IRS

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A buddy of mine was so happy that for the first time ever in his 60 years he got a refund check from the IRS
in 2015. Today he called me sounding very sad. They now want him to pay $9K for 2015 tax errors.
Nice- my kind of luck. This is the first time he ever filed an extension for 2016. I'm guessing that made them look into his affairs........
I don't want to get on the wrong side of the IRS!
 
If he wanted a check back... he could just overpay. I don't like how the system is set up (I'd rather state I want x dollars removed from each check, not y deductions), but I do recall saying that I could have more taken out for taxes if I wanted.
 
If he got a refund in error, the error was the fault of whomever prepared his return.

When people get legitimate income tax refunds, it's because they were overpaying all year and giving an interest-free loan to the Tresury Dept. Everyone's goal should be to have their tax return come as close to zero as possible.
 
Originally Posted By: AirgunSavant
A buddy of mine was so happy that for the first time ever in his 60 years he got a refund check from the IRS
in 2015. Today he called me sounding very sad. They now want him to pay $9K for 2015 tax errors.
Nice- my kind of luck. This is the first time he ever filed an extension for 2016. I'm guessing that made them look into his affairs........
I don't want to get on the wrong side of the IRS!


I never understood why people were happy to get a refund. That means you made an interest free loan to the government and then got your money back. It's better the other way, owe some money that means you got an interest free loan from the government as long as you're not paying a penalty.
 
Originally Posted By: Wolf359
Originally Posted By: AirgunSavant
A buddy of mine was so happy that for the first time ever in his 60 years he got a refund check from the IRS
in 2015. Today he called me sounding very sad. They now want him to pay $9K for 2015 tax errors.
Nice- my kind of luck. This is the first time he ever filed an extension for 2016. I'm guessing that made them look into his affairs........
I don't want to get on the wrong side of the IRS!


I never understood why people were happy to get a refund. That means you made an interest free loan to the government and then got your money back. It's better the other way, owe some money that means you got an interest free loan from the government as long as you're not paying a penalty.


You really don't understand this? If people were disciplined enough to save x dollars each paycheck then you'd be right but most are not and getting a check for 4 figures in the spring is a good thing. And if you owe the IRS too much money, they penalize you. I like getting a refund.
 
I try to figure my tax load as close to zero as possible. I don't like the idea of using the IRS as a savings account without getting paid interest. Sounds like the topic starters friend needs to get profession tax help. Ed
 
Or be a deadbeat and get a Earned Income Tax Credit.
My sister-in-law consistently gets back three times what she pays in tax every year.
I don't think alot of people realize the poor, they not only don't pay taxes, they take from the kitty.
 
My tax person made a huge mistake on mine in 2012. Added an extra zero to my reported income...that took forever to fix plus I got several letters requesting payment I didnt have etc..
 
It used to be you were okay if your final tax bill was within 20% of what was taken out. Now they've tightened it to 10%.

Michigan tacks a 25% penalty if you're off too much.

A long time ago it used to be that your tax was due in one lump sum at the end of the year. I guess the IRS had too many problems with people that can't set aside their money for the tax man, so they decided to have this pay as you earn system.

Over the years they've even stepped that up with the quarterly requirements, which caused unfair hardships to me personally when I cashed in my investments to buy a home. The huge capital gains on my investments became taxable and the IRS penalized me for not foreseeing that I was going to buy a home. They expected me to pay one quarter of my final tax bill five months before I decided to buy a house. I don't have that kind of crystal ball!
 
Originally Posted By: Panzerman
Or be a deadbeat and get a Earned Income Tax Credit.
My sister-in-law consistently gets back three times what she pays in tax every year.
I don't think alot of people realize the poor, they not only don't pay taxes, they take from the kitty.


47% of Americans pay NO income taxes and many of those get refunds.....I guess they don't use the roads or any other government services....
 
The IRS is like any large organization. There are good people that work there too! It just has a very unpopular role in society as tax collector.
 
Originally Posted By: Wolf359

I never understood why people were happy to get a refund. That means you made an interest free loan to the government and then got your money back. It's better the other way, owe some money that means you got an interest free loan from the government as long as you're not paying a penalty.


