Obtaining a Federal Income Tax Refund

“You’re getting an income tax refund”!   Those are the words that every taxpayer would love to hear.  A federal income tax refund occurs if the tax you owe is less than the sum of the total amount of refundable tax credits claimed and the total amount of withholding paid.  For many individual taxpayers those federal tax refunds can be obtained through Earned Income credit, a real refund of overpayment of tax, or through an overpayment from previous years.  Some people really believe that getting a large income tax refund is not the greatest thing.  Instead they feel that the tax refund represents a loan paid back by the government interest free.   Others use their IRS tax refund as a “simple savings plan” where they are surprised to get money back each year. Always remember that it is still better to get an IRS tax refund than to owe money to the government. 

Once you determine you’re receiving a tax refund, there are several options for actually putting that money in the taxpayer’s hands.  Standard paper filing, electronic filing with direct deposit, rapid refunds, and refund anticipation loans are the options we have the choice of exercising, and for many refund anticipating individuals, the rapid refund or the refund anticipation loan is the refund of choice.

Since the advent of the computer age, and the great invention of the internet, the Internal Revenue Service (IRS) has been fairly quick to react to the benefit of electronic filing.  The income tax returns are filed much faster, tax refunds are made faster, and money due the IRS can be obtained faster.  Let’s take a minute to look at the different IRS refund options, and what each offers the individual taxpayer.
   
The standard paper filing, although many are more familiar with this method of filing, is slowing reaching obsolescence.  There will soon come a time that the old system of paper tax filing will be entirely eliminated and replaced by the electronic tax filing methods.  If you are still one of the dying numbers of Americans who files a paper tax return, you should anticipate receiving a tax refund in about six weeks; today, thanks to the great use of the internet, six weeks to receive a tax refund, seems like an extremely long time.

The rapid tax refund, that is rapidly replacing the standard paper filing, is an electronic method used for filing your federal income tax return, and allowing you to receive your refund in about 10-14 days.  Much faster than the six weeks it used to take.    There are usually no excess fees attached to this type of filing, and returns may be filed for free through many local, public access facilities.

The refund anticipation loan, however, is a little different.  These must be administered by a tax professional through an established alliance with a financial and lending institution.  There are several excellent choices available, and many qualified tax professionals to complete your tax return, you will however be required to pay a loan fee or a small interest fee for the opportunity to obtain an refund anticipation loan.  There are several restrictions placed on receiving a refund anticipation loan, and some of the restrictions may affect many people.  For example, if you owe back taxes, back child support, or liens and judgments, you can’t qualify for the refund anticipation loan.  Most often, the individuals who apply for and use the refund anticipation loan are recipients of earned income credit, and their tax refunds are usually well into the thousands of dollars.  The refund anticipation loan can be processed in as little as three hours, and back in the hand of the taxpayer by late afternoon; this is provided everything works exactly as planned.   The higher interest rates charged by the bank product providers, and the higher processing fees charged by the tax preparers, equate to less money for the taxpayer, but many of these individuals don’t even blink when told how much it will be to process their federal tax return, they just want the refund immediately.  This is just one more example of the instant gratification upon which our society chooses to operate.  Even for individuals filing with the electronic returns, and choosing to have their funds direct deposited, the turn around time is usually no more than 10 to 15 days.  You would think that a turn around of less than two weeks would be quick enough for many taxpayers, but typically, the bigger the federal income tax refund, the faster the necessary return. 

It would seem to me that this is just another way for the system to profit from the poor; as it is usually the poor that qualify for the earned income credit tax refunds, and these can be extremely large, especially for families with two or three dependents.  In all reality, avoid refund loans if possible.  They are highly expensive.  Wait patiently for your federal income tax refund and keep every penny for yourself.

Deciding when to File a Tax Return?

April 15th – “The Day of Reckoning”!  Every year, millions of Americans get ready to pay taxes to Uncle Sam, or get ready to collect a tax refund from Uncle Sam; when did this become the great day that it is for taxpayers, and when are we actually required to file a income tax return?  Let’s take a look at the beginnings of the income tax date of April 15 and why it was chosen? 

