Plan Ahead and You Won’t Need a Tax Refund Loan

Keep your cash and get a quick tax refund

If you’ve ever used a tax preparation service and been owed a refund, chances are you’ve also been offered a refund anticipation loan (RAL). More than 12 million Americans receive a tax refund every year, and many of them succumb to the temptation to take out an RAL. If you want your money within just a couple of days, you can pay around $75-150 for an RAL, or for an extra $25-55 you can even get your refund on the same day. That’s on top of the fees you pay for your taxes to be prepared (typically from $100 to $300) and filed (typically from $40 to $75).

Back when you had to mail in tax forms and wait for months before receiving your refund check, tax refund loans made a lot of sense. But now you can file electronically and, in most cases, get your refund wired to your bank account within a week or two. So unless you’re really flat broke, you can probably hold out until the money arrives. Yet Americans spend $900 million a year on loan fees for tax return advances. To make sure you can avoid paying these fees and still get fast access to your refund money, here are some steps you can take:

Change your tax withholding status

If you don’t pay too much tax in the first place, you won’t have to wait for a refund. Anyone who is paying more tax than they should be can ask for a withholding adjustment. Let’s be clear here: a tax refund is not a gift or windfall. It’s your money – money that you worked hard for and then loaned the government without even charging interest. Wouldn’t it be better if you and your family could have access to that money throughout the year, and not just at refund time? Especially now that times are tough for many of us, surely you could use it to make life a bit easier, or put it in your retirement account.  Be careful not to overdo it, however, when you change your exemption status, or you could end up owing money at tax time.

Save your “overpayment” money each month

Some people figure that by intentionally paying too much tax, they’re putting that money out of reach so they won’t be tempted to spend it. If this sounds like your game plan, find a savings account with withdrawal restrictions that will stop you from using the cash for frivolous purchases. Perhaps your employer can deposit the appropriate sum in that account on each payday so that you won’t miss the money. You’ll even receive some interest on your balance now!

File your taxes electronically

More and more taxpayers are discovering how convenient it is to file online rather than mailing in paper documents. If you’re owed a refund, you’ll find out quickly, and the funds will be in your bank account within a week or two. With just a little patience, you’ll have your refund without taking out an RAL.

Open a bank account if you don’t already have one

Lots of people don’t have bank accounts, so they miss out on the opportunity to have their tax refunds deposited directly. That’s one of the major reasons so many people get RALs. If you’re one of the “unbanked”, you can save a lot of money by opening a bank account, even if it’s just for a few weeks while you’re waiting for your refund.

Be patient, plan ahead, and you won’t need to spend so much time or any money at all to get your tax refund. You’ll be able to take charge of the money — let’s not forget – that is your own, and use it however you want.  You might even decide to put it to work earning some interest for you.

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