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.