It’s my annual “Taxes from A to Z” series! If you’re wondering whether you can claim home office expenses or whether to deduct a capital loss, you won’t want to miss a single letter.
D is for Direct Deposit.
If you are due a tax refund, you have a couple of options:
- Get a paper check; and
- Direct deposit.
The Internal Revenue Service (IRS) encourages the use of direct deposit, calling it “the best and fastest way to get your tax refund.” Most taxpayers are aware that direct deposit is available, but many do not know that there is more than one direct deposit option:
- You can have your refund deposited into your checking or savings account, or divided between the two. You’ll need your account number and routing number.
- You can have your refund deposited into an individual retirement arrangement (IRA). The IRA can be a traditional IRA, Roth IRA, or SEP-IRA, but not a SIMPLE IRA. You must establish the IRA at a bank or financial institution before you request direct deposit.
- Finally, you can use your refund to buy U.S. Treasury marketable securities and savings bonds. You can purchase up to $5,000 of series I bonds per year. The amount you request must be divisible by $50. If you don’t use all of your tax refund to buy bonds, you can have the remainder deposited into a bank account. For more info, click here.
If you want to direct your tax refund into one checking or savings account, you can indicate it directly on your tax return:
If you want to direct your tax refund to either two or three accounts (including a checking, savings, IRA, health savings account (HSA), Archer MSA, Coverdell education savings account (ESA), or a TreasuryDirect® online account, you’ll want to file form 8888, Allocation of Refund (Including Savings Bond Purchases) (downloads as a pdf).
Some words of caution:
- Be sure to double-check your account number for direct deposit. A transposed or missing number can result in a delayed refund.
- Don’t request a deposit of any part of your refund to an account that isn’t in your name.
- Don’t allow your tax preparer to deposit any part of your refund into his or her account. Really, don’t.
- The IRS limits the number of refunds electronically deposited into a single financial account (such as a savings or checking account) or prepaid debit card to three. Any subsequent refunds will be issued by paper check and mailed.
For your taxes from A to Z, here’s the rest of the series: