It’s that time of the year again, when millions of people start to think about filing their taxes. This often involves dreading the collection and organization of paperwork in addition to already worrying about owing Uncle Sam more money. However, the majority of Americans will receive a tax refund and say they will use it toward a responsible financial goal.
Eighty-five percent of respondents in a study by Fidelity think they will receive a tax refund this year, but nearly half believe their tax obligations will be higher with the result of the changes over the highly debated fiscal cliff. Last year, about 75 percent of taxpayers received a tax refund, and the average amount was close to $2,700.
The majority of people claim they will either save their tax refunds or use them to pay down debts. In fact, 33 percent of respondents say they intend to pay off debts, while 15 percent are planning to use the money for retirement savings. Another 9 percent have the funds earmarked for college savings, and 22 percent are planning to save for something else. Only 2 percent say they will use the money for vacation plans, and 6 percent will use the refunds to help with daily expenses.
More people than ever are concentrating on financial resolutions this year. More than half of Americans are focusing on short-term and long-term money goals in 2014. In comparison, only 35 percent said they considered financial resolutions in 2009. “These findings suggest individuals are taking more control over financial matters, leading them to feel better about their personal situations, which is a great way to ring in the New Year,” said Ken Hevert, Fidelity’s vice president of retirement products.
According to TurboTax, there are three main stages to the tax return process, explained in five steps:
1. Start checking status 24 – 48 hours after e-file – Once you e-file with direct deposit, you can start checking the status of your return 24 – 48 hours after you e-file on the IRS Where’s My Refund tool.
2. Return Received Notice within 24 – 48 hours after e-file – The IRS Where’s My Refund tool will show “Return Received” status once they begin processing your tax return. You will not see a refund date until the IRS finishes processing your tax return and approves your tax refund.
3. Status change from “Return Received” to “Refund Approved” – Once the IRS finishes processing your tax return and confirms your tax refund is approved, your status will change from “Return Received” to “Refund Approved”. Sometimes the change in status can take a few days, but it could take longer and a date will not be provided in Where’s My Refund? until your tax return is processed and your tax refund is approved.
4. Where’s My Refund? tool shows refund date – The IRS will provide an actual refund date once your status moves to “Refund Approved”. The IRS issues more than 9 out of 10 refunds in 21 days or less.
5. Where’s My Refund? shows “Refund Sent” – You’re now closer to your biggest tax refund! If the status in Where’s My Refund? shows “Refund Sent”, the IRS has sent your tax refund to your financial institution for direct deposit. It can take 1 to 5 days for your financial institution to deposit funds into your account. If you requested that your tax refund be mailed, it could take several weeks for your check to arrive.
How should you spend your tax refund? While everyone’s financial situation is different, it’s important to remember that a tax refund is not a special gift from Uncle Sam. It’s money that you earned in the prior year and essentially loaned to the government interest free. If you wouldn’t normally go on a shopping splurge with your regular paycheck, you probably shouldn’t treat your tax refund in the same manner. Treating yourself to a small luxury can be rewarding, but don’t forget about reducing debt and saving for retirement in the process.
If you tend to have an unusually large tax refund on a regular basis, you may want to consider adjusting your withholding amount by filling out a W-4, which controls how much federal income tax is withheld from each paycheck. This form is typically completed when you start a new job but can also be changed throughout the year.
More From Wall St. Cheat Sheet:
- The Best Retirement Tax Credit You Never Knew Existed
- Is America’s Retirement Crisis Fixable?
- David Einhorn: Don’t Be Afraid to Change Your Investment Thesis
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