Uncle Sam loves DDs. Direct Deposits That Is

By: Michael S Schmidt

Direct Deposit, whether it’s your paycheck or your tax refund check, is much safer than waiting to cash or deposit your funds in a standard bank transaction. Direct deposit has become one of the most popular ways to receive your tax refund and one of the most convenient. Every year people file their taxes through a CPA, or one of the many tax services offered or by themselves using preferred tax software. Generally, if you receive a tax refund you’ll want your money as soon as possible. The old adage of “the checks in the mail” doesn’t sit well with most people. Sometimes our tax refund has been spent already or funds are allocated to purchase something or go on a much-needed vacation as a reward.

Since a direct deposit is electronically processed, you can get your funds quickly and without waiting for a physical check in the mail. What you do with the monies received is your option, since 2007 the options to have it split into other accounts has become a new choice. Most direct deposits are generally targeted for one account; upon the completed transaction through your bank, you then have the option to move your funds around. The newest choice is to have those tax refund monies split into three different accounts, savings, mutual funds or your IRA. There is a time widow for some deposits so you’ll need to make sure that you file within the allotted time. An extension will not grant you the privileges given to those who file on time.

In order to take advantage of this newest direct deposit option you must fill out Form 8888 and file it with your tax return. This form instructs the IRS which accounts you want your tax refund deposited into and what each amount should be. Double check the information you give the IRS, it is not their responsibility to verify the information you give them. If you are not receiving your funds, you can still track them through the IRS 1-800 number. Since refunds vary from year to year, you’ll need to fill out a new Form 8888 each time you file your tax return.

The option to split monies into different accounts gives you the choice of making sure your tax refund goes where you want it go. There are some restrictions regarding filing a split of monies for a 1040-EZ-T so you’ll need to check with the IRS to see about those limitations. If you’ve wanted to start a savings account for the kids or want to open a mutual fund for yourself, take advantage of this option. Giving you the option to decide which accounts you want money directly deposited into makes you gives you the power to feel like you’re managing your money a little better.