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I posted the following as a comment on another forum topic, but I think maybe it merits a stand-alone conversation. In my time as a tax preparer I witnessed at least a dozen instances where large refunds were held up either by the IRS or the state.
I have mentioned this cautionary warning before regarding over withholding. A client had about $8k withheld from a $10k distribution. Her situation changed one year and she was due an $8k tax refund. The IRS believed the withholding on the 1099R to be an error, and held up the processing of her tax return. Even after multiple conversations with the IRS, it still took them nearly 3 years to refund the money. Fortunately the taxpayer didn’t need the money, and the IRS paid her interest totaling about $1k for the delay.
The moral of my story is that it’s better to owe the IRS a couple bucks than to risk having them delay your refund.
I do tax returns for AARP Tax Aide. I had clients come in after several years of not filing returns as they did not meet the IRS minimum thresholds for owing taxes. I generally advise them to file returns every year, regardless of income. This may prevent the bad guys from filing a false return and getting refunds under their SS number. Also, here in Michigan, many low/no income filers can receive state tax refunds for property tax or utilities.
BTW, I got my unsolicited IP PIN after the IRS got hacked over 10 years ago. They now send me one every year.
Harold, Great advice. Any of my PA and NJ Tax Aide clients filed just for property tax relief.
We had a number of clients this year who forgot they had an Pin. We were able to help them look them up real time. It’s not something people seem to remember year to year.
Right on Harold. For the same reason you mention, whenever one of my regular clients no longer had to file, I offered to prepare a return for them for $10.
Michigan has several refundable tax credits, as well as the deduction for tax paid to Ohio cities. Many Ohio preparers are not aware of them, so don’t claim them when doing MI returns.
I usually prefer to slightly underpay. However, last year, all of my tax payments were refunded. I moved to a Continuing Care Retirement Community, and part of my non-refundable entry fee counted as pre-payment of medical expenses. It turns out the amount was calculated across all the people who moved in that year, and since the CCRC opened a new building that was a lot of people. My medical expenses last year added up to around $213,000! I hadn’t expected it to be that high.
I had asked the IRS to deposit my refund to my checking account. Instead they sent a check, followed by a letter explaining that my return had needed additional processing and so they were sending a check. Apparently my supporting documentation was adequate.
Good news – I don’t have to worry about penalties this year.