Family and Consumer News: Beware of tax refund anticipation loans

Adrianne Vidrine

As tax season is upon us, I would like to remind you the Consumer Federation of America warns taxpayers to stay away from tax Refund Anticipation Loans (RALs). These rapid refund loans are one of the most avoidable tax-time expenses. These loans are borrowed against the amount of your anticipated refund and often include very high interest rates and fees. If for any reason, you do not receive your anticipated refund, or receive less than expected, you are still responsible for the refund anticipation loan at an annual percentage rate that could range from 50 to 500 percent. There is a high price to pay for these high-priced loans. In 2008, some of America’s most vulnerable taxpayers, those from low and moderate income families, lost about $830 million from their refunds in loan fees. This is in addition to the over $68 million they paid in other tax refund related fees.

It’s important to keep in mind your tax refund is already your money that you worked hard to earn, so giving it away to get a quicker return might not be what you really want to do. In these tough economic times, quick money is tempting, but just waiting a week or two for your refund can keep your money in your pocket. If you e-file your taxes with the IRS and have your money deposited directly into your bank account, you can generally get your refund within 10 days. If you are tight on cash and have an urgent bill to pay, talk to your creditor and ask them if you can wait until your refund comes in from the IRS, instead of taking out a new expensive debt to pay an old bill.

You might want to look into using a free tax site to prepare your tax return. Volunteer Income Tax Assistance Programs (VITA) offers free tax preparation for low-income taxpayers. This can save you the steep cost of tax preparation and they won’t offer you a refund anticipation loan, so you won’t have that expense either. Also, IRS.gov will once again host the IRS Free File program, so you might want to look into that as a cost saving measure.

The Department of Revenue has some points to keep in mind when selecting a tax return preparer:

•Be wary of tax preparers who claim they can obtain larger refunds than others.

•Avoid tax preparers who base their fees on a percentage of the refund.

•Use a reputable tax professional who signs the tax return and provides you with a copy.

Consider if the individual or firm will be around months after the return has been filed to answer questions about the preparation of the tax return.

Find out if the return preparer is affiliated with a professional organization that provides its members with continuing education and other resources and holds them to a code of ethics.

Always watch what you sign! Read all forms that your tax preparer gives you, and watch out for anything that sounds unreasonable or gives permission for your preparer to share your tax information with others.

For further information, you may contact Adrianne Vidrine at the LSU AgCenter at (337) 788-8821 or you can also visit our website at http://www.lsuagcenter.com.