Say 'No' to Tax Refund Anticipation Loans, Consumer Groups Advise (ContributorNetwork)

Illinois ' Attorney General Lisa Madigan is the latest consumer advocate to warn the public that refund anticipation loans are a bad deal. Madigan told Illinoisans Tuesday that consumers should not mistake these loans for advances on tax refunds. The high-cost short-term loans typically come packaged with attached fees for tax preparation, tax filing, electronic filing, and even check cashing. RALs previously have been identified as predatory by numerous consumer advocates including the National Consumer Law Center and the Consumer Federation of America.

What is the alternative for taxpayers who say "no" to RALs? Consumer advocates say it's filing a return electronically and getting a tax refund direct deposited from the IRS in as little as 10 days. Some states issue their tax refunds even more quickly.

Changes in the RAL Market

Smart Money looked at the RAL market last month after federal regulators knocked one of the big players- H&R Block- out of the game. The Office of the Comptroller of the Currency ordered H&R Block's banking partner HSBC to cease issuing RALs. Tax preparer Jackson Hewitt is set to assume the lead as the primary RAL issuer as federal tax season goes into full swing.

With the removal of HSBC from the RAL market, Jackson Hewitt's lender Republic BankCorp. Inc is now the only major player left. The Federal Deposit Insurance Corporation warned Republic earlier this month that its RAL practices were "unsafe and unsound," a warning that came to light when the bank made a required disclosure to the Securities and Exchange Commission.

The Advantages and Disadvantages of RALs

The advantages of RALs are legion- for the bank issuing them. The disadvantages are equally legion for consumers who at best obtain some of their tax refund a few weeks early at an excessive cost. Consider:

* Republic's $61.22 fee for a $1500 loan is the equivalent of 149 percent Annual Percentage Rate interest.

* Banks issuing RALs took $600 million from 7.2 million taxpayer refunds in 2009 (a decrease from 2008 when they took $738 million from 8.4 million taxpayers.)

* Not only is the charge for RAL issuance typically excessive, it is paid upfront before the remainder of the refund is released to the taxpayer. Wisconsin 's Dept. of Revenue warns that state's consumers that if the tax refund falls short of the expected amount, the consumer is on the hook for the balance of the loan.

* Banks may cite checking account costs as reasons a consumer should agree to an RAL rather than simply open an account and have a tax refund direct deposited. However, government agencies say that free bank accounts are widely available. Simply typing "free checking no minimum balance account" into a search engine will turn up a variety of potential free bank account options.

The Internal Revenue Service is considering a ban on RALs. But unsurprisingly, the IRS's concern is not abuse of taxpayers by predatory lenders. Instead, the IRS is concerned that the potential for receiving an RAL may encourage fraud, either by the taxpayer himself or unscrupulous tax preparers.

Carol Bengle Gilbert writes about consumer issues for the Yahoo! Contributor Network.

Browse your computer here

Travelers may be owed a tax refund (AP)

DALLAS – Travelers who paid all their federal airline taxes when they bought tickets might get a refund if they're flying now, after some of the taxes expired.

The situation has airlines confused. Some are telling customers to file refund claims with the IRS, while others invite them to contact that airline.

Airlines stopped collecting taxes that expired at midnight Friday.

Affected are people who paid all the taxes when they bought tickets two weeks ago — or any time before Friday night — but are flying now. The Treasury Department acknowledged over the weekend that they people might be owed a refund.

JetBlue Airways said Tuesday that customers flying in the next week should email their refund request to the airline and put "Expired Tax Refund Request" in the subject line.

Alaska Airlines said amounts paid for taxes that are no longer in effect will be considered an overpayment. It told customers to file a refund claim with the IRS.

American Airlines and Virgin America also told customers to direct their refund questions to the IRS.

The airlines said they're expecting guidance from the Internal Revenue Service soon.

The terminated taxes expired when Congress failed to pass a bill to keep the Federal Aviation Administration running at full speed. The dispute could drag on for days or weeks.

For a brief time, it looked like the Washington standoff would result in a break for air travelers. But most airlines raised fares by the same amount as the expired taxes cost, leaving customers to pay the same they did before.

The expired taxes can add 10 percent or more to an airline ticket.

"Those people traveling in July probably paid a lot for their tickets," said Tom Parsons, CEO of travel website Bestfares.com. "For a family of four, it could be worth $100 in refunds."

The airlines said there hasn't been a rush for refunds.

"We're not getting a lot of incoming inquiries about this," said Tim Smith, a spokesman for American.

Browse your computer here

Reasons to Spend Your Tax Refund (U.S. News & World Report)

The vast majority of Americans overpay the IRS during the year, which means they are due for a tax refund right about now. Last year, 77 percent of taxpayers received a refund, with an average size of $3,000, according to the National Endowment for Financial Education. Of course, most financial experts say that you're better off adjusting your withholding so you come out even on April 15, but a lot of people look forward to that "bonus." And it turns out there are good reasons to continue receiving it, contrary to traditional advice.

