This blog is a way for me to share hard learned lessons about money with those who are just starting out on their own. I hope it's a way for you to avoid making the mistakes I made, and to benefit from my experiences

Thursday, January 18, 2007

Tip on Tax Return Advances

Many people when they take their taxes to a tax preparation center, or even if they do it with some computer software, will be offered a Tax Return advance from the tax preparation company. These companies will give you your tax return instantly for a small fee, and then your tax return from the IRS will be given to them later. Sounds great, right?

AVOID THESE OFFERS LIKE THE PLAGUE! If you calculate the fee as you would interest on a loan of 1 to 3 weeks, you often wind up paying 600% or more on that loan. You've already paid too much to the IRS and let them hold your money for a year or more. What's another week or three?

In fact, some companies actually make very little money on the tax preparation, and make their real profits from these short term loans. The actual tax preparation is almost a loss leader.

If you are that anxious to get your money as soon as possible, adjust your witholding exemptions to a higher number, so you keep more of your money every payday. Then you won't have a large return at tax time.

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