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Tax Refunds Are Shrinking -- and That's a Good Thing


refunds2011 wasn't a good year for those expecting big checks from the IRS. Not only were fewer refunds delivered to taxpayers (only 109 million!), but the average refund was smaller, too. Refunds for returns filed in 2011 averaged $2,913, down 3% from the year before, according to recent stats from the IRS on how the last tax year shook out.

Those numbers aren't surprising. After all, we're still in a tough economic environment. Unemployment has been falling, but by inches, not miles. And to some degree, improving numbers reflect some job-hunters who have given up looking and are no longer counted. Even those who got new jobs may have settled for work that pays less than previous jobs, leading to smaller paychecks and potentially lower refunds.

Others who have been trying to maximize the dollars at their disposal may have tweaked their withholding by revising their W-4 form at work. If less is withheld, refunds will be smaller -- or may not exist at all.

If you weren't one of these people, you might want to consider doing so yourself. It can be exciting and useful to receive a hefty check from the IRS each year, but it only means that you overpaid your taxes during the year, essentially giving Uncle Sam an interest-free loan. That money could have been working for you, not him, all that time. So, in this sense, shrinking refunds are a good thing!

Speed Up Your Refund

In other news, the number of refunds delivered via direct deposit rose 6% last year, and 14% more taxpayers filed returns via the IRS' free e-filing system. (About three quarters of all taxpayers now e-file.)

If you want to receive your refund as soon as possible, the IRS recommends both e-filing and using direct deposit. Many such folks will get their refunds within just 10 days. Overall, more than 90% of all taxpayers expecting refunds should receive them within 21 days.

Still Waiting for That Refund?

One reason for a delayed refund is that the IRS finds it needs to spend a little more time reviewing your return. That can happen if it's filled out illegibly, or if there are any red flags suggesting possible fraud. Simple errors can slow down the process, too, such as a typo in your Social Security number, your address, or your bank routing number. Indeed, more than $150 million in refunds wasn't delivered last year due to problems with mailing addresses.

Get Help

Now or later, if you find yourself wondering, "Hey, where's my refund?" visit the IRS' "Where's My Refund" tool, which is also available via the IRS2Go app for Apple and Android products.

And if you find yourself vexed by some IRS procedures or you need to resolve some dispute with the IRS, consider checking in with the Taxpayer Advocate Service, which exists solely to represent the best interests of taxpayers.

Learn more and get more tips here:

Longtime Motley Fool contributor Selena Maranjian holds no position in any company mentioned. Click here to see her holdings and a short bio.

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Infamous Tax Crimes

Although most Americans fill out their tax returns diligently and honestly, not all taxpayers are as respectful of the law. Some wealthy taxpayers cheat because they feel they already pay more than their fair share of taxes, while some regard the entire tax system as unconstitutional. Regardless of the reason, it's big news when the rich and famous are convicted of tax crimes. You're likely to know at least one or more of the famous names on this list of notorious tax cheats.

Cities with the Lowest Tax Rates

The total amount of tax you pay reaches far beyond what you owe the federal government. Depending on where you live, most likely you're required to pay additional taxes, including property and sales tax. The disparity between the amount of tax you pay in a low-tax city and that in a high-tax city can be dramatic. Living in any of these 10 cities could save you a bundle, although the exact amount may fluctuate based on your income and lifestyle choices.

Cities with the Highest Tax Rates

Much ado is made in the press about federal tax brackets, but cities can carry a tax bite of their own. Even if you live in a state that has no income tax, your city may levy a variety of taxes that could eat away the entire benefit of living in an income tax-free state, including property taxes, sales taxes and auto taxes. Consider all the costs before you move to one of these cities, and understand that rates may change based on your family's income level.

Great Ways to Get Charitable Tax Deductions

Generally, when you give money to a charity, you can use the amount of that donation as a deduction on your tax return. However, not all charities qualify as tax-deductible organizations. While there are many types of charities, they must all meet certain criteria to be classified by the IRS as tax-deductible organizations. There are legitimate tax-deductible organizations in many popular categories, such as those listed below.

A Freelancer's Guide to Taxes

Freelancing certainly has its benefits, but it can result in a few complications come tax time. The Internal Revenue Service considers freelancers to be self-employed, so if you earn income as a freelancer you must file your taxes as a business owner. While you can take additional deductions if you are self-employed, you'll also face additional taxes in the form of the self-employment tax. Here are things to consider as a freelancer when filing your taxes.

