If you have prepared your tax return and you show that you are entitled to a refund, then congratulations. But you’re not done just yet. Here are seven things that you likely are not aware of regarding your federal tax refund.
You can apply it forward
If you file Form 1040 or Form 1040-A, you will notice at the bottom of the return that you have the option to apply your refund to your subsequent year’s tax liability. This is called a credit elect by the IRS. If you file Form 1040-EZ, this option is not there.
Should you elect to roll your refund forward, this will be treated as an estimated tax payment. You will not receive any interest on this money. When you prepare your tax return the following year, there is a line to indicate the amount(s) you have already paid in. Be sure to write in the amount accordingly.
Once you make this election and file your tax return, you cannot change your mind if the due date of the return has passed.
Is your refund too much?
That’s an odd question; how can a refund ever be too much? If you are receiving a large refund each year, you may want to consider changing your W-4 exemption amount so that you have less taxes withheld from your pay.
In lieu of receiving a large refund every year, the money may be better served going into your pocket each pay period. Be sure that your refund is not comprised of credits that will be expiring however. For example, once your child reaches age 17, you no longer are eligible to receive the $1,000 Child Tax Credit. If you reduce your withholdings and also lose out on a credit, you may put yourself into a bind.
You can invest your refund into treasury bonds
According to the IRS, you can request a deposit of your refund to a TreasuryDirect® online account to buy U.S. Treasury marketable securities and savings bonds. For more information, go to www.treasurydirect.gov .
Refund less than one dollar?
Sorry to inform you, but the IRS is not going to mail out a refund or directly deposit a refund of .01 cent or .99 cents, or anything in between. Refunds under a dollar must be requested in writing. Call them penny-pinchers if you’d like, but it costs more to send these nominal amounts than the refund itself.
Don’t sit on the refund check
The IRS gives you one year to cash your refund. If more than a year has passed and you still have not cashed out, or if you lose your refund check, you must contact the IRS and they will investigate to ensure it was not cashed, then reissue another one.
IRS Publication 17 says that if you choose direct deposit, you may be able to split the refund and have it deposited among two or three accounts or you can use it to buy up to $5,000 in paper series I savings bonds. Complete Form 8888, Allocation of Refund Including Savings Bond Purchases, and attach it to your return.
Refund more or less than expected?
One problem is good, one not so good. Either way, you need to contact the IRS. If your refund is less than expected, a notice will be sent explaining the reduction. If you get an unexpected surprise, obviously, do not cash the check. Do not spend the direct deposit. Call the IRS and explain the situation.
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