Monthly Archives: November 2015

Should filers be prodded to save tax refunds?

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate


It’s that time of year when I — and other tax specialists — nag, I mean encourage, you to adjust your withholding so that you don’t get a big refund.

Our argument generally focuses on getting that money now as part of your regular paycheck so you can use it to pay for holiday spending instead of charging those gifts and paying the bill later with your tax refund.

One group of tax experts, however, says we should instead encourage folks to save their refunds even before they get them each filing season.

Millions of refunds, billions of dollars

That’s probably a wiser approach. After all, Americans love their tax refunds from Uncle Sam. The IRS says that through Oct. 30, it had issued almost 109 million refunds that totaled nearly $299 billion.

The average federal tax refund check was $2,746.

The Refund to Savings initiative is a research project by the Center for Social Development at Washington University in St. Louis, Duke University and Intuit, the maker of the popular tax software program TurboTax.

The Refund to Savings, also referred to as R2S, looks at the taxpaying and saving behaviors of hundreds of thousands of people using a special tax software program. The software version used, TurboTax’s Freedom Edition, is available for free to individual filers and active-duty military members who meet certain earnings limits.

Based on data from those filers, the R2S believes it can help bolster individuals’ finances by suggesting these filers save their tax refunds before they actually get the money.

Savings suggested at filing time

When people complete their tax returns, note R2S researchers, the money is there, but it’s not quite in the filers’ hands. By offering taxpayers a choice to save at that key decision point, the study believes it will get more savers because the intent is still fresh and the desired option is convenient.

“When filers are asked how they want to receive their refund, we inject motivational messages, suggesting they save for emergency, retirement or another long-term goal,” Michal Grinstein-Weiss, a professor at George Warren Brown School of Social Work at Washington University, told The Wall Street Journal. “We also suggest the amount they should save.”

The IRS already gives taxpayers the option to have their refunds sent to checking, savings or retirement accounts. All you have to do is check a box on your 1040, enter the account number and the money will be directly deposited as instructed. You can even divide your refund among various accounts.

The R2S effort simply encourages such savings actions.

Suggestions for VITA filers

The effort is detailed in a recent R2S report, of which Grinstein-Weiss is a co-author, prepared for volunteer tax preparers who help filers each year at all Volunteer Income Tax Assistance, or VITA, sites. VITA workers help lower income taxpayers prepare and file their annual returns at no cost. The 2015 filing season threshold is $54,000 or less.

“If one of your VITA clients decided to save his or her refund, or even part of it, it could prevent a potential financial hardship for them and their family,” notes the R2S report. “Or, perhaps better, it could be the start that enables them to do things they may have thought they never could: buying a house or sending a child to college. Encouraging your clients to save a portion of their refund could have a profound impact in their lives.”

Refund savings for all

I believe R2S is on to something here. And it’s an approach that should be taken by all taxpayers who get refunds, regardless of income.

Everyone needs to have some cash set aside for a special goal or for emergencies that always crop up.

As long as people are using tax over-withholding and the subsequent refund amount as a forced savings mechanism, we should do all we can to ensure that the money actually does transfer to a savings account.

Do you get a refund every year? Have you ever had that refund directly deposited to a savings or other account? Have you considered adjusting your withholding so that you’ll get the money in your regular paychecks?

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.


Fewer IRS audits mean less tax money

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

If you cheat on your taxes, your chances of getting caught by the IRS are minuscule.

Let’s get one thing clear from the get go. That opening line is in no way a suggestion by me or Bankrate that you fudge your figures when filling out your tax forms.

But some folks do. And IRS Commissioner John Koskinen says that his office is having a tougher time catching tax cheats.

The IRS completed about 1.2 million individual audits in fiscal year 2015, which ended Sept. 30. That’s 13,700 fewer than the previous year, according to the commissioner. For comparison purposes, during the last 9 months of the fiscal year that fell within this latest tax filing season, the IRS received more than 145 million tax returns.

Reduced staff means fewer audits

Why so few extra reviews of returns? Not enough auditors.

“Consider that the 15,000 full-time employees we have lost since 2010 include 5,000 key enforcement personnel,” Koskinen told the American Institute of CPAs’ National Tax Conference in Washington, D.C., this week.

“These are the people who audit returns, perform collection activities and investigate tax fraud and other crimes,” Koskinen told the CPAs. “We are especially concerned about the effect that the reduction in our workforce has had on audits.”

Since 2010, the number of audits has dropped 22% and that figure corresponds exactly to the number of revenue agents the IRS has lost, Koskinen says.

Meanwhile, more people are filing returns every year. Through Sept. 25, almost 1.2 million more people had submitted 1040s than did in 2014.

Declining collection amounts

It doesn’t take an advanced degree in math to predict what happens when there are more filings and fewer examinations of tax returns.

“We’re seeing clear evidence of a longstanding decline in revenue coming from audits,” according to Koskinen.

The commissioner said that between 2005 and 2010, the money generated from audits averaged $14.7 billion annually. But since 2010, it has averaged only $10.5 billion a year, a decline of nearly 30%, or more than $20 billion in uncollected tax dollars over the past 5 years.

Unintended support for private debt collectors?

Koskinen’s speech was designed to bolster support for more IRS funding so that its workers could get back to, among other things, auditing returns.

But it’s also likely to have the unintended consequence of providing cover for Capitol Hill lawmakers who want to turn over some IRS functions to the private sector. I’m talking, of course, about the requirement in the transportation bill that is working its way through Congress.

That bill has a provision to require the IRS to turn over some tax bill collection efforts to private debt collection agencies. An effort by a group of House Democrats to strike that provision failed, so it looks like debt collectors will soon be calling about IRS bills, too.

An IRS audit and persistent debt collector calls are equally unwelcome. Which one do you fear the most?

Does a smaller chance of getting audited tempt you to cheat, at least a little, on your taxes? Or would the possibility of getting caught and then having your account turned over to a debt collector scare you into honest filing?

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.