Yes, because interest rates are so great.
I think the average savings account is paying 0.06% right now. That is a whole $0.60 on $1000 over a year. Yippee, I am rich.
Sure there are some CD's and such that may pay ~1.4% now, but the money is tied up for the term of the CD, same for IRA's and other investments.
Yes you can get higher rates, but the risk greatly increases the higher you go.

I would rather get a $1000 refund than pay $10 come tax time. So I loose a dollar in interest. Big whoop.
My refund mostly goes into my savings account though. I do not use it as "found money" to waste on stuff.
 
I don't want any IRS interaction.
No refunds and no letters! Pay and leave me alone....Yikes!
 
Originally Posted By: blupupher
Originally Posted By: Wolf359
I never understood why people were happy to get a refund. That means you made an interest free loan to the government and then got your money back. It's better the other way, owe some money that means you got an interest free loan from the government as long as you're not paying a penalty.
Yes, because interest rates are so great.
I think the average savings account is paying 0.06% right now. That is a whole $0.60 on $1000 over a year. Yippee, I am rich.
Sure there are some CD's and such that may pay ~1.4% now, but the money is tied up for the term of the CD, same for IRA's and other investments.
Yes you can get higher rates, but the risk greatly increases the higher you go.

I would rather get a $1000 refund than pay $10 come tax time. So I loose a dollar in interest. Big whoop.
My refund mostly goes into my savings account though. I do not use it as "found money" to waste on stuff.

Let's use componding interest to figure out what you're missing.

Starting with $1,000 and depositing $38.46 every other week instead of letting the Treasury Dept. hold onto it.

Assuming 7% annualized gains in an index fund over 30 years of a career.

You would have made deposits of $30,000 and your ending balance would be $110,373.79.
 
If you are getting a large refund, you should work to get as close to zero as you can. Take that extra money and put it into a IRA or another tax deferred account. Win Win situation as you will get a refund the following year since your income dropped. I did this for years.

Most people that get the larger refunds blow the money.

Those who do not pay Fed Income Tax and get a refund are getting free money from the tax payer. It's called a tax credit.
 
Originally Posted By: Panzerman
Or be a deadbeat and get a Earned Income Tax Credit.
My sister-in-law consistently gets back three times what she pays in tax every year.
I don't think alot of people realize the poor, they not only don't pay taxes, they take from the kitty.



So-she shouldn't take the credit? How about people on Medicaid-are they "deadbeats" to? How about people getting more in social security benefits than they have ever paid in? How have they "earned" their social security-if they got back what they paid in 15 years in to their retirement?

You need to be careful when you throw around that word.
 
Originally Posted By: CKN
Originally Posted By: Panzerman
Or be a deadbeat and get a Earned Income Tax Credit.
My sister-in-law consistently gets back three times what she pays in tax every year.
I don't think alot of people realize the poor, they not only don't pay taxes, they take from the kitty.



So-she shouldn't take the credit? How about people on Medicaid-are they "deadbeats" to? How about people getting more in social security benefits than they have ever paid in? How have they "earned" their social security-if they got back what they paid in 15 years in to their retirement?

You need to be careful when you throw around that word.


Social Security and Medicare are paid into while you work, so those wouldn't apply. (I know you said Medicaid....)

And if you get more back, that isn't wrong since, if you kept the money and even conservatively invested it in an Index Fund, you would have more than when you started. Every dollar you put in would double in about 7 years give or take. So over say 50 years of "contributions" that first dollar would be 128. I.E. after 7 = $2, after 14 years = $4, after 21 years = 8, after 28 years = 16, after 35 years = 32 after 42 years, = $64 and after 49 years, that first dollar is now $128.

So it's not unreasonable, nor unfair to expect to get more than you paid in, since you expect that the money would be invested to earn even a modest rate of return.

Even if it earns a lower rate and you get 1/2 of that, that is still $64 for that first dollar in.

So I don't begrudge anyone who is forced to "contribute" to Social Security for getting more out than they put in. If Uncle Sam forces them to pay 6.2% of their income and takes a like amount from their employer, they should be very well compensated for losing the freedom to choose how that money is "invested" on their behalf.
 
Oh, and just because the government doesn't invest it doesn't mean that you should not get more than you paid in. Their bad choices should not negatively impact you.

Which is what I'm saying about the whole debacle here in IL.
 
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