While tax season is still months away, it’s always top of mind with the Magone & Company team — keeping up on tax law changes, helping clients with tax planning strategies and brainstorming ways to make the filing season as simple and painless as possible.
In our roles as tax professionals, we hear a lot of myths and misconceptions from clients — when to file, what constitutes a “good” return and whether or not to adjust your withholding amount. Falling victim to misinformation could jeopardize your finances or worse, leave you in hot water with the IRS.
Protect yourself (and your money) by dispelling these 6 tax refund falsehoods.
MYTH #1: The bigger the refund, the better.
A large refund isn’t always indicative of a positive financial situation. It just means you’re paying the government too much throughout the year. A tax refund is essentially the return of an interest-free loan provided to Uncle Sam.
By overpaying, you’re lending money without earning any interest on it. This is money that you could’ve used over the course of the year for necessary expenses. And just like individual taxpayers, a hefty return could be bad news for businesses, too.
MYTH #2: You don’t need to adjust withholding for tax year 2023 if you received a refund this year.
It’s important to double check your withholding amount every year, especially if you:
- Received a large tax refund last year
- Got married, divorced or had a child (birth or through adoption)
- Claim the child tax credit
- Have high income or a complex tax return
- Are a dual-income family
- Have dependents age 17 or older
The Tax Withholding Estimator tool can help you determine if you’re withholding the right amount. Remember, withholding takes place throughout the year, so it’s in your best interest to make adjustments as soon as possible.
MYTH #3: The IRS legally has to pay the refund shown on your tax return.
Not so fast. There are several reasons why your refund amount may differ from the amount that was originally calculated — from simple math errors to deductions for past due amounts (child support or student loan payments).
Keep in mind, you’ll receive a letter from the IRS, as well as the Department of Treasury’s Financial Management Service .to alert you to an adjustment in the amount of your refund.
MYTH #4: Amending your return automatically triggers an audit.
This misconception can prevent you from correcting errors or making necessary adjustments to your tax filings. In reality, the IRS encourages amended returns as it allows for accurate reporting and ensures that you’re paying the correct amount of tax.
When making changes, it’s important to maintain accurate documentation and provide supporting evidence, including records of income and deductions.
MYTH #5: The IRS has access to your bank account if you received an electronic refund.
Electronic filing is one of the fastest ways to get your refund — and it’s also secure, meaning the IRS does not gain access to your account.
What about if you owe money? The IRS is not able to withdraw money from your account. Rest assured, if you have unpaid back taxes you will be officially notified by postal mail.
MYTH #6: If you file an extension, you don’t have to pay any amount owed by April 15. An extension to file is not an extension to pay.
You’re still required to estimate the taxes you owe and submit that payment on time. Your return, along with any additional taxes owed, must be filed by October 15 of the same tax year.
Never mind the myths
By debunking these myths, you can navigate next tax season with increased confidence, ensuring your finances are in good shape. If you have any questions, reach out to the knowledgeable CPAs at Magone & Company for tax-related expertise. Give us a call today at (973) 301-2300.
This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance that is specific to your unique circumstances.