W-2’s are out and many Consumers are anxious to receive their tax refund. Unfortuantely, this may make them easy quarry for scammers and unscrupulous tax preparers. In some cases consumers even fall victim of their own haste. In recent years, BBBs have assisted consumers from across the country with thousands of complaints regarding tax return preparations and promotions, many of which were focused on refund offers.
“BBB experience supports the prediction that scam artists will prey upon people’s trust and try to take advantage of confusion over newly-enacted tax breaks, just as they do every year. Reading up, reaching out and becoming an informed consumer this tax season can help people avoid tax schemes and make decisions to better protect their hard-earned dollars and improve their financial situation,” said Bonnie Bakin, president and CEO of the Better Business Bureau of Central Illinois.
In the “Consumer/Business Tips” section of the BBB Web site (www.bbb.org), consumers can find specific, easy to understand tax-related educational information, including articles on Avoiding Tax Reduction Schemes; General Tips on Deducting Charitable Contributions; and Finding a Reputable Tax Preparer.
“Most tax professionals are qualified, honest people. To put consumers in contact with trustworthy tax services, the BBB encourages tax-filers to review the BBB’s tips for finding a reputable tax preparer, learn the signs that a tax adviser is acting illegally, and use the BBB Web site database, and its nearly three million business reports, as your trusted source for finding the right professional this tax season,” Bakin said.
In addition to steering clear of tax preparers who sound too good to be true, the BBB advises consumers to avoid enticing tax-related promotions that may not be to their financial advantage.
Quick-refund offers or refund anticipation loans are an example. These loans are heavily promoted beginning in early February when consumers receive their W-2 forms. The tax preparer advances money to the tax-payer, which is paid back when the refund check is received.
Many consumers complain to the BBB that they did not understand the offer was a loan and felt deceived by the tax preparer.
While fees vary, an average tax refund of $2,000 can carry associated fees for the tax preparation, filing and loan of $250 or more. That works out to an annual interest rate of 521% for a 10-day loan.
“You may get your money a bit quicker than waiting for your IRS refund check, but you incur a steep cost for that service,” Bakin said. “In effect, you are paying fees and interest to borrow from yourself.”
The BBB advises those who are considering quick-refund offers to:
- Read Up on this type of loan and consider your options. Be aware that if your refund is denied or less than you expected, you are still responsible for payment of the loan in full, as well as all fees. You may be able to speed receipt of your refund yourself by filing your tax return online and requesting direct deposit into your bank account. In addition to using BBB resources, consumers can visit the IRS Web site at www.irs.gov to learn more.
- Reach out to helpful organizations. Your public library and state or local government offices can provide the names of community organizations or groups that offer free or low-cost tax preparation assistance. Some credit unions and senior citizen centers also offer such assistance.
- Be an Informed Consumer. If you do decide to sign for a refund anticipation loan, carefully review the paperwork and all disclosures to gain a full understanding of the terms of the loan and related costs.
Also this year identity-theft scams from scammers claiming to be affiliated with or presenting themselves as the IRS are proliferating. They generally come in the form of phone calls or emails claiming the need for personal information to deliver funds to you. The IRS warns it does not gather the information by telephone or send unsolicited e-mail about tax account matters to individual, business, tax-exempt or other taxpayers.