In two weeks, you can take advantage of a tax refund advance loan. And if you’re wondering what is the major benefit that the tax preparer obtains from this, once the costs are computed, this loan most of the time works out to be much better than a 100% yearly percentage rate in favor of the lender.
When you thoroughly assess the numbers, you’ll be in awe as to why almost everybody agrees to get a tax refund advance, when in fact, in 2008, over 8 million taxpayers applied for such loans, based on the statistics of the National Consumer Law Center (NCLC).
This article will provide you information so you can proficiently decide whether these financial solutions to settle tax debt or to pay for immediate necessity are really worth the price that you’ll pay.
Income tax refund advance, otherwise known as refund anticipation loans or instant refunds, are short-term loans furnished on the basis of your upcoming tax refund. With this financial assistance option, the tax preparer will give you a payout that is somewhat lower than your actual refund, but make it instantly accessible to you, eliminating the waiting time for the IRS to send you a check or directly deposit the refund into your account. The tax preparer will then get the opportunity to acquire the entirety of your tax refund.
If your taxes are being prepared by huge preparation services or even smaller tax preparation firms, the likelihood of being offered with this loan is high. To receive this loan, you will be asked to compensate a loan origination fee to be added to your electronic filing fee.
If you deem to accept this offer, right away, you’ll receive a check with the total amount of your tax refund but minus the origination fee and any other fees associated in the preparation of your tax return as well as the anticipation loan.
Tax Refund Advance Fees
The costs that many tax preparers charge for these loans are almost similar with title and payday loans. Though you might look at these fees to be small when matched against the size of your refund, the fees can be excessively pricey once you assess the shelf life of the loan. Keep in mind that you can now get your tax refund through direct deposit in your bank account in less than two weeks, which is the infamous magic of modern electronic filing. Check the IRA tax rules to learn more about other options to limit or completely eradicate fees in getting your refund.
Compared to a debit consolidation loan, the tax refund loan is short-lived, thus the fees placed on the loan frequently outweighs its significance. A less expensive approach and one of the most efficient debt settlement solutions is to adjust your IRS W-4 form with your current employer to lessen withholding from your paycheck. This way you’ll only deal with smaller tax refund, but more funds will be available in your paycheck, aside from the fact that this option has no fees involved with it.
The Tax Preparer
The providers of these loans dispute that the fees associated with the loan are warranted by their riskiness. They refer to the scenario that the Internal Revenue Service may not provide the refund for a specific tax return or will send a reduced refund instead. For most tax refund loans, there is no stipulated process for the tax preparer to ask for the return of loan when the above event takes place.
When your tax preparer electronically submits your income tax return, he or she gets confirmation within 24 hours that your tax return is free from discrepancies or errors. The loans are a very good deal for tax preparers since there is a high possibility that your loan will be repaid in full. Thus, even though tax preparers would like you to believe that the 24-hour waiting time is very risky on their part, there is almost no chance that your tax preparer will mislay money if he or she ensured the accuracy of your tax return before filing.
The Future of Refunds
To limit the use of tax refund advance, the IRS looks forward in unveiling a new tax filing system by 2010, known as the Customer Account Data Engine (CADE). This program has the facility to process income tax refunds in a 24-hour period, and you’ll receive your anticipated refund within three days, which will remove the advance loans on tax refunds entirely.