Archive for April, 2011|Monthly archive page

Where is My Refund?

Originally Published in the Pacific Grove Hometown Bulletin

April 20, 2011

 

So you filed your returns on time and you are now waiting for your refund to arrive – but when?  Hopefully you have taken advantage of modern technology by e-filing your tax returns and requesting direct deposit – not only does this ensure your information is communicated faster and more accurately to the taxing authorities, but it also puts money in your pocket in less time.

Federal

The IRS has an e-file refund cycle chart available online that will tell you the day your check will be deposited or mailed depending on when the return is electronically transmitted and accepted.  Generally, it will take one to two weeks for direct deposit or two to three weeks for a paper check.  If you mailed your returns, it could take up to six weeks before you hear the jingle in your pocket.  If you go to www.irs.gov and click on “Where’s My Refund,”( on the right-hand side of the page) you can enter in your social security number, filing status, and refund amount to determine the exact status of your refund.

California

California refunds are typically paid out within seven to 10 days if you e-filed, or eight weeks if filed by paper!  Like the IRS, the FTB has a similar online tool to check the status of your refund.  This tool is available at www.ftb.ca.gov/online/refund/index.asp.

What about same-day or next-day refunds?

You have probably heard radio or television ads advertising tax preparation services that can get you a refund almost immediately.  This is not what is really happening.  No tax preparer or discount chain has a special connection with the IRS or the FTB.  The preparer typically teams up with a bank to loan you the money in anticipation of your refund.  These are almost always high-interest and high-fee short-term loans and are rarely in your best interest.  The tax preparers and the banks funding your “refund” are the ones who usually benefit.

There has been a lot of scrutiny and lawsuits regarding these loans over the past several years.  One major chain in California settled a lawsuit in 2009 for nearly $5 million due to the deceptive and pricey structure of these products it was offering to taxpayers.    These refund anticipation loans are often likened to pay-day loans and generally should only be used as a last resort in an emergency.

The best way to avoid the need for one of these loans is to ensure you are e-filing with direct deposit and to do better planning during the year by adjusting your withholdings or estimates if there are changes to your tax situation.  If you are unsure how to handle this on your own, you may wish to consult with a tax professional.  The other option is to just be patient and wait for the refund to come for free!

Travis H. Long, CPA is located at 706-B Forest Avenue, Pacific Grove, CA.  Travis can be reached at 831-333-1041

 

 

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Filing an Extension

Originally Published in the Pacific Grove Hometown Bulletin

April 6, 2011

 

Imagine opening a letter from the IRS assessing you an $18,000 penalty because they claim you did not file your extension on time!  I once worked with a client that was faced with this exact problem.  The irritating part is that an extension request is an arguably meaningless filing since it is automatically granted if requested. Nonetheless, the IRS takes it seriously.

So with April 18th fast approaching (taxes are not due on the 15th due to the federal observation of the signing of the Compensated Emancipation Act by Abraham Lincoln in 1862), how can you protect yourself?  If you are filing your own extension for your personal tax returns with the IRS use Form 4868.  Be sure to get some kind of proof of delivery and make a copy of the extension.  Even with delivery confirmation it is difficult to prove what you sent.  The best way is to e-file the extension through home-use tax software or by using a tax professional that e-files and obtains an electronic confirmation.  What about California?  In the midst of a tiresome sea of nonconformity with the IRS, I applaud California for this one act – you need not file a form to be granted an automatic extension! After you have filed your federal extension you have until October 15, 2011 (six months) to file your returns.

BEWARE!!  Just because you file an extension does not grant you additional time to pay!  The tax you calculate on the return you are going to prepare and file by October is still due by April 18.  So if you think you might not have enough tax withheld, you need to make some good estimates and send in some checks.  You may want to hire a tax professional to help with this calculation.  You can send the federal check with Form 4868.  For California, you can use FTB Form 3519 to send with your check.  There are also electronic options for paying both of these.

If you do not pay your tax or file your return on time, interest and penalties are calculated based on any amount of tax you come up short. Interest varies with market changes (currently 4 percent a year for the IRS). IRS late payment penalties are ½ percent of the balance each month (up to 25 percent).  If you fail to timely file, the IRS penalties are 5 percent of the balance each month (up to 25 percent).  You may also incur underpayment of estimated tax penalties depending on your circumstances.  California interest and penalties are similar or higher.

Oh, and remember my client with the $18,000 penalty – fortunately we were able to successfully petition to get the penalty waived!

Travis H. Long, CPA is located at 706-B Forest Avenue, Pacific Grove, CA.  Travis can be reached at 831-333-1041.