Some States Delaying Tax Refunds

The recent budgetary troubles of the states has been well documented. Most states are struggling to meet their fiscal obligations. Many states, including Oregon, have raised taxes to combat this problem Aside from raising taxes, the infamous Stimulus Bill provided direct aid to the states.

But the recent saga in state budgetary woes appears to be more problematic. Some states are now delaying the payment of tax refunds owed to taxpayers. While many taxpayer are up in arms about this, my initial reaction is that this could have been avoided with proper tax planning.

The perfect scenario for a taxpayer is to owe $0 and receive $0 upon the filing of his/her taxes. When a taxpayer is entitled to a refund, he/she has over payed in either estimated tax payments or withholdings during the year. Upon the filing of the annual state income tax return that results in a tax refund for the taxpayer, he/she is receiving back what was overpaid. Effectively, this is a zero interest loan to the state for the year. If this was the result of estimated tax payments for the first quarter, the taxpayer has given the state a zero interest loan starting on April 15th of the prior year to when a refund is claimed the following year. Further, according to the time value of money, $1 paid today is worth more than $1 owed one year from now.

While taxpayers have reason to be upset over state's delaying tax refunds, it is a problem that could have been prevented with proper tax planing. To avoid this problem in 2010, please consult a tax professional to ensure proper tax planning in 2010.

For more information about states delaying tax refunds, click here.