Jewish World Review Feb. 24, 2005 / 15 Adar I, 5765

Jeff Gelles
Consumer Watch

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Consumer Reports


The smarter way to a quick refund

By Jeff Gelles

http://www.JewishWorldReview.com | A year ago, Rhondarette Wright needed her federal income tax refund, and she wanted it fast.

A single mother raising three children, she was late on her gas and electric bills and worried about the consequences. The $5,500 she expected back from the government would be enough to get her over the hump.

So Wright did what many working people do each year: She spent a sizable chunk of her money, about $280, on fees to an income-tax preparation firm - including about $130 for a short-term loan.

Wright could have used that extra cash. Who couldn't? Instead, it went to H&R Block, the nation's largest tax-prep company and a major purveyor of a product known in the tax business as a "refund anticipation loan," or RAL.

That's too benign a term for what an RAL really is: a high-interest, short-term loan marketed largely to people who can ill afford to throw money away.

Take one of these loans, and that's just what you're doing. The companies behind them bear little risk. They know what you're owed - they're doing your tax return, remember? - and have few worries about collecting. To get an RAL, you essentially have to sign over your real refund beforehand.

So why do it? The tax firms say they're just meeting our demand for convenience and instant gratification.

This year, they can bank on at least one less customer. Because Wright has learned that there are better ways to get her refund quickly - all of it.

FREE HELP AVAILABLE - FOR ANYONE

Some people, of course, have complicated taxes, and need the services of accountants and lawyers, or of firms such as H&R Block that offer a wide range of tax-time help.

But if you pay because you find the do-it-yourself approach too daunting, or you're lured by a speedy loan, consider this: Free help is available, and with electronic filing and a bank account for direct deposit, you can get a full refund in less than two weeks.

For low-income workers and the elderly, there is the Volunteer Income Tax Assistance (VITA) program, which uses IRS-trained volunteer tax preparers. You make an appointment, bring in your documents, and get your taxes filed. More on that in a moment.

For everyone else - or anyone comfortable at a computer - there is the IRS's Free File program, now in its third year. You go online, follow instructions, and file electronically through one of 19 companies' Web sites.

Skeptical about anything you get for free? Don't be. The IRS has found relatively low error rates on returns prepared by volunteers. And it has tested the accuracy of software used by Free File participants, which last year filed returns for about 3.5 million taxpayers.

SAVING MONEY FOR TAXPAYERS

Free File, by the way, isn't a gift - it's a reflection of the tax-preparation industry's interest in self-preservation in the age of the Internet.

Some countries and states have developed Web sites that allow taxpayers to go online and file directly. That's a sensible approach that would save money for the IRS and taxpayers, much as airlines have gained efficiency by moving ticketing online.

To forestall it, the industry agreed to a compromise: Through a loose alliance of companies, it would make free online filing available to at least 60 percent of U.S. taxpayers.

Because each company sets its own criteria for eligibility, Free File goes beyond that - some participants offer their services to any taxpayer. Even if you don't use Free File, check it out at www.irs.gov, so you'll know what the debate is about when the agreement comes up this year for an optional two-year renewal.

If you're uncomfortable with the idea of filing online or want face-to-face help, VITA programs are a great alternative for those who qualify.

Taxpayers over 60 can contact AARP Tax Aide (1-888-227-7669 or go to www.aarp.org/money/taxaide).



Jeff Gelles writes the ConsumerWatch column for The Philadelphia Inquirer. Comment by clicking here.

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© 2004, Philadelphia Inquirer Distributed by Knight Ridder/Tribune Information Services