In my typical pattern of procrastination, I waited until today to finish preparing my tax returns. Both federal and state returns were submitted at noon today, meaning I came in with 60 hours left to spare. Good thing, because I have a lot going on between now and Monday.
Rant mode: on.
One of my pet peeves this time of year is hearing people talk about a tax return when what they really mean is a tax refund. As a public service, let me explain the difference.
A tax return is a document the taxpayer sends a revenue service to declare his income, deductions, credits and so on. For example, the familiar IRS Form 1040 that so many of us deal with every year is titled U.S. Individual Income Tax Return. See, the word “return” is right there at the top of the form!
Now, after filling out a tax return and performing the required calculations, you may discover the payments you made during the tax year are less than your total tax liability. When that happens, you write the government a check for the difference. However, depending on your situation, it’s also possible your payments exceeded your liability. If that’s the case, after you file your return, the government will give you that difference back. This amount is called a refund.
These refunds get people really excited for some reason. This time of year, I hear people blurt out nonsense like, “I filed my taxes only three weeks ago, and I already got my return!” No, you did not. You got your refund. Returns go the other direction.
This year, the changes in the tax law have gotten people in more of a twist than usual. Not only are people calling a refund a return, but they also seem more confused about just what a refund is. Like I said above, it’s the difference between two numbers, one of which is your tax liability for the year. So, on top of the usual nonsense, I’ve been hearing some really dumb stuff like, “This tax law did nothing for me because I got a smaller return than last year.” Yes, that’s a train-wreck of a sentence on multiple levels. However, it’s possible, even likely, that a taxpayer’s liability could have gone down and the taxpayer received a smaller refund, especially in light of the changes to the withholding tables for 2018.
So, at the risk of sounding snobbier than usual, if you want to have an intelligent conversation about the new tax law, be prepared to discuss whether you had a higher or lower tax liability than last year, as well as whether there was any change to your situation. For example, did your adjusted gross income change? Did your deductible expenses change? If so, your tax liability would have changed even if the tax law hadn’t changed.
Rant mode: off.
If you’re still putting the finishing touches on your tax filings, best wishes to you. Here’s a tip from a master procrastinator: if you can come up with a final number that’s close enough for government work, prepare an extension request right now. That way, as midnight approaches Monday and you’re still pulling your hair out looking for those last bits of documentation, you can press the easy button, file the extension, and promise yourself you’ll be more organized next year.