Wondering What to Do with Your Tax Refund? Invest It!

Invest Your Tax Refund & Get The Most Bang For Your Buck
Invest Your Tax Refund & Get The Most Bang For Your Buck

As the tax filing deadline of April 15th has come and gone, many of us are giving big sighs of relief that it’s all over—at least for now. If you were lucky enough to get some money back this tax season, you’re probably wondering what to do with it. Shopping spree? Vacation? While those ideas certainly sound like fun, the truth is that you’ll be best off investing it. After all, it’s not found money—it was your money to begin with. Look at your tax refund as the contents of a kind of rigidly enforced savings account and do something worthwhile with it that will pay off down the road. Check out these savvy investment ideas to make your tax refund work for you.

Plan to Save

Many Americans seem to heed the call of the savings account, with three out of 10 people planning to save or invest their tax refund this year. Before you dump your refund into your savings, though, decide what you are saving for: set a goal. This will help you determine which investments are best for you. Do you want to invest money for a rainy day slush fund? Perhaps that dream vacation you’ve always wanted? Are you looking to make a large purchase, such as a house, car or motorcycle? Is retirement on the horizon? Take stock of your current financial situation and then decide where your money would be best spent down the road. Once you do, you’ll know exactly what to save for.

Pay Down Some Debt

Let’s assume you got back between $3,000 and $4,000 from the government after tax day. Lucky you! The very first thing you should do is pay down some of your credit card debt or sock some away into your emergency fund. If you’re looking to grow investments but you are losing just as much in credit card or student loan interest, a strategy to invest all of your return doesn’t really make sense, says US News and World Report. Putting money in an emergency fund is a safe bet. For example, the $1,000 you put in now will still be worth the same later when you need to take it out—or more, if your emergency fund is held in such a way that it accrues interest. Your best bet for these accounts are high-yield savings and money markets.

Add to Your 401(k)

Looking into the future and thinking long-term, you can really make the most of your return by contributing some of it to your 401(k) so you can take advantage of your employer’s maximum match. Those who are building a retirement account would be wise to open a Roth IRA using their refund money to ensure a tax-sheltered source of income. Educational plans, such as 529 accounts, are also a great idea. If you open up these types of accounts with your refund money, it can make the process that much easier. Plus, contributions to Roth IRAs can be deducted from next year’s taxes, making next year’s return all the sweeter.

Don’t Put All Your Eggs Into One Basket

Placing one big chunk of change into one stock isn’t your best bet. You’re better off diversifying instead and adding funds to your current investments. If you want to add to your portfolio, you may want to try a specialty bond or stock fund, which will satisfy your urge to take a fun risk yet won’t present you with the looming threat of losing it all if the stock market tanks.

Whether you decide to add to your current portfolio or invest in your 401(k), making an investment with your tax return now instead of blowing it all on a vacation will pay off in the long run.

What Happens If You Don’t File Your Taxes?

Overdue Taxes Will Come Back To Haunt You
Overdue Taxes Will Come Back To Haunt You

The only certainties in life are death and taxes, as the saying goes. Taxes are an annual event that, however unpleasant, we all have to deal with. It may interest you to know that according to the Internal Revenue Service (IRS), an estimated 239.3 million tax returns were filed in 2012 by individuals and businesses in the United States. That amount exceeded by a little more than 1% the number of returns that were filed in 2011, and by 2018 that number is projected to grow by almost 6% to 253.5 million tax filings.

What about those individuals who do not file a regular tax return? More importantly, what would be your fate if you did not pay your taxes in a timely manner? Below are some of the potential consequences that you may face for failing to file or pay your taxes in a timely manner.

Failure to File Penalty

Whether you owe taxes or expect a refund for a given tax year, it is important to provide the IRS with an informational tax return on or before April 15th of every year. When you miss the April 15th deadline you are subject to a penalty of 5% of the amount that you owe for each month you do not file. The penalty for failure to file can grow to 25% of the total unpaid amount.  If you file a return 60 days after the due date of April 15th, you will be subject to a penalty of $135 or 100% of the unpaid tax liability, whichever is greater. This applies to both those expecting a refund and those who have taxes due.

