Americans enjoy living in the fast lane. We love convenience such as drive thrus, grocery store express lanes, and quick cash. But even convenience has a catch. The drive thru gets loaded with cars. Grocery store express lanes only allow 20 items or less, and then there's quick cash options. For example, as another tax season gets underway, millions of Americans are flocking to tax preparing companies and filing quick tax returns. While they get quick cash in a day, they also pay huge fees and interest charges.
Victims of the fast-refund pitch are usually low-income taxpayers and many qualify for the Earned Income Tax Credit. A tax preparer will figure the consumer's taxes, calculate the amount of the refund, and offer to lend consumers the refund amount up front and without an array of fees. The client pays the loan back when the refund check arrives; however, the interest charges on the loan make up a large percentage of the check.
"Those that feel they are in need of the funds immediately are usually paying for items bought during the previous year. Ideally, when receiving a large tax refund such as those eligible for Earned Income Tax Credit (EITC), one would be putting the money into saving for a large purchase or as a down payment on a home," said Lauderdale County Extension Agent Lelia Wissert.
Few Americans know they can have their tax return filed for free because of their low-income status. Volunteer Income Tax Assistance (VITA), a program of the IRS, helps people fill out their tax forms for free. VITA sites are open from late January through April 15. Many VITA sites have electronic filing for faster refunds.
An alternative to filing a quick tax return is electronic filing or e-filing. The IRS does not charge a fee for electronic filing. Some authorized IRS e-file providers charge a fee for providing this service to clients while others may offer it free of charge. However, this fee cannot be based on any figure from the tax return. Fees vary depending upon the tax professional you choose and the specific service you request. Consumers need to be sure they know the difference between filing electronically or e-filing and the terms used by commercial tax preparers that offer the loan against your tax refund.
Simply ask your tax professional to file your return through IRS e-file. You sign your electronic tax return by either using a self-select PIN number for e-file for a completely paperless return, or by signing Form 8453.
After you sign the return using a self-select PIN or Form 8453, the tax preparer transmits the return to the IRS or to a third-party transmitter who then forwards the entire electronic record to the IRS for processing. Once received at the IRS, computers for errors and missing information automatically check the return. If the return cannot be processed, it is sent back to the tax preparer to clarify any necessary information. After corrections are made, the transmitter retransmits the return to the IRS. Within 48 hours of electronically sending your return to the IRS, the IRS sends an acknowledgement to the transmitter stating the return is accepted for processing. This is your proof of filing and assurance that the IRS has your return information. The authorized IRS e-file provider then sends Form 8453 to the IRS.
If due a refund, you can expect to receive it in approximately three weeks from the acknowledgement date or even faster with direct deposit into a bank account (half the time as when filed on paper). With IRS e-file you can prepare your own return and pay a professional to transmit it electronically, or you can pay to have your return both prepared and transmitted. Whichever you choose, shop around for a tax professional who offers the services you need at an acceptable rate to you. Becoming an informed consumer is the best way to save money.
To find out what companies offer free federal e-filing services, check out this website.
For more information about money management, contact your local county Extension office.
References
The Center on Budget and Policy Priorities. (2004). The 2004 earned income tax credit outreach kit. Retrieved March 29, 2004.
Internal Revenue Service. Free file alliance companies. Retrieved March 29, 2004.
Internal Revenue Service. Free file home: Your link to free online filing. e-file. Retrieved March 29, 2004.