Other Tax Gimmicks

Other Tax Gimmicks: 

Refund Anticipation Loans and Checks
For many of us, our tax refund is money that we are waiting for because we need the funds. There are places that will take advantage of that by offering you same day cash from your refund–but in the long run it could end up costing you a lot of money.

With electronic filing and direct deposit (even to pre-paid cards), most tax refunds are processed within a couple of weeks. It is worth the wait to keep all of your money!

Here are just two examples of “same day” refund products:

Refund Anticipation Checks are checks that are deposited into a temporary account, or funds put on a prepaid card. Once the IRS deposits the check into that account or onto the card, the taxpayer is charged up to $32, this doesn’t include the cost of tax preparation. RACs are also called Electronic Refund Checks or Deposits (ERCs and ERDs).

Refund Anticipation Loans are “instant refunds” that are actually high-interest loans (guaranteed by your tax refund) and must be paid back to the tax preparer. The APR (annual percentage rate, i.e. interest rate) of this type of loan can range from 60% to 700% (the average APR for a car loan is about 5%).

For a $2,000 refund, you might pay:

$75 for RAL fee; $30 RAC fee

+   $40 for the e-file fee

+   $100 for the tax preparation fee

=   A total of $170 – $215 in fees

H&R Block and Liberty Tax offer RACs, and some preparers offer RALs; this may seem like a way to get quick cash, but will cost you.

Also Remember these important guidelines:

  • You are responsible for what’s on your return.
  • Anyone who promises you a bigger refund without knowing your tax situation could be misleading you.
  • Never sign a tax return without looking it over to make sure it’s accurate.
  • Beware of preparers who say they can do your return without your W-2.

Avoid places that advertise “Spend Your Refund Here”
Many stores and car dealerships will increase their advertising around tax time to entice shoppers to spend their money. Have a plan for what you want to do with your refund and stick to it. It is easy to get pulled into spur of the moment spending but in the long run it could hurt you financially.

Alternatives to Refund Anticipation Loans and Checks