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less refund is good? are you kidding me what's next pay freeze for everybody whether you work for a govt or private company....

January 24 2012 at 5:11 PM Report abuse rate up rate down Reply

hmmmm more for the irs ,less for you,socialism is good,selfish and self centered is not

January 24 2012 at 5:10 PM Report abuse rate up rate down Reply

Lessons of Sun Tzu are well heeded.

January 17 2012 at 9:55 PM Report abuse rate up rate down Reply

Not surprising. All of us that have worked to accumulate some wealth have options. If you don't make money you don't need guess what, the government has nothing to tax!! Only make the money you need, and let these socialist buffoons and the government rot in "you know where"!

January 12 2012 at 11:42 PM Report abuse +2 rate up rate down Reply

When you blame politicians for our problems remember they were elected by we the voters. That means it can be solved by voting people into office who hold the same or similar political views as yours. When this happens then you should be satisfied with legislation coming from congress. If more of them are elected by people who hold views different from yours then that's what the majority wants. That's the way the system works.

January 12 2012 at 8:40 PM Report abuse +1 rate up rate down Reply
1 reply to linmarco's comment

Don't buy the lie...........................such as hope and change.

January 12 2012 at 8:46 PM Report abuse +3 rate up rate down Reply
1 reply to savemycountry911's comment

We won't accept your Socialism/Communism Miser.

January 14 2012 at 8:19 PM Report abuse +2 rate up rate down

News Flash, tax payers are shrinking as well.

January 12 2012 at 8:22 PM Report abuse +5 rate up rate down Reply

28% federal tax on income
5% state income tax
10% sales tax on anything bought EXCEPT GASOLINE which is something more like 35% tax.
2% federal excise tax ( anyone really know what for?)
Real ESTATE TAX that almost no one can figure out how they calculate it.
then add on telecom taxes, license fees/taxes


and they still cant spend it wisely.... FIRE anyone in washington in a financial decision rolethat doesnt have an accounting degree! at least we have some accountability....

January 12 2012 at 7:39 PM Report abuse +4 rate up rate down Reply
2 replies to scottie110's comment

So true.....

January 12 2012 at 7:41 PM Report abuse rate up rate down Reply

You forgot some more
-Social Security tax, about 7%
-Medicare, about 1.5%
Add it ALL up and it is an amazing amount of money!!!! I remember when many (most) of these taxes were 1/4 to 1/2 the RATE (not gross $$) they are now. Makes me wonder what my, 2 young adult, kids will have to look foward to. NMot much of an incetive to work hard if you get next to nothing for it.

January 12 2012 at 8:56 PM Report abuse +1 rate up rate down Reply

No matter how you look at it WE ARE GETTING RIPPED OFF !!!!! If you withhold less & put it in the bank you might get 0 .5% in interest & the BANKSTERS charge 9% and higher in interest for loans!!!!!! There are a lot of people who are making less than they were 4 or 5 years ago so their refund will be less. The Government keeps cuttting deductions for the working people ,but the Corporations & Banksters keep getting BIG TAX BREAKS !!!!! Our Government is so CORRUPT that before you know it you will be paying them every penny you earn !!!!!

January 12 2012 at 6:48 PM Report abuse +2 rate up rate down Reply
1 reply to c320wes's comment

What you make has nothing to do with a refund

January 12 2012 at 10:48 PM Report abuse -1 rate up rate down Reply

With all my insider trading, the illegals and non-union workers working in my vineyards, and the tax cut I received that President Obama gave rich people like himself, I increased my wealth by 62% in one year. I don't worry much about shrinking refunds. I know my way around all that darlings.

January 12 2012 at 6:36 PM Report abuse +6 rate up rate down Reply

I sure pay alot less in taxes. Let's see. I make 40% less than before. I have stock losses to write off (and many to carry foward for many years), I now get deductions I never use to qualify for (since I now make much less), etc, etc. It is no wonder the gov is in so much debt. And I have much less held out so I owe them money at the end of the year. There is no way I am letting somebody in such debt, owe ME any money!!!

January 12 2012 at 6:10 PM Report abuse +3 rate up rate down Reply