April 6, 2007, Newsletter Issue #59: Income Tax Refunds

Tip of the Week

Congratulations! You're getting a refund! There are some things you need to know about your income tax refund.

If you have any outstanding debts in which the IRS can attach your income tax refund to, it will. The IRS will reduce your income tax refund by the amount of your outstanding debt. Debts include: past due income taxes, student loans, state income taxes, and child support. Many an individual has been waiting for an income tax refund only to find that it was applied to a past due federal student loan.

Also, you may choose to apply your tax refund to next year’s estimated tax payments.

This does not apply if you file Form 1040EZ, though.

First of all, the quickest way to receive your income tax refund is for you to file electronically. By using the electronic filing method (e-filing), you will receive your income tax refund in half the time as the paper method of filing.

Many paid tax preparation firms offer loans against your income tax refunds. These loans can be received immediately if you have the proper documentation. Normally called ‘Refund Anticipation Loans’, they give will give you your refund before actually receiving it from the IRS. Just remember you will need to repay this loan when you do finally receive your IRS tax refund.

You choose to receive your income tax refund either by check or direct deposit. Direct deposit is the quickest way to receive your refund. Here, when applying for this method, you will need your bank account number. The IRS needs both your routing number and bank account number in order to implement the direct deposit.

If you receive your income tax refund by check, and it is the amount calculated on your income tax return, cash the check promptly. If you do not cash your income tax refund check within 12 months after receiving it, it will be cancelled. Your refund, at that point, will be returned to the IRS.

If the tax refund check you received is not the for the same amount on your 2006 tax return, do not cash the check. Call the IRS.

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