How can I file this year's tax return if I haven't got the refund from last year's return?

Question

Here's my situation:

For the year of 2013, I did not file my federal return within April 15th deadline (I did not owe any taxes, and I was waiting for my wife to get her SSN so that I could file a joint return). I did file it in Feb 20, 2015, and I ensured that IRS got it by sending it as a certified mail (using the tracking number, I can see IRS received it within 3 days).

Now, after over a month, I'm yet to hear back from IRS (and where's my refund is of no help as well). So, given the deadline for 2014 tax submissions are coming up, what are my options?

1. Wait for last year's refund to be paid, and then only proceed with the 2014 return?
2. If I file the 2014 return, do I show the 2013 refund amount as income for 2014 (I recall there was a place inthe state return form for listing last years return)? Since I haven't got that money in 2014, I don't see why I have to list it as income for that year!
3. Would it screw up my tax history if I file the 2014 return before my 2013 return is processed (as in, refund amounts reduced or delayed for arbitrarily long time?)
4. What timeframe should I wait before I start calling up IRS for the status of my 2013 return?

Answer 1

1. File your 2014 tax returns by April 15, 2015 if you can. DO NOT wait for your 2013 return to be processed and for your refund to arrive before starting work on your 2014 tax returns.

2. Any refund from your 2013 Federal income tax return is not taxable income to you for 2014 (or for any later year either), neither for Federal income tax nor for State or local income tax purposes. So, whether you receive the refund in 2015 or in a later year, the money does not need to be declared as income on any income tax return, and you do not need to wait for the refund to be received before submitting your 2014 returns.
   
   Any refund of State (or local) income tax needs to be declared as income on your Federal income tax return, but you need to use a worksheet to determine how much of the refund is taxable income. But, for your 2014 return, you need to declare only those State income tax refunds that you actually received during 2014. Any refund of State income tax received as a result of your 2013 State income tax return (which perhaps you also submitted in 2015 at the same time as the 2013 Federal income tax return) will be taxable income to you in the year in which you receive the refund (2015 or later), not 2013 or 2014. Specifically, the 2014 returns that I urged you to file by April 2015 do not need this information.

3. No.

4. Don't bother calling the IRS; you will be on hold for a long time, and most likely the response will be that no information is available right now. As mhoran_psprep says, your 2013 return is probably on the backburner right now. The IRS website also has a Where's my Refund? section that might give you answers faster than calling the IRS and waiting on hold.

Answer 2

All you have to do is make sure you have paid or overpaid this year's tax. There is not a 5-alarm urgency to file on time.

So do a dry-run of your numbers and if you aren't due a significant refund, send in a form 4868 with an additional payment. So that your refund will be large enough to cover any tax errors or surprises.

If IRS owes you money, the penalty for filing late is $0.

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That said, last year's refund and this year's filing are not connected. You don't need to wait for one to do the other. Even if you hadn't filed the previous year's taxes, the tax years are independent*. The exception is state tax; if you deducted last year's state tax withholding, then you need to declare as this year's income last year's state refund.**

However, even then, you can file this year's taxes erring on the IRS's side, then when all the facts are in, you can amend your taxes by doing them again and using Form 1040X to document the differences. I did this every year in a row for 10 years, and IRS never had a problem with it.

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* Unless you are carrying forward capital losses, over-cap charitable deductions or refund applied to next year's taxes, but even then, you can file now conservatively, and amend your return with Form 1040X and claim the additional refund.

** But often, the state tax value is knowable. If so, you can deduct the actual state tax on your Schedule A and not have to worry about a refund. (The state tax can be knowable if your state tax either doesn't rely on Federal Schedule A, or relies on it but forces you to unwind that deduction.)

Answer 3

An important fact here is that income tax rates are expressed as a percentage of pre-tax income. Your refund is simply part of your withholding that is returned to you, and when income tax is calculated, your withholding are not subtracted from your income. So your refund is money that you've already paid tax on, and you don't need to pay tax on it again.

It gets more complicated, however, if you itemize your deductions. In that case, if you deduct state income tax on your 2013 return, and later get a refund of some of that tax, then since you didn't pay federal income tax on the state tax (that's what deducting it means), you have to pay federal income tax on the state tax refund. Also, since the state income tax is based on your income before taking state tax into account, you can't deduct the state tax from your state taxable income. So often state income tax forms have you add that back in. So if you itemize state income tax in 2013, you'll have to add that back in to your 2013 state income tax form, and include any refund in the federal return for the year you received the refund. If you don't itemize, then none of this applies.

So for your questions:

1. No, don't wait for a previous refunds to do current returns.

2. No.

3. No.

4. You should start by finding out the status f your refund. You can do that at http://www.irs.gov/Refunds .