First, refunds can provide an easy way to monitor where, exactly, your money is going. Otherwise, slightly higher paychecks throughout the year can just disappear along with the rest of your money.

[See 10 Smart Ways to Improve Your Budget.]

If you receive a refund, on the other hand, then you can think about exactly what you want to with it. Maybe you'll use it to pay off debt, like 50 percent of taxpayers who receive refunds say they will do this year, according to the NEFE survey. (That echoes the recession-era behavior of two years ago, when an ING Direct survey found that most Americans saved their refunds or similarly used them to get debt off their backs. It might be a boring option, but it's a smart one.)

Or you can use it to build your safety net. If you don't yet have an emergency fund that could cover your immediate expenses should your income suddenly stop, then your refund can provide the seed money for it. Financial advisors typically recommend that you keep three to six months worth of expenses in the bank; NEFE offers a customized calculator that can help you come up with a goal for your own emergency fund.

But refunds can also be mad money--a way to justify an annual splurge. At least one financial expert, John Strelecky, urges taxpayers to do just that. He says that after you consider today's average returns and inflation rates, people are better off using their refund money to enjoy life today, instead of saving it for some vague future purpose. "The point of earning money is to create memories, have amazing experiences, and do interesting things," he says. "Don't wait until age 65 to start spending your money to live a rewarding life."

He makes a good point. As you weigh potential splurges, recent research suggests that spending on experiences, such as a family vacation, could bring more happiness than material purchases, such as a new washing machine.

[See 12 Money Mistakes Almost Everyone Makes.]

By comparing consumption data from the national Health and Retirement Study, Thomas DeLeire of the University of Wisconsin-Madison and Ariel Kalil of the University of Chicago found that spending money on leisure activities, which include vacations, movie theater tickets, and hobbies, improve happiness levels. (Happiness was measured by asking respondents to describe how they felt about their lives.) Expenditures on durable goods such as refrigerators, clothes, personal items, and housing, on the other hand, did not have an effect on happiness.

The apparent reason behind the leisure spending--happiness connection is even more intriguing than the finding itself: Spending on leisure activities appears to boost one's level of social connectedness. That makes sense, since when you go on vacation, engage in a hobby such as tennis or bridge, or go out to the movies, you are almost always doing it with somebody else. So spending on leisure might boost your social connectedness, which in turn improves your happiness level.

The bottom line: Forget the old rules about coming out even on April 15. Keep getting your refund, and use it to create a memorable experience.

Kimberly Palmer (@alphaconsumer) is the author of the new book Generation Earn: The Young Professional's Guide to Spending, Investing, and Giving Back.

Browse your computer here

Reasons to Spend Your Tax Refund (U.S. News & World Report)

The vast majority of Americans overpay the IRS during the year, which means they are due for a tax refund right about now. Last year, 77 percent of taxpayers received a refund, with an average size of $3,000, according to the National Endowment for Financial Education. Of course, most financial experts say that you're better off adjusting your withholding so you come out even on April 15, but a lot of people look forward to that "bonus." And it turns out there are good reasons to continue receiving it, contrary to traditional advice.

First, refunds can provide an easy way to monitor where, exactly, your money is going. Otherwise, slightly higher paychecks throughout the year can just disappear along with the rest of your money.

[See 10 Smart Ways to Improve Your Budget.]

If you receive a refund, on the other hand, then you can think about exactly what you want to with it. Maybe you'll use it to pay off debt, like 50 percent of taxpayers who receive refunds say they will do this year, according to the NEFE survey. (That echoes the recession-era behavior of two years ago, when an ING Direct survey found that most Americans saved their refunds or similarly used them to get debt off their backs. It might be a boring option, but it's a smart one.)

Or you can use it to build your safety net. If you don't yet have an emergency fund that could cover your immediate expenses should your income suddenly stop, then your refund can provide the seed money for it. Financial advisors typically recommend that you keep three to six months worth of expenses in the bank; NEFE offers a customized calculator that can help you come up with a goal for your own emergency fund.

But refunds can also be mad money--a way to justify an annual splurge. At least one financial expert, John Strelecky, urges taxpayers to do just that. He says that after you consider today's average returns and inflation rates, people are better off using their refund money to enjoy life today, instead of saving it for some vague future purpose. "The point of earning money is to create memories, have amazing experiences, and do interesting things," he says. "Don't wait until age 65 to start spending your money to live a rewarding life."

He makes a good point. As you weigh potential splurges, recent research suggests that spending on experiences, such as a family vacation, could bring more happiness than material purchases, such as a new washing machine.

[See 12 Money Mistakes Almost Everyone Makes.]

By comparing consumption data from the national Health and Retirement Study, Thomas DeLeire of the University of Wisconsin-Madison and Ariel Kalil of the University of Chicago found that spending money on leisure activities, which include vacations, movie theater tickets, and hobbies, improve happiness levels. (Happiness was measured by asking respondents to describe how they felt about their lives.) Expenditures on durable goods such as refrigerators, clothes, personal items, and housing, on the other hand, did not have an effect on happiness.

