Keep More Money in YOUR Pocket at Tax Time
by: Iowa Legal Aid
Did you know that paying fees for tax preparation and a refund anticipation loan is like losing five days' pay? Here are some ways you can avoid giving away your money during tax time.
Use a Free Tax Preparer
In 2010, typical costs for commercial tax preparation were between $129 and $229. This was just for the preparation.
You don’t have to pay big money to have your taxes done right. Free tax preparation sites are located throughout the state of Iowa. The Volunteer Income Tax Assistance (VITA) Program offers free tax help to low to moderate- income individuals (generally those earning $50,000 or less) who cannot prepare their own tax returns. Volunteers receive training and are certified to help prepare basic tax returns in communities across the country.
VITA sites are generally located at community and neighborhood centers, libraries, schools, shopping malls, and other convenient locations. Most locations also offer free electronic filing.
You can locate the nearest VITA site, by calling 1 800 829 1040. Additionally, the AARP offers free tax preparation sites to older Iowans. To find a local AARP tax site, call 1-877-227-7844. Start Early! Your employer should have your W-2's to you by February 1st. Call in January to find a free site and plan to visit your free tax site or make an appointment as early in the tax season as possible.
AVOID THE REFUND ANTICIPATION LOAN:
Some commercial tax preparers offer Refund Anticipation Loans (RAL).
How does this work? The tax preparer gives you money within 24 hours of your return being accepted by the IRS, and you agree to give the preparer part of your refund in return. You end up paying money to get just a portion of your refund a few days faster.
Taxpayers should know:
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These are high-cost loans.
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These loans promise to get tax refund money faster.
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In fact, you pay a lot to get your check only a few days faster.
According to the National Consumer Law Center 2011 report, one bank working with a commercial tax preparation chain charged a fee of $61.22 for a refund anticipation loan of $1,500.The preparer then charged an additional fee of $29.95 for issuing a check for the balance of the refund when it came in. Charging $61.22 for a 10-14 day loan is charging an Annual Percentage Rate (APR) of 149%.
Refund Anticipation Loans become even more costly if the IRS denies your refund or seizes your tax refund. If you owe taxes for a prior year, child support or other state/federal debts your tax refund could be seized. If your refund is denied or seized, you will have to repay the refund anticipation loan at a very high interest rate. If you owe money to the bank from which you are getting the Refund Anticipation Loan, they may be able to take (offset) your refund and you may get nothing.
How to Avoid the RAL: As mentioned above, e-filing your taxes and having your money deposited directly to your bank account can get your refund to you in as little as ten (10) days. Using VITA and AARP will help you avoid costly tax preparation fees, too!
If you don’t have a bank account and can’t qualify for one, some financial institutions are offering deposits on debit cards. These debit cards may be available thru your local VITA site. Before choosing the debit option, you should be careful to read the fine print. Ask questions like:
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What transactions are free?
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Most debit card providers offer free point of sale transactions at places like your grocery store, and allow cash back with a purchase.
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This is good unless you need to get out more than $20-$50 at a time.
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Does the card charge for withdrawals at ATMs?
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Also ask about fees for things like:
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Checking your balance
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Replacing a lost card
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Inactivity – not using your card for long periods of time
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Withdrawals of your entire refund at once
The Breakdown
Altogether a taxpayer could pay between $220 and $320 for tax return preparation and a refund anticipation loan. This could mean paying as much as 5 days’ pay to get your tax refund!
Instead, you could use a free tax preparation site, file your returns electronically, have your refund direct deposited, and you could get your refund in 10-14 days!
Other Tax Tips
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If you use a commercial tax preparer, make sure that they explain all of the charges for their services to you.
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No matter who prepares your return, make sure the preparer explains why you are entitled to any exemptions, deductions, or credits.
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If you pay someone to prepare your return for you, make sure they sign it. If they won't, chances are there is something wrong with the return.
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To find out more about Refund Anticipation Loans or tax related issues, call Iowa Legal Aid's Low-Income Taxpayer Clinic at 1-800-532-1275.
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The information in this article was not intended or written to be used and cannot be used to avoid penalties under the Internal Revenue Code. |
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