Beware Refund Anticipation Loans
This year, perhaps more than any other, many taxpayers are going to be tempted to apply for a Refund Anticipation Loan (RAL).
With the government shutdown putting IRS workers behind schedule and the new tax law coming into full bloom this tax season, taxpayers cannot be certain of either when they’ll be getting their refund or if they’re getting one at all. This is the kind of environment that makes taxpayers susceptible to falling for the promises made by RAL lenders.
Resist Temptation If You Can
If you really need cash and simply cannot wait for your tax refund, do your homework before applying for an RAL. Be very clear that it is a loan that must be repaid. The loan is calculated based on your ‘anticipated’ tax refund. The RAL lenders are private and are not in any way associated with the IRS. And, you could be denied the loan.
If you apply for and are denied an RAL loan, you could be responsible for a variety of fees. Many lenders charge application fees, credit check fees, and plain old “junk” fees. A strong reason to hold out for your tax refund is that some of the lenders make money mostly from the fees and have no intention of giving the loan. They’re major incentive is getting you to apply for the loan.
Take The High Road
There are other ways of accessing funds if you simply cannot wait for your tax refund. But, you must take the high road. Some taxpayers will file their returns early and lie on their returns. They’ll get a refund, then file an amended return and fix their mistake. Don’t do it. It’s too risky and can raise red flags at the IRS if you file amended returns regularly. In the first place, it’s illegal. You sign your tax return under the penalty of perjury, so if you intentionally file a false return, you could be in big trouble. And, you may even have to pay an additional fee to file an amended return.
Apply For A Short Term Loan Not Dependent On Your Tax Refund
Let’s just say, for the sake of argument, that you really do need cash for something important before you will receive your tax refund. In this instance you might want to consider a loan that is not tied to your tax refund. You could apply for a short-term loan from your bank and pay it back when you get your refund, and you wouldn’t have to pay those extra fees. You could also borrow against your home. Once again, a safer bet than a loan being made exclusively dependent on your tax refund.
Best Case Scenario For Earliest Expected Tax Refund
The law now requires the IRS to wait until mid-February to issue refunds to taxpayers who claim the earned-income tax credit (EITC) and the additional child tax credit (ACTC). In addition to normal processing times for banks, factoring in weekends and the President’s Day holiday, the earliest EITC and ACTC-related refunds are expected to be available on February 27, 2019; that’s assuming direct deposit and no other issues.
So, if you haven’t filed your tax return, get it done. There are many reasons to file as early as possible. One is to prevent scammers from filing in your name. Another is to experience the relief of knowing it’s done. And, thirdly, if you are expecting a refund, you can track it at “Where’s My Refund?” tool.
The whole idea is to stay out of trouble, with lenders and the IRS. If you are in IRS trouble and haven’t filed your taxes in a few years or owe the IRS and aren’t currently in a position to pay, give us a call. We help clients successfully resolve their tax issues with the IRS day-in-and-day-out.