The first known income tax that Americans were legally required to pay was enacted during the early 1860s, and the Presidency of Abraham Lincoln.  The Civil War was proving very costly to finance, and the President and Congress created the Commissioner of Internal Revenue and enacted a law requiring citizens to pay federal income tax.  This could be considered the start of our modern day income tax.  This income tax was based on principles of graduated or progressive taxation and of withholding income at the source.  The commissioner was given authority to assess, levy and collect federal income taxes.   The authority to enforce tax laws by seizure of property and income and by prosecution.
   
Originally, the deadline for completing and filing your individual income tax was not April 15th.  In the beginning, it was first set for March 1st.  Then, during 1918, Congress pushed the date out to March 15th.  Then, in the great overhaul of 1954, the date was once again moved forward to April 15th, and this is where it remains today. Why April 15th?  The main thought from most scholars say the reasoning is that the date gives the IRS more time to handle the work load and more time to hang on to your money before offering a tax refund.  This date has only been set this way for a little over 50 years.  That’s not very long, in historical terms, and it could possibly be changed again.
   
If you are an individual taxpayer, you are required to file either a return or an extension of time to file (Form 4868) by April 15th.  Corporate and other legal entities are required to file their federal income tax return by March 15th, and if not, they also must file an extension of time to file.  What this extension does not do, is to extend the amount of time you have to pay any taxes due the government.  So, if you are unable to ready your personal or business financial information in a timely manner, and have no reasonable estimate as to the amount of tax you may owe, you can expect to pay some form of penalty.
   
In the years following WWII, the burden of tax responsibility was shared fairly equally by the corporate world and the individual taxpayer.  Today, however, the shift has been toward more responsibility on the part of the individual, and less on the business backs.  To demonstrate how special interests have begun to overtake American politics, during 1867, public opinion was so strong, and the outcry of the general public so loud, that the President and Congress abolished the income tax law in 1872, and from 1872 until 1913 almost all of the revenue for government operation came from the sale of liquor, beer, wine, and tobacco.  Although the income tax did make a small come back in 1894,  it was found unconstitutional in 1895 by the U.S. Supreme Court because it was not apportioned among the states in conformity with the Constitution.

An interesting time during the formation and eventual taxation of America occurred during 1918.  Until that point in time, the vast majority of tax revenue for government funding came from alcoholic beverage sales and high tariffs.  In 1919, Congress passed an amendment to the Constitution that made it illegal to manufacture or sell alcohol; what would replace the revenue?  American federal income tax was the proposed solution, and we’ve been paying since.  Although during the great years known as Prohibition, many “revenue agents” spent their days tracking down “moon shiners” not tax evaders, the American citizen, the individual taxpayer took on the heavy burden of supporting government revenue, and it has become heavier with each passing year.  On a side note, although “moon shining” was illegal, the “moon shiners” still had to pay taxes on the moon shine so they were incarcerated for tax evasion and not “moon shining”.   Taxes seem to always come into play when looking for a way to prosecute someone.

Then, during 1942, the Revenue Act of 1942 was passed and the “New Deal” era was begun.  Since that point in time, government control, power, and expenditures has continued to increase at a phenomenal rate, and today the American taxpayer supports a trillion dollar giant known as the United States government.  This ravenous beast consumes more than 10% of our earned income each year, and if the Social Security Administration has their way, will continue to consume even more of our weekly earnings.  We can foresee no other relief in sight.
   
Currently, all the tax regulations for this country are the responsibility of the Internal Revenue Service, and there are four major divisions of this government office: the Wage and Investment, Small/Business Self-Employed, the Large and Midsize Business and the Tax Exempt and Government Entities.  Each division has responsibilities as they pertain to their individual specialty.

There continues to be talk on the hill to change the way taxes are calculated and collected.  The most common themes are the flat tax and the national sales tax.  Until Congress actually has the courage to step up to the plate and change it, taxes will remain as cumbersome as always.