Tax Refund Discrepancies: Steps to Take When the Unexpected Happens
Have you ever filed your taxes, excited to get a nice refund, only to find that the amount was much lower than you expected? Or maybe you even got a bill in the mail from the IRS? Well, today, we're going to talk about the steps you can take when this happens. I'll also share an astounding story about some clients who had to face this head-on. Let's handle that a little later. Join Ralph Estep, Jr., in handling tax refund discrepancies.
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Welcome to Ask Ralph
Welcome to the Ask Ralph Podcast, where listening to an experienced financial professional with over 30 years of experience can help you make sense of complex questions, current headlines, and industry trends about taxes, small businesses, financial decision-making, investment strategies, and even the art of proper budgeting. Ask Ralph makes the complex simple by sharing real-world knowledge from a Christian perspective with all things financial. Now, here's your host, Ralph Estep, Jr.
Introduction
Welcome to our tax talk Thursday! I'm so glad you chose to join us. I want to thank you for listening and supporting the program. I'm coming to you from the Estep farm and the Saggio accounting studio. Let me put on my podcaster hat and put down those overalls. Slide that adding machine to the side; let's get into some financial wisdom from a Christian perspective.
Today, we're discussing an unpleasant tax-time surprise that, unfortunately, many people have experienced: getting a smaller refund than anticipated or even owing taxes when you expected to get a refund. Don't forget to subscribe to the show and join our email list at askralphpodcast.com so you don’t miss tomorrow’s show, where we’ll discuss annuities.
Understanding Tax Refund Discrepancies
Let's start with Proverbs chapter 14, verse 23, which reminds us: "In all labor, there is profit, but mere talk leads only to poverty." As we labor to file accurate tax returns, we hope to profit from our refunds. Sometimes, however, talk of big refunds does not match reality once those tax returns are filed.
Proactive Steps to Address Tax Issues
The first thing I'm going to tell you when faced with this situation is, don't panic. Stay tuned as we explore why your refund may differ from expectations and proactive steps you can take if this happens to you. Let's address the first question: How does this situation occur?
Common Tax Filing Mistakes
There are a few common culprits. Did you receive income you forgot to report or underestimate earnings when preparing your return? Any unreported or under-reported income means taxes were not fully withheld to cover what you now owe. Another cause could be claiming deductions or credits you’re not actually eligible for, leading to an inflated refund projection. Life changes, like increases in pay, a new job, unemployment benefits, retirement draws, or social security benefits, could also impact your tax liability.
Handling Unexpected Tax Bills
So now, you’ve got that lower-than-expected refund or that shocking tax bill in the mail. What do you do now? First, take a deep breath, and as I said earlier, don't panic. This is a time to pray for wisdom and guidance. Philippians 4:6 tells us: "Do not be anxious about anything, but in everything, by prayer and petition with thanksgiving, present your requests to God." Reach out to your tax preparer or a consulting firm like ours at Saggio Accounting for an audit of your tax return. We can help you pinpoint where the mismatch occurred, correct errors, or catch other credits or deductions you might qualify for but neglected to include.
Adjusting Withholdings and Payments
Check your payroll withholding amounts and adjust allowances claimed if your life situation has changed. This is when you want to update your W-4 form. Suppose your review confirms your refund amount is indeed accurate. In that case, an unfortunate but good lesson is learned: Budget on your actual typical refund amount rather than some inflated projection. Make adjustments for the following year by updating your withholdings and estimated tax payments. Accurate records of your income, deductions, and credits are crucial.
As Proverbs 21:5 tells us: "The plans of the diligent lead only to plenty, but those of everyone who is hasty lead only to poverty." So, make diligent planning your ally. For this year's budget, look for areas to trim excess spending and redirect those funds toward debt payments or savings goals. Ephesians 5:16 reminds us to make the most of our time and resources. If you owe the IRS this year, contact them or your state tax office to set up a reasonable payment plan. They offer options tailored to fit different financial situations. With God's help, what seems like a setback can become an opportunity for growth.
Real Client Story: Tax Filing Error
About ten years ago, I had a client who received a notice from the IRS stating they owed about $8,000 in tax. They were perplexed and asked me how this was possible. Upon reviewing their notice and tax return, I discovered they had mistakenly taken both itemized deductions and the standard deduction. Initially, they received a $2,000 refund and were thrilled. However, it turned out that not only were they not due the $2,000 refund, but they actually owed the IRS $8,000 due to this simple mistake. We fixed the error, figured it out, and set them up with a payment plan. There are always ways to resolve these issues; you just can’t pretend they will go away.
Recap and Final Advice
Let's recap what we've shared today. If you receive a smaller than anticipated tax refund or get hit with a tax bill:
- Review your return thoroughly for any errors or missed deductions. Contact your tax preparer or seek out professional help if needed.
- Double-check your withholding amounts and adjust as needed based on any life or income changes.
- Make quarterly estimated payments for any side work or non-wage income to stay prepared for tax time.
- Redirect excess spending towards savings goals or debt payments and stick to your budget.
- For any taxes now owed, contact federal or state agencies promptly to set up a reasonable payment plan.
As Romans 8:28 says: "God works all things together for the good of those who love him." So, be patient and let Him guide the process.
Conclusion and Next Steps
As I always say, stay savvy with those taxes and God bless you, my friends. Thank you for joining us on the Ask Ralph podcast. With a simple click to subscribe, we'll invite you back to our next episode. Remember, financial issues don’t have to be complicated. Just Ask Ralph. The information contained in this episode of Ask Ralph is based on data available as of the date of its release. Saggio Accounting Plus and Ask Ralph Media Inc. are under no obligation to update this content if changes occur. Applying this information to your specific situation requires careful consideration of all facts and circumstances. Any information provided is not to be considered financial, tax, or legal advice. Please consult your tax advisor or attorney before acting on any material covered.
Stay wise and proactive in managing your finances.
