In a hurry to receive your tax refund? Some tax preparers offer tax refund anticipation loans (RAL's) to allow consumers to receive tax refunds in a hurry. However, BBB advises consumers to be wary of these costly loans, as in most cases, refunds are delivered only slightly faster than the IRS.
Refund anticipation loans are similar to payday loans in that they are short-term loans with high interest rates which can range anywhere from fifty to 500 percent. In some cases, they have hidden administrative fees.
Many consumers assume that the RAL will be paid off quickly when their refund arrives, but if the refund is less than the loan, consumers will have to repay the difference, plus fees and fines. In the end, RALs may do more harm than good. In some cases, the taxpayer may end owing the tax preparer more than the refund itself.
The IRS usually delivers refunds in as few as 10 days after a consumer files a tax return, and if the consumer files the return electronically and takes the refund by direct deposit to a bank account.
The speed makes most refund loans unnecessary.
This year, the IRS has another option for refunds if a consumer doesn't have a bank account: a prepaid debit card. The cards, available only by invitation, can be used to get money from ATM machines or to buy goods and services from retailers.
The cards arrive faster than checks, the IRS says, and may allow consumers to avoid check-cashing fees.
BBB advises consumers to be wary of two common tax-time schemes:
Tax reduction schemes are promoted by companies that claim they can help consumers reduce what they owe the IRS by working on their behalf with the IRS. However, BBB has taken complaints from consumers who paid thousands of dollars to such companies, only to find out that the companies didn't reduce the amount they owed and, in some cases, never even contacted the IRS.
BBB advice: If you have a debt with the IRS, consult an IRS enrolled agent, a certified public accountant or a tax attorney to determine whether you qualify to file for anything other than paying your taxes, fines and penalties in full.
Phishing emails may say that there's an issue with taxpayers' refunds, that they are being audited or that a problem is delaying processing of their taxes. Many include a link to a website set up by scammers, where victims are asked for personal and financial information or are designed to install viruses or other malicious software on the victims' computers.
BBB advice: The IRS does not email people about their taxes. The agency typically contacts taxpayers by mail. BBB advises consumers not to open any attachments or click on links in the emails. Instead, forward the email to ic3.gov.
For more tips on how to be a savvy consumer, go to bbb.org. To report fraud, please call the BBB Hotline at 903-581-8373.