Tax Talk

There are ads on the radio and TV promising to get your federal tax refund fast -- sometimes in as little at three days? Is this a good deal? Let's examine what these "refunds" actually are:

Company X prepares your return. Once completed they offer to get your refund to you in three days. Your first thought might be "Wow, that's my down payment my new car!" and agree to the deal. Three days later you have your money but it is substantially less than what you expected. What happened?

These fast refunds are not coming from the IRS. The company that prepared your return is actually lending you this money. They then intercept your refund when it comes from the IRS. The company is charging you a fee for making the loan, a separate fee for preparing your return, and charging you interest.

The best idea is to say no to the offer. Have your refund direct deposited into your checking account by the IRS and the state. You will have your money in two to three weeks. You can then make that car down payment and may have a little money left over.

Another good idea is to go to my previous blog File Your Income Tax Return for Free. If you have a fairly simple return you can file it, get direct deposit of your refund, and pay no fees for the preparation of your return. You can do the same thing with Massachusetts, but its a little more complicated.

File Your Tax Return Free

Do you have a simple federal tax return to file? You can do it on-line free through the IRS. You qualify if you receive a W-2 from your employer, and have some interest and dividend income. You even can own a home and qualify. The major restriction is that all of your 2014 income must be below $58,000.

You would file your return through an IRS partner. This is a fast, easy, and free way to file your return.

Would you like to have your refund in less than 3 weeks? You can have it deposited directly into your checking account. Have all your documents and a personal check in front of you when you file your return. This system is appropriate only for simple returns.

The IRS partner will file your federal return for free and will offer to file your Massachusetts return for a fee.

This link to the IRS Web site can help you file your return. Be sure to click on the What you need to get started link under Free File Software

http://www.irs.gov/efile/article/0,,id=118986,00.html?portlet=4

Massachusetts offers online filing but you must register with the Department of Revenue and set up a user name and password. Click on this link to get started:

https://wfb.dor.state.ma.us/webfile/wsi/Index.aspx

Title Getting Married & Your Taxes

I went to a friend's wedding recently and was thinking about the tax consequences of marriage. Only a CPA would think about taxes on a sunny Saturday while going to a wedding. But getting married changes your tax situation, sometimes drastically.

Many years ago two friends of mine decided to get married. They decided on a New Year's Eve wedding and planned on getting married at 11:45 PM. They were both clients so I pulled out their tax returns and did a little math. I suggested that they postpone their wedding for a half-hour and save $4,000 in taxes, enough to pay for their wedding. They decided to get married the next year, at 12:01.

Why did this happen? They both had about the same substantial income. They had both gotten a package to leave their jobs and would be earning a lot less the next year. They would have jumped into a higher tax bracket in the first year filing as a married couple rather than as two singles.

This is called the marriage penalty. Congress keeps vacillating between a marriage penalty and a singles penalty. Currently there is a marriage penalty and every year congress talks about changing it. Who knows what they will do next?

The rule of thumb is that if two people's incomes are about equal, they will probably pay a higher tax as a married couple. If their incomes are significantly different, they pay more in taxes as singles. Other things, like kids, medical expenses and home ownership can effect this calculation.

You do not get the alternative of filing as a single individual If you are married.

Call me the anti-romantic CPA.