Meeting the April 15 tax filing deadline can be like being in a horror story for most taxpayers. Once it passes, assuming you filed your return, the next step in the tax process can actually be a positive one. Why? The next step usually involves getting a tax refund!
The first thing to understand about your tax refund is the relevance of its size. A big tax refund is a good thing, right? The honest answer is that a big tax refund is actually a very bad thing. How can that be? Well, think it through. A big tax refund usually means that you paid too much tax in during the year. Although you are getting it back at the end of the year, you effectively have given the government and interest-free loan for the entire year. That is one heck of a deal for the government. It’s not particularly a good deal for you. If you find that you’re getting large refund every year, you should analyze how much you are paying in and make adjustments accordingly.
The second thing to understand about tax refunds is that there are different options for getting the refund. The first option is the classic refund by check in the mail. The problem with this option is the “check is in the mail!” In short, it takes a lot of time to get the actual check. How much time? It can take 2 to 3 months. The second option which the IRS only implemented in the last few years is to get direct deposit. With this option, the IRS will actually deposit the check into your bank account. The beauty of this approach is that you usually get the refund within three weeks. That is obviously much faster than the mailed check approach.
One thing most taxpayers will be very surprised to learn is the IRS actually has an excellent website. The agency is very tech savvy when it comes to delivering information to taxpayers. Once you file your tax return, you may want to find out the status of your tax refund. To the shock of many taxpayers, you can do this by simply going to the “where’s my refund” link on the IRS website. By entering basic information such as your name, social security number and some minor information off your tax return, the IRS will give you a real-time status of your tax refund. All in all, it’s pretty cool.
What if you want to divide your tax refund out into different accounts? That isn’t going to be a problem at all. You can file Form 8888 with the IRS and your refund will be divided out as you indicated and sent to the accounts in question. Form 8888 is called the Direct Deposit of Refunds to More Than One Account form. It can be printed directly from the IRS website.
Paying taxes is no fun for anyone. That being said, getting a refund isn’t exactly the worst thing in the world. Just make sure you’re giving the government a free loan!