Tax Time!
Hopefully, Tuesday the 15th was not like “Friday the 13th” for your psyche. Since taxes are probably still on all of our radar screens, I wanted to focus this edition of The Short Squeeze on that topic.
Mary and I have always believed avoiding a large refund on April 15th is more desirable than receiving a refund. Strange as that may sound, at the most basic level, receiving a refund means that you essentially loaned the US Treasury money for an entire year interest FREE! Of course you already know that loaning money to Uncle Sam at 0% is not the best use of your cash. What you may not know is there is now an additional risk of having money “on deposit” with the IRS!
We are hearing more reports each year from clients about family members, friends, or in some cases themselves, who have had someone file a false tax return in their name(s). These identity thieves will steal Social Security numbers and file a false tax return in order to get a refund, usually a few thousand dollars. Then when the victim files their legitimate tax return they receive a notice that a return has already been filed under their Social Security Number. The refund they should have received then becomes frozen until the IRS can verify which claim was actually legitimate. This verification process usually takes approximately six months and is obviously a nightmare, especially if the money was needed to pay property taxes, reduce debt, or to fund a home improvement project.
As if the identity theft risk were not enough, last week I read this article online that left me stunned and more convinced that large tax refunds should be avoided. Reporters at the Washington Post discovered that the Treasury and Social Security had begun confiscating some Americans’ tax refunds due to decades old debt INCURRED BY THEIR PARENTS OR OTHER RELATIVES and owed to various government agencies, primarily the Social Security Administration!
“The Treasury Department has intercepted $1.9 billion in tax refunds already this year — $75 million of that on debts delinquent for more than 10 years, said Jeffrey Schramek, assistant commissioner of the department’s debt management service. The aggressive effort to collect old debts started three years ago — the result of a single sentence tucked into the farm bill lifting the 10-year statute of limitations on old debts to Uncle Sam.”
As you can probably imagine, the blowback on this was intense and by Monday the 14th, the Social Security Administration reversed course and immediately ceased efforts to collect on taxpayers’ debts to the government more than 10 years old.
“The action comes after The Washington Post reported that the government was seizing state and federal tax refunds that were on their way to about 400,000 Americans who had relatives who owed money to the Social Security agency. In many cases, the people whose refunds were intercepted had never heard of any debt, and the debts dated as far back as the middle of the past century.”
With tax returns fresh on our minds, if you typically receive large refunds you may want to revisit your withholding choices.
One last link that I wanted to share with everyone is this calculator (which your taxes likely paid to develop) that shows where each dollar you paid in taxes was spent by our government. I inputted my personal tax return information and found the breakdown fascinating.
—Brett C. Hixon, CFP®
The information contained in this report does not purport to be a complete description of the developments referred to in this material and does not constitute a recommendation. Any opinions are those of Brett C. Hixon and not necessarily those of RJFS or Raymond James. Links are being provided for informational purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.
