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Avoid Pay Stub and Tax Refund Loans

Tip! When it comes to filling out tax forms the 104EZ is the easiest to complete, but it doesn’t offer you as many chances to use tax deductions and credits to cut your tax bill. When you use the form 1040A you have more opportunities to increase your tax refund amount.

What could be better than getting an advance on your tax refund from the good ole IRS? Well, you better give some thought to the fees you are paying for that advance.

America is a capitalist country and home to many creative people. You can even find them in the field of tax preparation, a bland area if ever there was. The interesting service in this case refers to loans being made by tax preparers in concert with banks to taxpayers. There is nothing inherently wrong or illegal with such loans, but it is a case of buyer beware. The fees can be atrocious.

Tip! The IRS does not use email to contact taxpayers. It certainly doesn’t use it tell you about tax refunds.

The loans at the heart of this article are called a couple of different things. The most direct name is a tax refund loan. A less direct name is a “pay stub” loan, in reference to the use of paycheck stub information to figure out how much money to loan you. While these loans are fine and dandy, they can come with some atrocious fees.

Short term loans are inherently expensive. Why? The financing party doesn’t have a lot of time to watch interest accumulate and collect it as would be the case for a home mortgage. Instead, they need to find a way to make money on the loan quickly. They do it with fees. In the pay stub loan business, the fees often equate to 10 percent or more of the loan. That is a pretty high percentage for loaning you money for a couple of months.

Tip! The IRS is warning people about a tax refund email scam, which works like this. You receive an email purportedly from the IRS indicating you are due a tax refund.

Before I go any farther, it is important to understand there is nothing wrong with lenders doing this. They have every right to make money and every right to charge you fees. The burden is on you to determine whether you really need that money now. If you do, then why don’t you go ahead and file your taxes early? I know that is a shocking idea, but there is nothing prohibiting you from doing so. The IRS will now wire you the refund, so you shouldn’t have to wait to long for your mulla.

At the end of the day, it is your decision as to whether you want to take a loan against your taxes. Some will and some will not. Whatever your decision, just make sure you go in with your eyes open to the fees.

Richard A. Chapo is with BusinessTaxRecovery.com - providing information on taxes.

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