Borrowing against your income taxes should always be the last solution to a problem. Although it is possible, and a lot of people are tending towards this practice, it really has a lot of disadvantages. First of all, it would definitely decrease your return because of interest and finance charges. Along with that, a fee is deducted for the tax preparer. So before going on with this decision, you must think twice. However, if it is crucial that you do borrow against your income taxes, the following procedures can be your guidelines to follow:
- Choose a tax preparer. Be very careful in getting a professional. You will be able to determine whether your tax preparer is reputable if he will ask you to show your personal records and receipts, and if he asks pertinent questions to establish your qualifications for deductions, expenses, etc. Some tax preparers may have you receive your returns when you file your taxes. It would also be a good idea to look for a professional tax service that can provide loan programs.
- Study the loan papers. Request your tax preparer for his company’s guidelines regarding the timetable of loan fees. You will need to do this prior to having him accomplish your taxes. Ensure that both the interest rate and finance charges are satisfactory. The interest rates of loans against tax returns are normally about 7-10 percent with a finance charge of about 15 percent. This will all be based on the amount of the return, the specific date of when you would like to receive your loan and the company’s procedures. Do not hesitate to search for another tax service if you are not satisfied with the loan terms. There are others who may offer better loan programs for you.
- Accomplish your taxes and file them. You must complete all the requirements of your income taxes before you can avail of a loan. Meet with your tax preparer a few weeks before the deadline. Make sure that all your paperwork is complete and in your possession. This would include W-2S, receipts, 1099s, and other related documents. Your tax preparer will then proceed to finish up your taxes and have them filed at the IRS.
- Sign your loan documents. You will be provided with a list of options on how to receive your loan. You may receive it right away or it may take a few days before your loan may be ready. A loan application will be given to you for you to complete. Your tax preparer will then present it to the bank. Once approved, a check will be issued to you amounting to your tax return minus the interest and finance charges and your tax preparer’s fee. You will also be required to sign a letter, which gives the IRS authorization to give the tax preparer your tax returns for the company to use as settlement of your loan.
As mentioned earlier, weigh the pros and cons of borrowing against your income taxes. Unless absolutely necessary, it is much better to refrain from doing so.