Be Careful with Your Tax Return

Tax season is quickly approaching, for many people this means headaches and filling out complicated tax forms. However, for many low-income working people, tax season means receiving valuable tax benefits by filing for the Earned Income Credit.

Filing a tax return can be confusing and intimidating. Many tax preparers charge high fees to prepare returns. These tax preparers try to get clients to sign up for unnecessary services and charge very high fees. People are often unaware that they are being charged for services. People trying to get the Earned Income Credit should be very careful when thinking about going to one of these tax preparers.

Be Aware of the Following:

• Rapid refunds
• Quick cash loans
• Refund debit and cash cards
• High-priced tax preparation fees
• Refund down-payment offers

Rapid Refunds and Quick Cash Loans

Many tax preparers offer services like Rapid Refund or Quick Cash. Not all tax preparers use these services, but it is a good idea to protect your refund. These preparers say you can receive your tax refund the same day or within 2 days from filing a return. This is not always true.

These services are actually expensive loans called "Refund Anticipation Loans" (RAL). If you sign up for an RAL, you are agreeing to take out a loan that your refund will pay back. The fees and costs for these loans are very high. In fact the interest rates can be as high as 774% APR! This means you could be giving them up to half of your refund.

Do not take the risk! If your refund is less than you thought it would be, you are still responsible for paying back the full amount of the loan.

Refund Debit and Cash Cards

Some preparers may offer you a debit card instead of a check when you sign up for a Refund Anticipation Loan. This may seem like a benefit, especially if you do not have a bank account. But these debit cards can have huge fees: activation fees of up to $100, and transaction fees of $2 to $29 every time you use the card.

High-Priced Tax Preparation

Many tax preparers charge a reasonable price for their services, but some charge very high fees to low-income people to prepare basic tax returns. They say that extra forms are needed to file returns for low-income people and may charge for extra services such as electronic filing.

Using a tax preparer does not automatically mean that you are getting high quality service or that your refund amount will be accurate. If there are mistakes on your tax return, you are responsible for those mistakes, not the preparer. In addition, the company may not help you if you are audited by the IRS.

If you use a tax preparer, make sure that you get an estimate of all their charges. You have the right to know exactly what you are paying for. You can file your state and federal taxes online for free by using http://www.icanefile.org.

Refund Down-Payment Offers

Do you ever see advertisements at car dealerships, furniture outlets, and jewelry stores saying that you can use your tax refund to make a purchase? The dealer offers to prepare your tax return and use your anticipated refund as a down-payment on your purchase. If you sign up to do this, you are actually agreeing to take out a Refund Anticipation Loan. You lose out by paying high preparation fees, high loan fees, and other fees associated with the purchase.

You Can Get Free Help with Your Tax Return

If you think you need help with your tax return, there are several places you can call. There are also several Web sites that you can visit. For example, if you qualify for the Earned Income Credit, http://www.icanefile.org allows you to file your taxes and apply for the Earned Income Credit for free!

Volunteer Income Tax Assistance (VITA): 1-800-829-1040

I-CAN! EIC e-filing: http://www.icanefile.org

IRS Tax Information for Individuals: http://www.irs.gov/individuals/index.html

Tax Information and Resources

The following resources can provide you with more tax information and/or assistance with filing your taxes:

• Volunteer Income Tax Assistance (VITA): 1-800-829-1040
• I-CAN e-filing allows you to file your taxes and apply for the Earned Income Credit for free at: http://www.icanefile.org
• IRS Tax Information for Individuals: http://www.irs.gov/individuals/index.html
• MLSA Low Income Taxpayer Clinic gives low-income taxpayers free legal assistance on federal tax matters year round: (406) 543-8343 or (800) 666-6899.

Revised 1/06

The clinic listed herein is partially funded through matching grants provided by the Internal Revenue Service pursuant to the Internal Revenue Service Restructuring and Reform Act of 1998. The partial funding by the IRS does not imply that the clinics have a preferential relationship with the IRS. The decision of whether to use these clinics is your own and their use will not affect your rights before the IRS.

Call the MLSA HelpLine for legal assistance:
(800) 666-6899

Low Income Taxpayer Clinic
304 North Higgins Avenue
Missoula, Montana 59802
(406) 543-8343
(800) 686-4574

Montana Credit Unions for Community Development
1236 Helena Avenue
Helena, MT 59601-2948
(406) 442-9081
(800) 745-5546
http://www.montanacreditunions.coop/