by Dr. Charles Alonzo Peters
Drive down any urban street and you’re bound to come across tax preparation shops nestled in-between their title loan, rent-to-own, and check cashing cousins.
Some are no-name “Mom and Pop” operations, while others are well-known national chains. Many aggressively push their services, sending grown people dressed in ridiculous costumes to cut a fool in order to catch the attention of onlookers. The dancing man I pass daily, who’s grooving to headphones while dressed as the Statue of Liberty, immediately comes to mind.
I’ve often wondered why low-to-moderate income folk need so much tax preparation help? Many don’t make enough money to itemize, and a simple 1040 form would suffice for most.
What I found was, like their pawn shop and title loan neighbors, these vultures are attracted to the promise of easy money. “Predators of the Poor,” some call them.
The lure is the Earned Income Tax Credit, explains Gary Rivlin in his article “1040 Sleaze” that appears in the latest issue of Mother Jones magazine. A mother of two earning $16,000, for example, can expect a $5,000 tax refund through the Earned Income Tax Credit.
And you better believe tax preparation companies are looking to get a piece of the action. In many cases it’s a large piece. First, they charge excessive tax preparation fees for a task that can be completed for free online or by volunteer organizations.
Second, they offer rapid refunds or anticipation rebate loans that allow people to receive an instant loan against their expected tax refund. For a family desperate to make ends meet and unable to wait 2-8 weeks for their refund from the government, this immediate infusion of cash can look like a lifesaver. But it comes at a price – outrageous fees.
As explained in the Rivlin article, a family expecting a $3,978 tax rebate would shell out $431 at Jackson Hewitt in order to get their money the same day through a refund anticipation loan. Jackson Hewitt takes home nearly 11% of the refund for a few minutes work.
And the tax mills are specifically targeting low-income areas. As one tax preparation franchisee manual indicated, “We recommend that you locate your office where the household income is $30,000 or less.”
So lucrative is the practice that many payday lenders and used car dealers are purchasing tax preparation software that lets them get in on the game. It seems when you’re poor or struggling, everyone is looking to take advantage of you.
What’s your take? Should such tax preparation and anticipation loan practices targeting minority communities be outlawed? Or, despite the high fees, do these services provide an economic lifeline to families desperate for cash?
Every Monday you can find great insight and tips on managing your greenbacks by Dr. Charles Alonzo Peters of MochaMoney.com here on BlackandMarriedWithKids.com.
So I took my son to the barbershop a couple of weeks ago and there was a young father there with his kids and I overheard his phone conversation and decided to offer free advice to him. Apparently he had been using one of these predator tax preparers for a few years and they made a mistake in charging him fees and because of their “guarantee” they paid it but were expecting him to come back the following year so he would owe…between him and his wife(they tacked the fees seperately to their socials) they owed this company close to $1000!!!! I told him their mistake you don’t pay it and fight it if they come after you, go to one of these websites(I use taxslayer.com for my family) and plug in your info and you’ll be done in a matter of minutes with a $15 fee to do state and federal and your refund will come to you within 2 weeks depending on the day of the week you file and if you do direct deposit.
Depending on the circumstances, someone might need their money prior to the roughly 2 weeks it takes to get a return(and I am only talking about evictions not a vacation!!!) and in those circumstances ok. Alot of people are not aware of how long the process really is. Also alot of people see those forms and panic not realizing that if you take your W-2 to your personal computer and plug the information into the form(yes these online apps are dumified) that you are done in less time than it takes to get to these places. I know that there are signs inside of agencies that service the lower incomes(welfare offices, subsidy offices, and wic offices) but the signs are surrounded by so many other ads that they are lost in the shuffle. There should be some regulations to protect the ones who need protecting. A busy shopping strip near me has atleast 4 different predators on one short block and if you walk another block either way you will find atleast another 2 per block!!!
So I took my son to the barbershop a couple of weeks ago and there was a young father there with his kids and I overheard his phone conversation and decided to offer free advice to him. Apparently he had been using one of these predator tax preparers for a few years and they made a mistake in charging him fees and because of their “guarantee” they paid it but were expecting him to come back the following year so he would owe…between him and his wife(they tacked the fees seperately to their socials) they owed this company close to $1000!!!! I told him their mistake you don’t pay it and fight it if they come after you, go to one of these websites(I use taxslayer.com for my family) and plug in your info and you’ll be done in a matter of minutes with a $15 fee to do state and federal and your refund will come to you within 2 weeks depending on the day of the week you file and if you do direct deposit.
Depending on the circumstances, someone might need their money prior to the roughly 2 weeks it takes to get a return(and I am only talking about evictions not a vacation!!!) and in those circumstances ok. Alot of people are not aware of how long the process really is. Also alot of people see those forms and panic not realizing that if you take your W-2 to your personal computer and plug the information into the form(yes these online apps are dumified) that you are done in less time than it takes to get to these places. I know that there are signs inside of agencies that service the lower incomes(welfare offices, subsidy offices, and wic offices) but the signs are surrounded by so many other ads that they are lost in the shuffle. There should be some regulations to protect the ones who need protecting. A busy shopping strip near me has atleast 4 different predators on one short block and if you walk another block either way you will find atleast another 2 per block!!!
This is an excellent post. I agree with you..they are taking advantage of people. I have seen some of the tax services say they will prepare your taxes for free…I am thinking this is just a trick to get you into the office so that they can get some of your money.
Although I agree that a lot of tax services are preying on minorities similar to PayDay loan and Title loan establishments, I don’t believe this is true of all of establishments that offer tax services. My mom has been a tax preparer for over 20 years and she’s always been honest, forthcoming and would prefer to not do taxes for those who needed their money quickly – she still doesn’t offer RALs (refund anticipation loans) because of the misconception of how the RALs work. She started doing it on the side while putting herself through school, baking cakes for weddings, working for a clothing store and raising 3 daughters with help from her ex-husband who was also struggling (our father) but was able to watch us while she worked/went to school. Today she’s established well enough to have her own business preparing taxes mostly for businesses (also providing bookkeeping & payroll services) and well established adults in a nice community. When lower income people come to her its usually upon a referral because they know she will be honest with them and won’t try to get them more money OR they’re customers she’s had for years, especially the elderly and she charges them the minimum sometimes the same fee she’s charged them for 20 years. New referrals who have lower income come to her after they’ve usually gotten into some type of bind with the IRS because of prior faulty preparation from other places.
I do not recommend those places to people UNLESS I know they want someone to either lie for them or they don’t want the truth told to them about paying “Caesers what is Caesers” because those taxes go towards paying for a large amount of benefits that we use every day in this country. That it is better to pay the right amount of taxes during the year, holding onto that $ you need every 2 weeks on your pay check than anticipating a refund at the end of the year.
Again, I do NOT agree with using tax preparation services who will try to get all the $ from you they can while trying to find flaky “itemizations” they can add to your return so you can get the max $ when the government will come back in a few months and tell you there was a problem with your records. However, I believe that if you do not trust yourself to enter your information properly if you own your own home, are self employed, had a major life change in the past year, have huge amounts of medical deductions to be recorded, or any other major itemization or deduction the government allows, do go to an individual you can trust and who will not try to cheat you. I understand that my mother is in the minority with her type of integrity but reading this article infuriated me that 1. these vultures do exist but 2. that all tax perparers are NOT vultures.
Yes I love my momma! LOL!