. Now, one other nuance, regardless of whether you're taking that itemized deduction or standard deduction for taxes,
at a state level, might be able, depending on which charitable organization you're giving to, you might be able to get an additional state income tax deduction. So as an example, I'm in Missouri, we have Our Ladies Inn, which is a maternity shelter. So they actually offer maternity tax credits where we make a cash contribution. I send in a little documentation to support that.
Well, I get the documentation from our ladies in and then send it on to to be processed. And then now I have a certificate that allows me to take an additional Missouri tax deduction above and beyond what I took on our federal return. So it was kind of like a double charitable contribution if you think about it. And even better, you know, there's some organizations that you give to that might have matching contributions. So that's always an important thing to be looking at as well.
American Heart Association, for example, I a lot of large companies do match those charitable contributions. So whatever dollars you're putting in, just make sure you're submitting that documentation to your employer if they have that kind of matching program. And then you're getting a little bit more bang for the buck. Or some charitable organizations run certain time promotions where they say, hey, due to other generous donors, we're able to match dollar for dollar any contribution up to.
Deb Meyer (18:34.558)
X amount. So that's another thing to be thinking about just on timing. Okay, so share was the second option and then the third option is save. And within savings there's actually a couple of different avenues you can take. So one avenue is a rainy day savings account or an emergency fund. Really thinking about having that cash cushion for true unexpected challenges or even
Sometimes it might be expected. Maybe it's a air conditioner that you know is gonna need maintenance before the hot summer gets here and you're gonna need to replace it. So putting money aside for that kind of big expenditure that's coming. Another option to be thinking about as you're crafting that cash cushion is anywhere from three to six months of living expenses is usually a pretty good goal on savings.
And again, this is for people that have already paid off a lot of credit card debt, they don't have a lot of bigger bills that they're worried about making ends meet month to month. They're not living paycheck to paycheck. They have some flexibility to keep building up some of this cash cushion. So in this situation, three to six months is usually a good barometer. We're in a tougher economic climate right now. I'm filming this on April 22nd, 2025.
And maybe erring on the side of caution and having even more of a cash cushion than the six months can be beneficial. Or especially if you're a single-income household having, you know, anywhere from six months to a year of living expenses saved. Whereas on the opposite side, if you're a double-income family, you might only need the three months of living expenses because it's highly unlikely that both you and your spouse will be losing income at the same exact time.
Think about your overall living expenses and try to figure out exactly what you want in that target emergency fund or savings account. And for a lot of people if they're thinking about opening one, going with your traditional bank isn't necessarily the best idea. So they might be in a position where you're at Bank of America for example and you have your checking account there.
Deb Meyer (20:57.41)
But their savings account is gonna pay a very paltry rate. You might want to open up an account elsewhere. A lot of online banks tend to have higher earning interest rates. Ally, Capital One, those are some names that I've traditionally gone to for savings accounts just to earn a little bit more in interest to keep as that kind of fluid cash reserve available for some of those unexpected expenses or if income suddenly drops.
And then there's also longer-term investments. So let's say you have your cash reserve, you're feeling pretty confident there, then you could be looking at different types of accounts where maybe you want to put it towards kids college savings and you have 529 plans open for that goal. So consider putting it in that bucket. A Roth IRA could be another option.
But you do have to be careful on your income. There's limitations on income. I don't know all the stats off the top of my head now, but I'll link in the show notes some of the income limitations on Roth IRA contributions. And that's direct. So if you're making it directly to a Roth IRA account and you're over a certain income limit for 2025, you'll actually have to be taking it back out if they realize you over contributed. Whereas if you're
already know you're going to be over that borderline, then you might have to do what's called a backdoor Roth where you're essentially putting it into a traditional or rollover IRA account first and then taking that piece and moving it over to the Roth. But again, that's something to really be thinking about more with an advisor and not trying to DIY it because it is more complex and there's very special rules around aggregation of those IRA accounts.
The taxable brokerage account could be another option. let's say you already feel good about college savings for the kids, don't have any high interest debt, you really just have some extra money to put towards savings. Even though it's not the most tax efficient, you could still put it into a brokerage account and invest that and let that grow over time.
Deb Meyer (23:20.734)
As I'm walking through these choices, understand that you don't have to pick just one bucket. There are three different buckets and you could be blending them. I know when I first started reading Money Magazine, I was kind of a nerdy middle schooler. I just remember learning their recommendations for spending savings and I don't think they had anything on giving in there, but it was, it was a 20 % savings rate was their guideline.
I like to think of 10 % as the give goal because that's a traditional tithe, but some people might be above that, some people below that. And then 70 % that the difference between the 20 plus the 10 minus 100, 70%, that could be towards a spending goal. So that could be a good framework, especially if you follow that in your normal budget.
and you just want to extend that same kind of budget to this. I also have some families that are really reliant on some of these financial windfalls like bonuses where they try to keep their living expenses as low as possible, but they might have additional needs outside of what their base salary is. So having some of these extra resources really do go to just paying some of the basic living expenses. So it really is going to depend on your family's specific situation.
And I'd encourage you if you're in that third bucket where you're consistently able to just save, you don't have the debts that we talked about in section one. And even if you're on the fence of, okay, share or save and what are some techniques we could talk about beyond the basic charitable giving stuff, those are some good times to think about hiring an advisor. So I'd be happy to chat one-on-one if you're...
in that position where you do have these extra savings year after year and you just want to be really prudent with them, steward those extra savings well and be thoughtful in that approach. I hope this episode was helpful. Again, I appreciate all the positive readings and reviews, and yeah, I'll talk to you in May.