January 29 officially kicked off the annual income tax season. While technically you could have filed your taxes in January, W-2s aren’t due from employers until the end of January, and without a W-2 it’s all but impossible to file, unless you’re self employed. According to the IRS, over 150 million tax returns are expected to be filed in 2018, and over 70% of those will show that the filer is entitled to a refund. Last year the average refund was $2,895.00. By the way, April 15 is a Sunday this year and April 16 is a holiday in the District of Columbia, so your return is due by midnight on Tuesday, April 17.
If you’re average and get about a $2,800 refund, do you realize that you’re shorting yourself over $200 per month in your paycheck? Refunds come from overpayments of taxes. Those overpayments come from what is withheld from your paycheck every two weeks and are based on what you declare on your W-4 statement that you file with your employer. Nobody likes to pay taxes come April so most people overestimate how much they owe. Then when they get the refund, it’s like money from heaven. But what could you do with an extra $200 per month?
Ideally, you should neither receive a refund nor have to pay additional tax. It’s rare that you’ll exactly break even, especially if you itemize deductions and aren’t sure what those deductions might be throughout the year. But under the new tax laws, more people will be taking the standard deduction. You should analyze your claimed exemptions and adjust your withholding accordingly. the IRS has nifty calculators on their website to help you determine how much to have withheld.
If you’re considering filing bankruptcy, remember that the trustee is entitled to your tax refund depending on when in the year you file. If you file after the first of the year but before you receive and spend your refund, he’s entitled to all of it. He’s also entitled to a portion of the current year’s refund that you will receive next year, based on when you file bankruptcy. Let’s say you file bankruptcy on February 15, before you receive your refund for last year. The trustee is entitled to all of the prior year’s refund and, come next year, he’s entitled to 46/365 of your refund for this year. That’s because you filed 46 days after the start of the year.
Just because the trustee is entitled to the refund doesn’t mean he’ll take it. Often times, if a refund is less than $1,500 the trustee will not take it, but will turn it back over to you. There’s no way to predict whether a trustee will or will not take your refund; it depends in large part on the size of the refund and on the total amount of debt you have. And, frankly, it depends on the particular trustee you are assigned. The thing to remember is, regardless of when you file, a portion of your anticipated tax refund could be taken by the bankruptcy trustee.
If you have bankruptcy questions, contact us.