The pros and cons of tax refunds
Tuesday, February 11, 2014
The 2014 tax season has been underway for 12 days (OK, only eight business days) and refunds are finally being processed.
As happens every year, there are some problems with some returns, meaning some refunds are being delayed.
That, of course, makes the owed taxpayers very unhappy.
And it raises the perennial tax question as to whether refunds are good or bad.
Here's a quick look at some pros and cons of having Uncle Sam hold onto your money for months and then getting it back in a lump sum when the Internal Revenue Service gets around to it.
A tax refund is a bad idea because:
- You've given Uncle Sam an interest-free loan of your money for a full year.
- You were unable to use your money the previous year. If you had received your expected refund incrementally as part of your pay, you could have used it to pay bills, start an emergency fund or save for something special. You can even have the money taken directly from your pay and put into a savings account so that you're not tempted to spend it on something else.
- You are at the mercy of the IRS, which already is at the mercy of a frequently late-acting Congress when it comes to tax laws. If Congress and the IRS are slow, then so is your receipt of your refund.
A tax refund is a good idea because:
- Interest rates have been so low in recent years, especially for short-term accounts, that you haven't really lost any substantial interest income.
- You don't trust yourself to save the extra income you get from reducing your payroll income tax withholding. At least by having Uncle Sam hold onto your cash, you know it will be there when filing season arrives.
- By using electronic filing and direct deposit, you can still get your refund relatively quickly even if tax filing season is slowed for any reason.
So, bottom line, the decision to over withhold throughout the tax year so that you'll get a refund is as personal as the rest of your tax circumstances.
The key is to know yourself, your financial situation and your money (and tax) management habits and preferences.
Tracking down your tax money: Whichever side of the refund/no refund debate you fall on and regardless of whether you planned for a refund or your taxes just turned out that way, you're getting money back this year.
Now you just want to know where the heck your refund is!
Today's Daily Tax Tip looks at the ways you can track down your tax refund.
The IRS is increasingly urging taxpayers to use its electronic services and one of the most popular is the aptly named Where's My Refund? online tracking tool. It's available via your computer or the tax agency's IRS2Go mobile app.
For either e-tracking options you'll need you'll need your Social Security number, the filing status entered on your return and the amount you're expecting.
That same info is necessary if you opt instead to call the IRS toll-free at (800) 829-1954 to find out your refund's status.
Here's hoping that for whatever reason you're expecting a refund, it is soon in your hands. Then you can decide if you want to go through the wait again next year.
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When I wear my Realtor hat, I often see people coming into our office to pay their rent, a bit at a time, often weeks late.
At the start of January, nearly every one of the late payers told us, "I'll get caught up when I get my tax refund." Living hand to mouth, barely, and waiting on a refund to get caught up. Yes, in that case, the refund is part of a bad process.
Posted by: JoeTaxpayer | Thursday, February 13, 2014 at 04:07 PM