Credit Wise
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Tax Elation: How to Keep More of Your Income and Avoid Tax Time Turmoil

by Jennifer Delcamp

Tax time is a hectic time of the year for many of us. It can be depressing to add up that amount of money that you earned and never got to see. I’ve learned that it’s best for my disposition not to even yearn for the huge chunk of my income that pays my taxes. Unless you’re one of the unfortunates who actually have to pay even more taxes in April (Sorry!), for many people tax time can feel like a belated Christmas. People wait breathlessly for the W-2 form to arrive so that they may file their taxes and get some money back. More...

What a novel idea! Taxpayers getting money BACK from the federal government? It seems almost too good to be true. However, it’s important to remember one crucial fact. It’s YOUR money. You earned it, you overpaid it and now you are getting it back. It’s like a savings account except you’re letting someone else earn the interest on your money.

Some people are so excited about their tax refund that they spend it before they even get it. Others just can’t wait a few extra weeks to get it back so they have been turning to companies who promise to give instant tax refunds for a fee. You can have one of these companies file your taxes for you and instantly give you your refund. The important thing to note is that this advance on your tax refunds is actually a high interest loan.

To receive an instant refund, you will typically be charged anywhere from $29.95 to $49.95 plus an electronic filing fee starting at $24.95. Depending on the wide range of fees, this can translate to interest rates spanning from 67 percent to 774 percent. Remember that these fees are to essentially borrow your own money. While it may seem attractive to pay these fees since you will have your return prepared by a tax professional, there may be other less expensive alternatives.

If you need money quickly but don’t want the high interest loan, consider filing online through a less expensive method.  Many state tax commission websites and the IRS www.irs.gov have links to free and low cost filing options. In my home state of Oklahoma , state and federal tax filing is free if your Adjusted Gross Income is between $10,000 and $50,000. I was able to use one of those sites, prepare my taxes in a few hours, and there were easy steps to guide me through the return and a large help section when I needed it. It was really simple and even made suggestions for deductions I may have forgotten. Since I did it myself, I was able to avoid high fees that I would pay to have someone prepare my return for me.

If you have a checking account, you can choose to have your return direct deposited. You could see your cash as quickly as 5 days after your return is accepted without having to pay extra fees. If you’d like to know when you can expect your refund, you can visit IRS-Individuals-Refund Status.

If you are not comfortable with electronic filing, the IRS also works in conjunction with VITA (Volunteer Income Tax Assistance) to provide free tax help for those with lower incomes, elderly taxpayers and military personnel. For more information on these programs, please visit VITA Free Tax Help. Most have local offices to help file taxes.

The AARP also offers free tax help for those of all ages with middle and low income and most individuals 60 and over. They offer help in libraries, malls, and other public places nationwide. For more information on the AARP program please visit AARP Tax-Aide.

If you find yourself receiving a refund each year, you may consider changing the amount that your employer withholds from your check.  This will reduce or eliminate the annual tax refund you receive but it will give you more money in each paycheck. Instead of letting the government hold your money, you will get it as your earn it. If you think you will miss the joy of receiving the lump sum refund each spring, reduce your withholdings, take the extra take-home pay and have it direct deposited into a savings account. Then, you can get a  “refund” from yourself each year. The best part is that YOU will be earning the interest on the money.

While no one that I know likes to pay taxes, they are a fact of life. Make the most out of your tax refund and look for alternatives to the refund anticipation loans. If you do find yourself in need of immediate cash and you feel that this type of loan is your only option, be sure to shop around. Fees vary widely from company to company. If you just want your money sooner, remember that in this case, patience pays off considerably. If you’ll just wait a few more days for your refund, you will get back everything that you worked so hard to make instead of paying someone else to get less money a few days quicker.

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Copyright © 2006 by Jennifer Delcamp. All rights reserved.

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