The apparent reason behind the leisure spending--happiness connection is even more intriguing than the finding itself: Spending on leisure activities appears to boost one's level of social connectedness. That makes sense, since when you go on vacation, engage in a hobby such as tennis or bridge, or go out to the movies, you are almost always doing it with somebody else. So spending on leisure might boost your social connectedness, which in turn improves your happiness level.

The bottom line: Forget the old rules about coming out even on April 15. Keep getting your refund, and use it to create a memorable experience.

Kimberly Palmer (@alphaconsumer) is the author of the new book Generation Earn: The Young Professional's Guide to Spending, Investing, and Giving Back.

Browse your computer here

5 Reasons to Save Your Tax Refund for Retirement (U.S. News & World Report)

If you are expecting a tax refund this year, aim to save some or all of it for the future. Here are five good reasons to use that money for retirement savings.

[See 25 Things to Do When You Retire.]

This is a once a year opportunity. Tax filing season presents a unique opportunity each year for us to save more than we normally would. The average tax refund is close to $3,000. That's a lot of cash received all at once. It's likely that a tax refund is the biggest chunk of change we receive all year. Don't waste this money on mindless spending. Use it to help secure your future. You didn't miss the money all year when you were loaning it to the IRS. So, why would you miss it now? Take advantage of this opportunity and redirect the money to a retirement account.

Tax deductions and credits. The IRS provides tax deductions and credits on certain retirement savings contributions. Put the money in a 401(k) or traditional IRA and you'll likely receive a tax deduction in the current tax year. Put the money into a Roth IRA and you'll avoid paying taxes on that money when you withdraw it in retirement. In effect, you'll be using your money to create more money. Be sure to check with your CPA to fully understand your contribution options.

[See 10 Bargain Retirement Spots.]

You can back date contributions. Some tax-advantaged retirement accounts allow you to apply your contribution to the previous tax year's contribution limits. That means you have up until April 18th, or when you file, to make a contribution. Each year that passes represents another opportunity to contribute to retirement accounts. And with some accounts, you're given an extra four and a half months to contribute.

You can utilize big brokerages. Your tax refund may be a large enough sum to qualify you for funds with the big brokerages. Unlike discount online stock brokers, big brokers like Vanguard don't let you invest in their retirement mutual funds unless you put forth two or three thousand dollars. Your tax refund will help you to clear this initial hurdle and then you can make smaller contributions going forward.

[See 7 Retirement Savings Mistakes You Might Be Making.]

You need it. Most of us aren't saving enough for retirement. We need every bit of savings we can muster. A tax refund is money that you weren't missing anyway. So take the money and put it towards a good cause: your financial future.

Philip Taylor is the author of 104 Ways to Save Extra Money. Read his popular blog, PT Money: Personal Finance for more insightful money tips, like his recent suggestions for the best online checking accounts.

Browse your computer here

5 Reasons to Save Your Tax Refund for Retirement (U.S. News & World Report)

If you are expecting a tax refund this year, aim to save some or all of it for the future. Here are five good reasons to use that money for retirement savings.

[See 25 Things to Do When You Retire.]

This is a once a year opportunity. Tax filing season presents a unique opportunity each year for us to save more than we normally would. The average tax refund is close to $3,000. That's a lot of cash received all at once. It's likely that a tax refund is the biggest chunk of change we receive all year. Don't waste this money on mindless spending. Use it to help secure your future. You didn't miss the money all year when you were loaning it to the IRS. So, why would you miss it now? Take advantage of this opportunity and redirect the money to a retirement account.

Tax deductions and credits. The IRS provides tax deductions and credits on certain retirement savings contributions. Put the money in a 401(k) or traditional IRA and you'll likely receive a tax deduction in the current tax year. Put the money into a Roth IRA and you'll avoid paying taxes on that money when you withdraw it in retirement. In effect, you'll be using your money to create more money. Be sure to check with your CPA to fully understand your contribution options.

[See 10 Bargain Retirement Spots.]

You can back date contributions. Some tax-advantaged retirement accounts allow you to apply your contribution to the previous tax year's contribution limits. That means you have up until April 18th, or when you file, to make a contribution. Each year that passes represents another opportunity to contribute to retirement accounts. And with some accounts, you're given an extra four and a half months to contribute.

You can utilize big brokerages. Your tax refund may be a large enough sum to qualify you for funds with the big brokerages. Unlike discount online stock brokers, big brokers like Vanguard don't let you invest in their retirement mutual funds unless you put forth two or three thousand dollars. Your tax refund will help you to clear this initial hurdle and then you can make smaller contributions going forward.

[See 7 Retirement Savings Mistakes You Might Be Making.]

You need it. Most of us aren't saving enough for retirement. We need every bit of savings we can muster. A tax refund is money that you weren't missing anyway. So take the money and put it towards a good cause: your financial future.

Philip Taylor is the author of 104 Ways to Save Extra Money. Read his popular blog, PT Money: Personal Finance for more insightful money tips, like his recent suggestions for the best online checking accounts.

View the original article here