Facts about Tax Refund Advances

Are you planning to apply or a tax refund advance? Tax refund advances are special loans offered to taxpayers who are waiting for their tax refunds. In fact, this is the best, most affordable option for low-risk, low-cost borrowing.

Any taxpayer who has been filing his/her taxes in time can benefit from refund anticipation loans. There are many tax preparation firms that advertise tax advances to attract new customers. These lenders include credit unions, banks, and online lenders. One can bet the best option by comparing the fees and rates charged by various companies. This write-up is going to share some of the fascinating facts that you need to know when applying for tax advances.

Interest Rates

Most of the reliable tax preparers will not charge you an extra penny or charge when taking a tax refund loan. Taxpayers are advised to calculate their tax refund in advance to ensure that they are borrowing is less than refunds. One can take advantage of this service to apply for a loan at no cost. Most lenders use the tax refund service as a marketing tool. In general, these lenders will not charge you additional costs or interest when applying for a tax refund loan.

Tax Refund Repayment

Taxpayers are expected to repay their tax refund advances because this money is not given for free. You are required to pay the money borrowed and tax preparation fees. Some lenders are known for selling additional services to earn extra money on top of the preparation fees. Taxpayers who use payment cards might also be required to pay additional fees like monthly fees. A credit card can charge you a high interest rate and annual fees.

The Risks

Apart from paying high costs, it might be challenging to know how much you will get from your IRS. Miscalculation is one of the risks associated with a tax refund. This means that you might end up getting less money than you have borrowed when your tax preparer makes a mistake when calculating your tax refunds. Sometimes the lender can withhold your funds is you do not pay off your loan.

Why you Should File for Tax Extension

It easy to get a tax extension. Each year millions of taxpayers file for tax extensions. Tax extensions are not just for procrastinators, but for any person that needs more time for preparation of their tax return. Any taxpayer who properly files the application of form 4868 on time can obtain a business or personal tax extension easily. Taking advantage of tax breaks and have additional time for gathering information can be a blessing. Here is why you should file for a tax extension.

Easy and Automatic

filing form onlineIt is a must that you use IRS Form 4868 to request a personal tax extension. The IRS needs to file this form by the original deadline of your tax return. Filling out this form is simple. First, you give your personal information that includes your name, address, and your social security number. Then, provide the estimate of your tax due, which you calculate by taking the total tax liability for that year and subtract any payment that you already made through estimated taxes or Federal withholding. Last, decide if you are going to make tax payments with the extension request.

A tax extension is automatic meaning that you do not have to sign the form or provide reasons for your request. As long as you fill out Form 4868 properly and on time, your extension will get an approval.

Reduce Stress

Most taxpayers try filing on time, but life events sometimes get on the way. Whether you are waiting for your financial statements to arrive, or dealing with domestic issues, or you are avoiding the long line at the Post Office, you can take the stress off your shoulders by filing an extension. Almost everyone is eligible for getting a tax extension, regardless of your reasons for needing extra time.

A tax extension provides you with time to ensure that you claim every tax deduction and tax credits that you are entitled. You will have six months more for checking your eligibility for tax breaks and since tax laws regularly change; you might discover that you are qualifying for a new tax break.

Reduce Risk for Audit

financial audit

Tax experts believe that extension can lessen your chances for an audit. This is as a result of filing your returns outside the usual tax season. While the IRS does not confirm it officially, the agency can conduct a particular number of tax audits every year. Always remember that the best way to lessen your chance of being audited is by filling a complete and accurate tax return.

Prevent Penalties

It will be a good idea to go on and file a tax extension if there is a doubt of filing your taxes on time. Failing to make payments on time results in penalties from the IRS, where there is a charge of 5% of the tax balance in addition to the interest for every month that the balance remains unpaid. The tax penalty is only 0.5% for each month plus interest if there is a file extension. That costs significantly less. Any tax not paid by the deadline date is subject to penalty.

If you decide to e-file an extension online, it is crucial that you use an Authorized IRS e-file provider for protection of your confidential information.