What to Know Before You Take Out a Tax Refund Advance
Many people get excited about tax season just like they do when it’s time to visit the dentist. But there’s no need to be stressed, worried, or anxious. Sure, filing taxes can be time-consuming and confusing, but if you get the right help, tax season can feel more like Christmas morning! Finding out that you’re owed a sizable refund, or discovering new tax credits that put more money in your pocket, is oh-so-sweet.
Some people can’t wait to get that money returned to them and consider taking out a tax refund advance. This is an easy way to get your refund as soon as possible, but, there are a few things you should know before you get an advance on your tax return. Keep reading to find out!
- What is a tax advance loan?
- Advantages and disadvantages of a tax refund advance
- How to get an advance on tax returns
- What to do after you file your taxes
- Wrapping Up
What is a tax advance loan?
A tax advance loan is when a tax preparer loans you a portion of your tax return in advance. When you normally file your tax return, it will take around 21 days for you to receive your refund in the form of a check by mail or direct deposit from the IRS. However, with a tax refund advance, you can get a portion of your refund in as little as 24 hours.
It’s important to remember that a tax refund advance is a short-term loan against your income tax refund. You get this loan before the IRS actually processes your return. Tax preparers look at how much you’re expected to receive from your tax refund and base the loan on your projected refund amount. It’s advised to consult with a professional to answer any tax refund questions you have and to properly fill out your return.
Advantages and disadvantages of a tax refund advance
If you’ve been researching early income tax loans or a cash advance on income tax refund, you’ve probably come across different opinions on whether or not you should take the advance. As with all decisions, there are advantages and disadvantages. We’re here to help you make that decision for yourself. Below, you’ll find out more about the pros and cons of tax refund advances so you can decide whether this option is right for your current financial situation.
- You can get your money faster, in as little as 24 hours.
- Almost all tax refund advances come with 0% APR. This means you won’t pay anything extra besides the standard cost of tax preparation services.
- A tax refund advance won’t affect your credit score and most tax preparers don’t check your credit score prior to issuing you a tax advance loan.
- Because a tax advance is a loan, you’ll technically be in debt until you receive your actual refund and pay it off.
- You can’t get the entirety of your refund in your tax advance. Tax preparers will only issue you a portion of your refund with a set dollar amount.
- If you have a difficult tax return, the cost of using a tax preparer to file your tax advance refund can be more expensive than your actual refund amount.
- Since your loan is based on an anticipated return amount, if you end up receiving less money on your tax return, you could face high interest rates and penalties if you don’t promptly repay the loan.
- There’s a chance Uncle Sam could deny your income tax return. It’s always better to use a tax preparation service to avoid this error, but if your return is denied, you could have a hefty loan looming over you and find yourself in the need of tax resolution
How to get an advance on tax returns
To get an advance on your tax return, it’s best to use tax preparation services to ensure you file properly. Most companies require you to use their services in order to get a tax refund advance, which can be a disadvantage if the service price is more than your refund loan amount.
In most cases, the company will not issue you a loan using their own capital. Instead, they work with a bank that lends them the money, which is then loaned to you. This money is usually loaded on a pre-paid card and takes between 1-3 days for you to receive, as opposed to the three weeks it takes for the IRS to issue you your return. Once you do receive your federal tax return, the advance amount will be deducted from your refund and returned to the bank, while the remainder of your refund will be loaded onto the pre-paid card.
What to do after you file your taxes
After you’ve filed your tax return and received a tax refund advance, there are a few things you need to take care of in order to maintain a healthy track record with the IRS. To ensure everything goes smoothly with your income tax refund, complete these tasks as soon as possible.
● Check Refund Status
After taxes have been filed, you can check your federal tax refund status. If you got a tax refund cash advance emergency loan, checking your tax status will give you peace of mind knowing your refund is on its way so you can pay off your loan. To track your refund, you’ll need your Social Security Number, filing status, and your exact refund amount. Then, you can use the Where’s My Refund tool on the IRS website or download the IRS2Go mobile app.
● Resolve Disputes
Sometimes you may not agree with the tax return you’ve received. Whether you’re unable to pay your taxes or have delayed or undelivered refunds, you can work with a free Taxpayer Advocate Service (TAS). Or, you can go to the Office of Appeals, an independent organization within the IRS, to help solve your disputes without going to tax court.
● Double Check Refund Amount
Sometimes, you may file your tax refund and get one back in the mail for a lesser amount than anticipated. If this is the case, the IRS might have taken money out of your refund to pay off delinquent debts through the Treasury Offset Program. If you think this is incorrect and you want to contact the agency that claims you owe money, you can call 1-800-304-3107.
● Undelivered or Unclaimed Tax Refunds
Each year, the IRS has millions of dollars that go unclaimed or undelivered. If you moved and failed to update your living address on your tax return, your tax refund could be returned to the IRS. When you move, you must submit a completed Form 8822 with an updated address. Additionally, many tax returns go unclaimed each year. If you failed to file a tax return, you have up to three years of the filing deadline to get your refund.
● Copies and Transcripts
After you file your taxes, it’s always important to make copies or get transcripts from the IRS to keep in your records. Doing so is a healthy habit in case the IRS were to ever audit you or if you have to apply for a mortgage. Getting a transcript is free and can be done right on your computer by registering with the IRS, or you can get a transcript by mail by submitting a request online. To get a copy of a prior year tax return, you’ll need to mail a completed Form 4506 with a $50 check or money order made payable to the United States Treasury.
Overall, a tax refund advance is a popular option among taxpayers who need money fast. A tax preparer will issue you a loan based on your anticipated tax return within a few days so you can use that money for more pressing issues. However, it’s important to remember this is a loan that you will need to repay and you must weigh the pros and cons to decide whether or not a tax refund loan is the best option for your circumstances. Talk to Community Tax professionals to learn more about how we may be able to help you receive a larger return, as quickly as possible.