After the 2012 crackdown on tax refund loans for their predatory interest rates, this practice has returned as tax refund advances where customers are lured in by tax-preparation businesses with advertisements of a no-interest advance against tax-refunds. But don’t be fooled, tax refund advances are fee traps and a FinTax on the poor. Although there is no interest on the advance, the borrower has to pay a tax-preparation fee which can run up to hundreds of dollars for a short-term advance, the 3 weeks that it takes IRS to send the refund for an electronic tax filing.
In addition to the tax-preparation fees, there can be other costs to watch out for like, application fees, opening a bank account, or getting a prepaid card to receive the loan.
In this post, we share tips on how to avoid these fee traps with just a little planning and preparation.
A tax refund advance is a short-term loan made by a third-party lender that’s based on and usually repaid by an anticipated federal income tax refund. This loan is not provided the U.S. Treasury or by the IRS.
Expectedly, tax refund loans come with high fees and sometimes high-interest rates. National Consumer Law Center research shows that tax refund lenders are hitting people with annual rates of as much as 149% on very short-term loans.
Tax preparation services can cost you a pretty penny (more than many lower-income families can afford but pay for anyway because they need the help). According to the National Society of Accountants, the average fee to prepare and file a simple Form 1040 (with no itemized deductions) and a state tax return are $176. And the more complicated it gets, the higher the fee.
However, most people do need help with their taxes. Instead of paying high costs for tax preparation, here are three IRS-backed free options for you to reduce your tax season stress:
In addition, organizations like AARP, the Accounting Aid Society and United Way also have volunteer programs that offer help with taxes for no cost.
And remember, don’t venture out to do your taxes without help unless you’re 100% confident. Always recruit help if you need it, things can get confusing. Backup never hurts.
Tax season gets to you: Wondering how much money (if any) you’re going to see in your return, worrying about if you have the right paperwork, not knowing what software to use, so on and so on. In response, we’ve included 4 ways you can stay organized and maintain peace of mind.
Do Your Research
When it comes to your taxes, knowledge is power. The tax laws change. Forms are being swapped out for other forms. So find out what paperwork you’ll need, what tax bracket you fall into, what deductions you qualify for and what deductions you don’t. What’s different from this year’s taxes from last year’s. Once you know what you need, you can prepare and organize.
Also, regularly visit the IRS website and research reputable news sources to stay up-to-date.
Get and Stay Organized
Being organized is the ultimate secret to an easier tax season. Keep your paperwork in one place such as a folder on your computer or a binder. And don’t just prepare as the last minute approaches—organize year-round. Even categorize related documents and receipts so that when tax season arrives, there’s no scrambling. Everything you need is right where you put it.
Prepare to (and Actually) File Early
When it’s already the week before tax day and you haven’t prepared a thing, you’re bound to experience some tax season anxiety. Start preparing and file earlier than needed, because, why not? The sooner you’re done, the easier. But experiencing less tax day deadline anxiety isn’t the only benefit of preparing and filing early. You’ll receive any tax refund you’re owed sooner, too.
The deadline to file this year is April 17th instead of April 15th because the regular tax day, April 15th, lands on a Sunday and April 16th is Emancipation day which Washington D.C. celebrates.
Know When to Recruit Help
If you want to hire tax help, be sure to do it. The tax system is complicated and always changes. Hiring a professional (or recruiting a free IRS-backed program like the ones mentioned above) is widely recommended if you’re unsure. If you do recruit help, you’re in good company. Last year 86% of returns were filed with tax software. Of that 79 % were completed by a tax professional.
For extra financial wellness and less stress throughout the year, use the PayActiv mobile financial app to budget, save, pay bills, and access earned wages whenever you need it. We provide you with on-demand financial backup so you can focus on the important things in life.
Additionally, if you haven’t heard or know everything you need to know yet about the new tax reform, you can learn more here Tax Reform – IRS. In our next post, we will share some insights on how it affects lower-income Americans.
We’re happy to present this pre-recorded fireside chat with Payactiv Chief...
#1 Thing Businesses Can Do for Employee Well-being in 2021 By Peter Mullen |...