During tax time, many households are flush with large amounts of cash from their tax refund checks. Unfortunately, there are many people out there trying very hard to separate these people from the money they have received. Not all of them are clear cut criminals or scam artists. Many companies have created financial products that do little more than deceive people into turning over their tax refund money. Here are some things that you should be on the lookout for to reduce the risk of getting ripped off when you receive your tax refund.
Refund Anticipation Loans
One of the most devious products for separating people from a large chunk of their tax refund are refund anticipation loans. These loans are advertised as a way for taxpayers to receive their refunds quicker, allowing them to have the money to spend right away instead of waiting for weeks for their checks. In return, a significant portion of the refund is turned over to the lender that extended the loan. Accepting these loans are an unnecessary expense that doesn’t really reduce the time that you must wait for your money as the IRS now allows you to direct deposit your refund into your bank account, cutting out all of the processing time for checks and giving you your refund much more quickly than before.
Faster Refunds With Paid Tax Preparation
Some people with very basic income tax returns pay for tax preparation with the expectation that somehow these tax preparers can help them get their tax refund faster. The truth is that the wait time will be the same regardless of who prepares your taxes. Tax returns are processed on a first in, first out basis, so if you want your tax refund faster, you should file your taxes as early as you possibly can. There are many programs recommended by the IRS that allow you to prepare and submit your taxes for free. If you are middle or low income with basic W-2 tax documents, you may be better off using one of these programs to prepare your own taxes.
Both of these products provide very little benefit for the high fees that are charged for them. They were mainly created to capture a portion of an individual’s income tax refund to add to the company’s profits. These products are often offered to younger taxpayers with limited incomes that may not be as savvy about their finances as some older people that have been paying taxes for a long time. If you want to avoid getting ripped off when you receive your tax refund, avoid these financial products completely.