Failure to Pay Penalty

In addition to the failure to file penalty that you face for missing the filing deadline, you are subject to a failure to pay penalty of half of 1% of the unpaid balance. This amount is assessed each month that your taxes go unpaid and is capped at 25% of the unpaid amount. Generally the failure to file penalty is higher than the failure to pay penalty. Filing a tax extension (Form 4868) on or before April 15th and paying some or up to 90% of the amount owed, as well as paying the balance in full by the extension deadline (typically 6 months or by October 15th), will help you avoid the failure to file and failure to pay penalties.

Loss of a Tax Refund

If you are owed a refund from the Federal government, filing a tax return by the deadline is the only way for you to ensure that the money will be returned to you in a timely manner. The IRS can hold a taxpayer’s refund for up to 3 years. After this time your refund is treated as a “gift” to the government and will remain in the treasury. This means that your failure to file could result in a generous donation of your tax refund to the federal government to do with as they please.  Don’t let that happen…

Loss of Wages, Assets or Arrest

If you do not pay your taxes, the IRS will eventually come after you directly. There initial contact will be a letter informing you of your outstanding liability (or failure to file) with an opportunity to file an amended return. Ignoring this opportunity will result in a possible wage garnishment and even seizure of your assets, such as your home or car. If the amount of your tax liability is deemed by the IRS to be excessive you may be arrested and charged with tax evasion, subject to a fine of up to $100,000 and up to 5 years in prison. 

Suspension Of Drivers License

Some states like New York are suspending the drivers licenses and/0r disallowing the renewal of licenses for those that have not paid their taxes.  This recently went into effect in 2013.  Expect more and more states (especially those with budget issues) to follow suit.

Not filing your taxes, or failing to pay them, is a serious concern and should not be taken lightly. If you need help filing your taxes, or you’ve missed a deadline and need to know what your next steps should be, don’t hesitate to contact an R&G Brenner professional tax preparer.

Government Shutdown Closes IRS Centers

IRS Offices Closed, But You Still Need To Pay!
IRS Offices Closed, But You Still Need To Pay!

With the failure of congress to pass a budget, 800,000 thousand workers face furloughs and a million more are working without pay.   The IRS is one of the agencies that will be closed with walk-in IRS centers shuttered and IRS Call centers closed:

The good news first: no audits! The Internal Revenue Service is suspending all audit activities while the federal government is shut down.

And that’s pretty much it for good news.

Here’s the bad news: if you’re on extension, your 2012 federal income tax return is still due on October 15, 2013. And yes, the IRS will cash your check on time.

But the door doesn’t swing both ways. If you are due a refund, it will likely be delayed (the extent of the delay is largely dependent on the length of the shutdown).

Walk-in assistance centers for taxpayers will be closed. Similarly, the IRS will not pick up the phones: all telephone hotlines would be closed.

Hopefully the budget dispute will be resolved quickly, but we are entering unknown territory as this shutdown is very different from past shutdowns, mainly because zero appropriations bills have been passed in the interim.  In other words, Republicans & Democrats can not even agree to pass the things they agree on; like paying our military service members.  This will almost certainly extend the shutdown and the pain of taxpayers trying to process their tax returns and receive their refunds.  Judging from taxpayer comments here, the IRS has not been very much help in expediting refunds or explaining delays before the shutdown.  But even paltry service is  better than no service at all….isn’t it?

Source: Forbes

What To Do If You Can’t Pay Your Taxes

If You Can't Pay IRS, Don't Panic
If You Can't Pay IRS, Don't Panic

It’s one of the worst tax time scenarios: You discover while doing your taxes — or you just know without even doing them —that you owe taxes, and you don’t have the cash. What should you do?

You may be tempted to ignore the problem. Don’t do it. The worst thing you can do is put off filing your return because you’re afraid of the bill. The Internal Revenue Service (IRS) penalties for not filing are more punitive than the ones for not paying.

The failure-to-file penalty runs to 5.0 percent a month that your return is late, up to 25 percent, with a minimum penalty of $135. The failure-to-pay penalty is just a fraction of that, at 0.5 percent a month of the unpaid tax at April 17, and even that is cut in half for taxpayers who set up a formal installment plan with the IRS. Either way, you’ll also owe interest, currently at a modest 3.0 percent a year.

