Anticipating
Your IRS Refund Can Cost You Plenty
While accountants
are reaching for aspirin, millions of Americans are
reaching for some fast cash this tax season. Unfortunately,
those who reach for fast cash in the form of a “refund
anticipation loan” are getting hit with interest rates
and fees that are out of this world.
The tempting
ads are plastered in newspapers and on television for
“fast cash refunds”, “express refunds”, or “instant
refunds.” The ads offer to get your refund in a day
or two, or in some cases even instantly.
What is a
“refund anticipation loan”? It’s a loan that borrows
against your anticipated tax refund from the IRS. Refund
anticipation loans, or RAL’s as they are known in the
tax industry, carry annual percentage rates (APR’s)
of about 60% to over 700%, a fact that many consumers
either don’t realize or simply overlook.
RAL’s are
marketed to people who need money the most such as low
and moderate income workers. A report by the National
Consumer Law Center notes that “about 40% of the 12
million refund loan customers in 2000, were families
who received the Earned Income Tax Credit, the largest
federal poverty assistance program.” And since the RAL’s
often use the term “refund” in their ads, many of those
who take the bait don’t realize that they’re receiving
a loan and not their actual refund from the IRS.
The fees
associated with RAL’s are expensive. For example, let’s
say the IRS owes you a refund of $2,000. In order to
get a RAL you pay the following: RAL loan fee = $75,
Electronic filing fee = $40, tax preparer’s fee = $100.
Total fees associated with your RAL = $215 which is
more than 10 percent of your estimated refund. The APR
on your refund loan equals a whopping 142 percent!
Many low
and moderate income workers are without bank accounts
and wind up paying an additional fee to set up a one-time-use
account so that their IRS refund can be direct deposited.
Before giving
in to the temptations of refund anticipation loans,
ask yourself if you really need your money that quickly.
If you can wait just a bit longer for your refund you’ll
line your own pockets with extra cash rather than forking
it over to a RAL lender.
A great way
to save money at tax time is to go to a Volunteer Income
Tax Assistance (VITA) site. VITA sites provide free
tax preparation to low and moderate income taxpayers
and are sponsored by the IRS. They can be found in libraries,
community centers and other locations during the tax
season. To find a VITA site call the IRS general help
line at 1-800-TAX-1040 or visit www.tax-coalition.org.
About The
Author
James H.
Dimmitt
James is
editor of "TO YOUR CREDIT", a weekly free newsletter
with personal finance news and tips. You can subscribe
to the newsletter by visiting http://www.yourfreecreditreportnow.com.
He is also author of “Identity Theft - How to Avoid
Becoming the Next Victim!” available at http://tinyurl.com/bc45
jimdim815@aol.com
Article Source:
http://EzineArticles.com/
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