By now most of us have forgotten about taxes and probably won’t think about it until next tax season. Although, I’ve always believed you should never let the tax tail wag the dog, it is important to consider taxes when it comes to financial transactions. That being said, your ultimate goal is not to lower your taxes but rather, increase your net worth. Lowering your taxes doesn’t mean you’re increasing your net worth. The issue today has nothing to do with a transaction or strategy; rather, it is something much more simplistic and that is whether you received a 2015 tax refund or not.
Now with electronic filing, the IRS is doing a much better job getting us our tax refunds. According to the IRS, the great majority of tax refunds filed electronically are paid within 21 days. Typically, if you file your return by paper, that period of time will be doubled. Therefore, if you filed your return by the April 18th 2016 deadline and you did it electronically, you should already have your refund. If not, it’s a good idea to check with the IRS on the status of your refund. By going to www.irs.gov/refunds and filling out some basic information, you can find the status of your tax refund. The IRS updates this every 24 hours and generally, if you file electronically, information should be posted 24 hours after your return is filed.
If you filed electronically by the April 18th deadline, it is important to check the status of your refund. Unfortunately, there have been all sorts of horror stories about tax refunds being stolen. In fact, there have been stories where tax preparers have been fraudulently stealing peoples’ refunds. Therefore, if you have not received your refund, it’s certainly in your best interest to check the status. If you find there is a problem, don’t delay in contacting the IRS to get the issue resolved.
Although we have not had the same stories of fraud and deceit when it comes to the State of Michigan, it is also a good idea to check your refund status with the state. By visiting www.michigan.gov, once again, you can check the status of your refund.
As a side note, what many of you may not know is that if the IRS is late in sending you your refund, they must pay you interest. Typically, on a federal return where the return is electronically filed, interest starts accruing after 45 days. In addition, to the credit of the IRS, taxpayers rarely have to ask for interest; the IRS generally automatically computes it when refunds are delayed.
One last note to keep in mind, getting too large of a refund may sound like a good thing, but in my mind, it generally is not. If you do get a large refund, it generally means is you gave the government an interest-free loan. Of course, in today’s world with low interest rates, the amount of interest you are losing by giving the government an interest-free loan may not be material. However, keep in mind that eventually we will have higher interest rates and the money lost in interest could be substantial. Even with low interest rates, I always believe money looks better in your pocket than anyone else. Therefore, if you are getting too large of a tax refund, a change in your withholding or your estimated payments would be warranted.
Rick is a fee-only financial advisor. His website is www.bloomassetmanagement.com. If you would like Rick to respond to your questions, please email Rick at firstname.lastname@example.org.