Consider the case of a taxpayer who owes $2,000 and won’t have the money until the end of June. If she files a return or an extension by April 17, the total penalties and interest due would be just $43…But if she puts off filing until June 30, and pays then, those penalties and interest would multiply to $314…The longer this taxpayer waits to file, the more those fees would balloon.

“That’s a lot of money for late filing,” says Allison Shipley, a partner at PricewaterhouseCoopers in Miami. “And, in my experience with clients who have had a difference with the IRS, they tend to be more lenient if you’ve always filed your returns on time.”

So the first step to consider if you’re not ready to file is the simplest: File for a six-month extension, using Form 4868. As long as you’ve paid 90 percent of the taxes you owe by April 17, you will not owe the late-payment penalty. You will, however, still owe interest on any unpaid taxes.

If you have the cash, but have run out of time to deal with the paperwork, you can send in an estimated amount to avoid some or all of that interest. Similarly, if you owe taxes, but can’t pay all that you owe, you could send in a partial payment to cut the interest and penalties due.


The IRS does offer a few hardship breaks for cash-poor filers. The big one in effect this year is called Fresh Start, and lets those who were unemployed request a six-month extension to pay this year’s tax bill without being charged any penalties.

You would qualify if you did not have a job for 30 straight days in 2011 or in 2012 until April 17, or if you were self-employed and saw your income drop by at least 25 percent in 2011 due to the economy. You would file Form 1127, and automatically get until October 15 to pay. While you would get out of the penalties for six months, you would still owe interest.

Those who have survived a natural disaster or who are on active military duty may also qualify for penalty-free extensions for varying amounts of time.


If you are not in one of these special categories, and you owe more than you have, you may want to weigh your various options for finding the money you need. You could: (1) put your tax bill on your credit card; (2) Use a home-equity line of credit; (3) just pay late and swallow the penalties and interest; or (4) ask the IRS to accept a formal installment agreement.

While the standard advice is to pay the IRS first, that may not make sense this year. IRS rates are so low, compared to credit card rates, that it may make more sense to deal with the tax agency directly. A tax installment payment plan, even with penalties, costs around 6.0 percent a year.

“This is an interesting time for strategy because of those low rates,” says Larry McKoy, a certified public accountant at Dickson Hughes Goodman in Glen Allen, Virginia.

Not only is the average rate on credit cards currently 15 percent, according to CreditCard.com, but when you pay taxes on a credit card you also have to pay an added “convenience fee” that could add as much as 2.0 percent to your transaction. That’s because the IRS is prohibited from paying the interchange fees most retailers pay on card transactions.

If you have access to a home equity line of credit, it may be worth tapping that because the rate is likely lower and you do not have to worry about those taxes hanging over your head, says Gregg Wind, a certified public account with Wind & Stern in Los Angeles.


There’s no hard-and-fast rule for when to do an installment plan, but the higher the amount [you] owe and the longer it will take you to pay it, the better off you are to request one rather than simply paying late. An installment plan will put your payments on a monthly schedule and cut your penalty on unpaid taxes in half, to 0.25 percent.

To set one up, you will file Form 9465 and pay an application fee of between $43 and $105, depending on your income level and whether you are willing to pay through automatic deductions from your checking account or paycheck…

The IRS can reject an installment agreement, but usually does not, unless filers owe an astronomical sum or request a overly lengthy payment period. In fact, acceptance is guaranteed if you owe less than $10,000, request a payment period of three years or less, you have paid all your taxes for the last five years and the “the IRS determines that you cannot pay the tax owed in full when it is due,” according to the IRS’s rules on installment agreements.

For larger tax liabilities, the process gets more complex, though there is a streamlined application process for those who owe no more than $50,000. Taxpayers who owe larger amounts must file Form 9465-FS.

“If it’s under $50,000 you are not going to be asked to file a lot of financial information,” says Wind. “A lot of people are overwhelmed by the thought of compiling a lot of financial information, but they don’t need to be.”

Better to fill out a few extra forms than get stuck paying 5 percent a month, every month, for not filing them.

If you need assistance or advice setting up a payment plan or filing any of the tax forms above, contact an R&G Brenner progressional today.

Source: Reuters