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Your annual income tax return may seem quite complex to fill out, but its structure is actually quite simple. On this document you calculate all of your earnings and subtract eligible deductions and credits.
The remaining amount is your taxable income, and you multiply this by the applicable tax rate to determine how much income tax you owe to the government.
However, in most cases, you prepay your income tax through deductions from your regular paycheck. If the amount you paid through these deductions during the year is greater than the amount you owe, you receive a tax refund.
After you file your taxes, you wait for the IRS to review your return and issue a refund. The IRS claims that it approves most tax refunds within 21 days but it can take longer.
Understanding this process can help you move the process along to get your refund.
How the IRS evaluates the return
Once your tax return reaches the IRS, an auditor confirms or questions the information you have provided, starting with the first section of the return. The auditor inspects the amount of money you claimed as income, which should accurately show every source of income you had over the course of the tax year.
If you are employed, you should have a form W-2 from each employer. This document contains the total wages the employer paid you during the preceding year.
If you are an independent contractor, you should have a W-9, which contains the same information. Copy all relevant earning and taxation information from these slips accurately on to your income tax return.
If you make a mistake entering information, the IRS must spend more time looking for the correction figures. Double-check your amounts before sending in your tax return to avoid this problem which extends the length of time you wait for your refund.
Tax deductions and credits
The more tax deductions and credits you claim on your annual tax return, the longer you wait for your refund. This is because the IRS must spend more time verifying the deductions and credits. This does not mean you should refrain from claiming legitimate tax deductions. Instead, just make sure to include clear documentation for each deduction.
For example, if you made a donation to a registered charity, you can deduct the dollar amount of the donation and lower your total taxable income. To make sure that the IRS agent auditing your tax return can confirm this deduction expeditiously, include the receipt. Do so with every deduction, reduce the wait time for your refund.
The IRS claims that it approves most tax refunds within 21 days of receipt of the return. However, the IRS does not issue refunds for anyone claiming earned income credit until after Feb. 15 so it has time to match the income you claim on the return with the amount reported by your employer.
If you request an electronic deposit, you receive your refund within one business week after your approval. Checks take up to four weeks to arrive in the mail.
Waiting for your refund may feel like a long time, but if you double-check your math and properly document each deduction and credit, you improve your odds of receiving your refund within the average 21 day period.
Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York. He provides guidance and strategies to improve clients’ financial well-being.