Tax-Refund Loans Are Taxpayer Rip-offs But There Are Alternatives

Tax season is quickly approaching and Attorney General Edmund G Brown Jr. urges Californians to avoid high-cost tax-refund-anticipation loans (RAL) and any company or person who advertises these loans.

RAL’s are obtained by filing electronically with a tax preparer who works directly with a bank to advance the refund as a loan, but don’t expect to get the full amount of your tax refund owe to you.

The amount you receive will be minus the tax-preparation costs, a loan fee (normally $34 to $130), processing fees (normally $25 to several hundred dollars), and other add-on charges. Once all is processed, the Internal Revenue Service (IRS) sends your full refund to the bank.

Explained in simple terms, you are borrowing your own money!

According to the National Consumer Law Center (NCLC) and Consumer Federation of America (CFA), these tax-refund loans cost 8.4 million American taxpayers more than $800 million in 2008.

In June 2009, Brown won a $1.3 million lawsuit against Liberty Tax Service that bars the company from using false or misleading advertising to sell tax-refund loans.
In January 2009, Brown secured a $4.85 million settlement with H&R Block that prohibits the company from marketing refund-anticipation loans as early tax refunds.

For those of you who need your tax refund in the shortest time possible, there are other options, and they are FREE!

As De La Puente Bookkeeping & Income Tax Services explains on Facebook; if you file electronically you can have your refund directly deposited by the IRS into your own bank account usually within 8-15 days. If you are old-fashioned and file your documents via mail you can also use direct deposit to cut down the wait time.

If you are considering an RAL, take advantage of the IRS’s support programs like:

The Volunteer Income Tax Assistance Program (VITA), which offers free tax help to low to moderate-income people and members of the armed services, and
The Tax Counseling for the Elderly program (TCE), which provides free tax help to people aged 60 and older.

You may even qualify for free federal income-tax preparation and electronic filing through the Free File program, a partnership between the IRS and the Free File Alliance LLC, a group of private sector tax software companies.

More information on how you can save with your tax preparation, tips on how to maximize your deductions and credits, contact De La Puente Bookkeeping & Income Tax Services or post your questions to their Facebook page.

To locate the nearest free tax service call the IRS at: 1-800-829-1040