In my previous article on the cost-effective tax preparation options, I covered several options for the tax return preparation.
Now, lets see how you can get the refund money quickly and safely (if you’re entitled for refunds).
First of all a thing to remember: the tax refund you’re getting is a free loan YOU gave to the government. It’s your money, being returned to you without any interest attached to it, after being held by the government for a year. In order to avoid lending money to the government, you should fill the W4 form with the appropriate values, so that the tax withholdings by your employer will match your tax liability and not exceed it by much.
When you prepare your report (or have someone preparing it for you), make sure to use the direct deposit option, to have the IRS deposit the money directly to your bank account. You can use up to 3 different checking or savings accounts for this purpose. This will speed up the refund money, and instead of waiting for the check to be printed and mailed (which can take weeks, if not lost in the process), you’ll get the money transfered to your account in a day.
Also, consider using eFiling. This is an option for both Federal and State tax reports, and only certain people are not allowed to use it (for example, you cannot eFile forms 1040x or 1040NR). All the preparation software programs or services (and CPA’s) support this option. Some, however, may ask for additional charge for that.
Both the Turbo Tax Software (available on Amazon.com) and the H&R Block At Home (also available on Amazon) have this option included in the price. This will save you the trip to the post office with heaps of the paper forms to the IRS. Sending by mail also means another several weeks of delay. If you decide to send by mail after all – don’t forget to use the “Certified mail” service.
However, if you’re going to use the services of a tax shop (such as H&R Block), beware. Some of them might suggest giving you the amount of your refund immediately, for a fee, instead of waiting for the actual refund. What they in fact do is giving you a loan.
The loan is for the amount of the expected refund, minus the fees, and the refund will be delivered to them to cover the loan. But the loan is expensive. It can cost anywhere up to a $100, and even more. If the refund you’re getting is $5000 (which is a lot), the $100 for the loan is more than 50% APR, considering it takes ~2 weeks to get a refund with electronic filing and direct deposit. Usually it’s actually less than 2 weeks, and the refund is less than $5000. Then, the loan might cost you even more, APR-wise.
If the refund is $1000 and is paid within a week from filing, it becomes more than 500% APR. Compare that to the ~15-25% APR’s on your credit cards, which are considered to be expensive. Why would you pay such a huge interest rate?
So, how to get all of your refund safely, and quickly?
- Use electronic filing (eFile) for state and federal taxes.
- Use direct deposit option for refunds
- Don’t take any “refund advances” or any other kind of “gap” loans.
Good luck, and try not to make mistakes on your taxes!
Your Little Advisor.