Updated IRS TaxRefund Myths

(This post is copied from IRS's Tax Tips newsletter)

Issue Number:  Tax Tip 2023-38

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Don’t fall for these federal tax refund myths

Once people complete and file their tax return, many of them eagerly await any refund they may be owed. No matter how a taxpayer plans to use their tax refund, knowing fact from fiction can help manage expectations as they wait for their money. This tip dispels some federal tax refund myths that many people believe are fact, but they are pure fiction.

Myth: Calling the IRS, a tax software provider or a tax professional will provide a more accurate refund date
Many people think talking to the IRS or to their tax software provider or tax professional is the best way to find out when they will get their refund. The best way to check the status of a refund is through the “Where's My Refund?” tool or the IRS2Go app.
Taxpayers can also call the automated refund hotline at 800-829-1954 to get their refund status. This hotline has the same information as “Where's My Refund?”. There is no need to call the IRS unless “Where's My Refund?” says to do so.

Myth: “Where's My Refund?” must be wrong because there's no deposit date yet
Updates to “Where's My Refund?” ‎and to the IRS2Go mobile app are made once a day, usually overnight. Even though the IRS issues most refunds within 21 days, it's possible a refund may take longer. If the IRS needs more information to process a tax return, the agency will contact the taxpayer by mail. Taxpayers should also consider the time it takes for the banks to post the refund to the taxpayer's account. People waiting for a refund in the mail should plan for extra time.

Myth: “Where's My Refund?” must be wrong because the refund amount is less than expected
There are several factors that could cause a tax refund to be less than expected. The IRS will mail the taxpayer a letter of explanation if it makes adjustments. Some taxpayers may also receive a letter from the Department of Treasury's Bureau of the Fiscal Service if their refund was reduced to offset certain financial obligations. Before calling, taxpayers should check the “Where's My Refund” tool or wait for the letter to understand why the change occurred. This can help taxpayers know how to respond.

Myth: Getting a refund this year means there's no need to adjust withholding for tax year 2023
To avoid a surprise next year, taxpayers should make changes now. One way to do this is to adjust their tax withholding with their employer. The “Tax Withholding Estimator” tool can help taxpayers determine if their employer is withholding the right amount.

Taxpayers who experience a life event such as marriage, divorce, or the birth or adoption of a child, or are no longer able to claim a person as a dependent, are encouraged to check their withholding. Taxpayers can use the results from the “Tax Withholding Estimator” to complete a new Form W-4, Employee's Withholding Certificate, and submit it to their employer as soon as possible. Withholding takes place throughout the year, so it's better to take this step as soon as possible.

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I Can Trust Licensed Fiduciaries With My Money

In general, yes, you can trust a fiduciary adviser with your money.  But why would you??

Weekly, in the many financial journals I read, are one or more news stories about "financial advisers" who have outright stolen their clients' money.  Here's an especially egregious one involving the elderly:

https://www.financial-planning.com/news/ex-lpl-advisor-bradley-a-goodbred-charged-with-felonies

And this one involving twin brothers who stole $5 mil. from friends, family and others:

https://www.financial-planning.com/news/sec-charges-adam-and-daniel-kaplan-with-5-million-fraud

(These crooks all seem to spend their ill gotten gains on the same facile trinkets.  This pair spent $68,000 on handbags.  $58,000 on watches.  $30,000 on  a "matchmaking" service.  Wow.  They must really have needed some matchmaking!  Or it was one of those not-so-legal matchmakers.)

I could go on and on.  No wonder you don't trust us!  But out of the over 1.0 million registered advisers in the USA,about 76,000 have financial misconduct disclosures on their records, or about 1 in 13.  When I researched this I expected a much smaller number, and was prepared to say that it was a "tiny minority of bad apples" that are rotting the entire industry.  76,000 isn't tiny by any stretch.  One out of every thirteen!

So you must take responsibility.  How?  Here's a To Do list:

• Check the adviser's background, and the background of their firm, before engaging with them
• Avoid firms with high percentages of misconduct (Oppenheimer was acquired by Invesco):
  
• Avoid doing business in states with high misconduct rates
  
• MOST IMPORTANT:  Don't give money to your adviser unless it is for a contractually agreed upon financial planning fee.  Personally, I don't want to be anywhere near your money.  Large accounts such as 401(k)s & brokerage accounts should be sent directly to, and held by, an independent custodian, not your adviser nor their firm.  And the custodian should be easily vetted online.
• Don't accept statements compiled and issued by your adviser nor their firm(s).  This rule alone would have prevented the Bernie Madoff fraud. 
• Be suspicious of claims of outlandish returns.  Greed and fear of missing out (FOMO) are the worst investor motivators.  Focus instead on your written financial plan and the necessary elements to make it successful.  If your plan needs 20% rates of return to succeed then it is a lousy plan.
• Check with your state regulators before investing in any security or insurance product.  They must be approved by your state before they can be offered for sale.  Even I was tempted by Woodbridge Group's pitch.  But checking with the Oregon Dept of Financial Regulation revealed it was not approved.
  
  Just remember that statistic: One in Thirteen.

Best Always,

Gary Duell

Your Constructive Comments are Welcome! 

Source of above images:  https://siepr.stanford.edu/publications/policy-brief/misconduct-under-microscope-examining-bad-behavior-financial-advisers