March 17, 2017 9:18 am

Finding Lost Tax Dollars

The U.S. Treasury may be holding tax dollars that are owed to you. Unless you file for a refund, you won’t get the money; the government doesn’t voluntarily send it to you. Here are some situations in which you may be owed money and can file an original or amended return to claim it.

1. Low income for the year

If your income is low enough, you aren’t required to file a tax return. But if you don’t file, you can’t recoup tax withholdings on wages or claim the earned income tax credit to which you may be entitled. The IRS reports that an estimated one million taxpayers are owed a total of $1 billion for 2013 because they didn’t file tax returns.

If you were a non-filer for 2013, consider filing a return no later than April 18, 2017, to claim a refund from income tax withholdings on your wages or from claiming the earned income tax credit. Of course, if you were supposed to file a return for 2014 or 2015 and didn’t, the IRS can withhold any tax refund for 2013 and apply it for taxes owed for 2014 or 2015. It can also use the money to offset unpaid child support and past-due federal debts, such as student loans.

2. Bad debts

Did someone owe you money but never paid it? If you can show that the debt has become completely worthless, you can claim a bad debt deduction. For nonbusiness bad debts (debts that did not arise in the course of a trade or business), you can treat the loss as a short-term capital loss. It can offset your capital gains and then up to $3,000 of ordinary income. Any unused loss can be carried forward.

You have seven years to go back and claim a refund resulting from bad debt. For example, you can file up until April 18, 2017, to claim a bad debt that became worthless in 2009. But be prepared to show that there was a bona fide debt, such as having a promissory note, that the debt had value in the year prior to worthlessness, and that it became wholly worthless.

3. Worthless securities

As in the case of bad debts, you have seven years to file a refund claim arising from worthless securities. The securities must be completely worthless. Alternatively, you can treat them as worthless if you abandoned them, which means you permanently surrendered and relinquished all rights in them and did not receive any payment for them.

4. Overlooked carryforwards

The entries on your tax return are not limited to the activities for the year. The entries include allowable carryovers, and these can produce tax savings for you. If you failed to include carryovers, you can file an amended return. The time limit usually is three years from the due date of the return for the year in which you’re seeking a refund.

Examples of carryovers not to overlook:

  • Capital losses
  • Charitable contributions
  • Home office deduction
  • Investment interest

5. Getting your refund fast

According to the IRS, the average refund check for 2016 returns filed in 2017 is over $2,000. If you expect a tax refund this year, as do about seven out of 10 filers, then the best way to get it quickly is to do these three things:

  1. File as soon as you can
  2. File electronically
  3. Direct the government to deposit your refund into a designated account rather than sending you a check in the mail. If you want to split your refund into more than one account, attach to your return Form 8888 with account information.

Conclusion

It’s up to you to prepare your return or file an amended return so that you recoup any money owed to you. Watch the time limits, and consult a tax professional if you have any questions.

Tags: Refunds
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Tax Glossary

Fair market value

What a willing buyer would pay to a willing seller when neither is under any compulsion to buy or sell.

More terms