Back in
the early nineties, I took a tax preparation course and then worked a season as
an income tax preparer for a major tax preparation firm. As soon as the W-2s
were distributed, customers stormed our doors, anxious to file their tax
returns and take advantage of their "Rapid Refund."
These poor
souls paid tax preparation fees, processing fees, and interest in excess of 60%
for the privilege of receiving their own money within a few days instead of
waiting a couple of weeks for the IRS to process their returns and issue their
refunds. Because the fees and interest were deducted from the anticipated tax
refund, they didn't think about what this expedited service was costing them.
In
addition to a full or partial refund of withholding, many of these taxpayers were
eligible for the earned income credit, a government subsidy available to
low-income workers with dependent children. Workers in this income category
were least able to afford exorbitant convenience charges, siphoning away money that
could have been better used to pay a utility bill or buy groceries.
Since the
nineties, there has been a lot of criticism of these "rapid refunds"
or, more accurately, "refund anticipation loans," which have been
compared to usurious pay-day loans. Increased regulations now require tax
preparation firms to be more transparent when disclosing the true costs of this
loan product. Nevertheless, every year about this time I see ads for "Express
Refund" and "Refund Advance" so customers must still be biting.
It's a
choice. Everyone's situation is different.
But there
are ways you can avoid unnecessary expenses and keep more of your hard-earned
money in your pocket.
First of
all, if your 2016 adjusted gross income was less than $64,000, you are eligible
to file your return electronically with the IRS at no charge. Eliminate the
middle man. The software is easy to use, but if you need help, the AARP and other
organizations offer free tax preparation assistance. Check your local library
for available services. Even if you don't meet the income eligibility
requirements for free electronic filing with the IRS, you can still take
advantage of free tax assistance from various volunteer groups if you plan to
prepare your own return.
You'll
find tax preparation fees at a professional firm much more reasonable if you
opt for normal delivery and don't tack on the refund anticipation loan. It
might seem painful to pay your preparation fee up front rather than have it
deducted from your refund, but when you do receive your refund, it will be much
larger. You've been managing all year without that money; surely you can hold
on a few weeks longer.
And
finally, if you're used to receiving big tax refunds every year, you are
overpaying Uncle Sam. Instead of struggling to make ends meet each month, you
could have extra funds in your pocket all along, simply by completing a new W-4
form with your employer to decrease the amount of tax withheld each pay period.
Even if you live within your net income and look forward to a big refund each spring
as a splurge, you'd be better off setting the extra money aside—perhaps via
automatic transfer to a savings or investment account—on a regular basis. Why
give the government an interest-free loan when you could be earning interest on the
money?
What tips
do you have for saving on tax preparation and filing? I'd love to hear your
comments.
No comments:
Post a Comment