January 2021

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A Big Chunk Goes to the Tax Preparer

It begins almost immediately after the holiday festivities — the advertisements for tax refund advances. 

It could be appealing to go for that refund advance, especially if holiday spending took a chunk out of your finances. It’s also tempting for those who have lost their jobs or were forced to reduce their hours due to the COVID-19 pandemic. But before you jump on an offer for a tax refund advance, make sure you understand how it works.

You could be getting yourself into an expensive “loan,” and you could also end up paying for services you don’t need. 

Keep in mind that if you file your taxes electronically and use direct deposit for your refund, you may be able to get your refund in a few weeks. 

How Tax Refund Advances Work

First, you have to agree to have your taxes prepared by the company offering the tax refund advance. Most companies also limit the amount of the advance.

It’s important to note that the tax preparation companies don’t lend you the money –they forge a relationship with a bank that lends you the money. When you receive your tax refund, the advance amount is automatically deducted from your refund and funneled to that bank, effectively paying back the loan for you. If you borrowed less than the total amount of your refund, your refund’s remainder is usually loaded onto a prepaid card.

Some of the tax refund advances do charge interest—up to 36% in some cases! Even though you’re only borrowing the money for a short period—just until your refund comes—it still means you’ll owe more to the company than you borrowed. 

Is It Free Money?

There is no such thing as a free lunch, as the saying goes. Even if a tax preparation service advertises interest-free tax refund advances, a fee may be folded into the tax preparation fee. If you don’t pay for your tax preparation upfront (having the cost deducted from your return instead), tax services may charge an additional fee. 

If the refund advance is issued using a payment card (such as a prepaid debit card) provided by the tax service, the card may charge additional fees. Prepaid debit cards can have monthly fees and other charges. Credit cards can charge high-interest rates and annual fees. ATM withdrawals can cost $3, and it can cost up to $4.95 to reload more cash. That all adds up. 

When converted to an annual percentage rate, the costs can be relatively high (several hundred percent APR, for example). You’re paying a fee to get your own money more quickly than you’d otherwise get it.

Tax preparers may also charge a flat fee to process your tax refund advance, sometimes referred to as a refund anticipation loan. Those charges could be $30 to $50 for a federal refund, plus additional fees for state refunds. There can also be additional charges depending on how the advance is issued. For example, a fee of $30 to print a check or to issue a debit card is possible.

Exactly How Risky Is It?

In addition to the potentially high fees, the amount of your refund from the IRS isn’t final until you have the money in hand. A tax preparer can miscalculate, or the IRS may disallow some of your deductions. For example, the IRS might withhold funds for things like unpaid child support or tax liens, thereby making your refund smaller than you anticipated and less than you borrowed for the advance. 

But you still have to pay off the advance. It’s a low-risk loan for your lender, but you’re a high-risk borrower. When you add up the fees relative to the amount most people borrow, these loans can end up costing roughly as much as notoriously expensive payday loans.

Alternatives to Refund Loans and Advances

1. Use direct deposit
   The IRS estimates that 90% of refunds arrive within 21 days if you e-file and use direct deposit. That means you’re better off in the long run just waiting for your refund. 
2. Minimize your refund
   If you rely on annual refunds, you’re giving the IRS an interest-free loan and paying hefty fees while you’re at it. Adjust your withholding so that your employer takes the correct amount from your pay, then develop a budget to save money each month. Although it may seem like you’re getting a bonus, changing your withholding amount will give you more income year-round.
3. Borrow elsewhere
   If you absolutely must borrow for immediate needs, look for less expensive options. Remember: a tax preparer should be doing your taxes, not lending you money. If you use a tax refund advance or loan, you’re paying the price for convenience. Lenders will compete for your business and potentially give you a better deal.

If you need to borrow money, shop around at local banks and credit unions. Personal loans might be a good option for low-cost, low-risk borrowing. Compare rates and fees, and pick the best option.

CWF Can Help! 

Getting an advance on your refund might sound like a great deal. We get it. But, it’s not a good deal and will cost you money. 

We also get that doing your taxes can be frustrating and an extra expense. If you’re a  working family or individual in Southeastern Pennsylvania and Southern New Jersey earning less than $57,000 per year, let the professionals at CWF prepare and file your taxes for free!

[/fusion_text][fusion_global id=”2700″][fusion_button link=”/” text_transform=”” title=”” target=”_self” link_attributes=”” alignment=”” modal=”” hide_on_mobile=”small-visibility,medium-visibility,large-visibility” class=”” id=”” color=”default” button_gradient_top_color=”” button_gradient_bottom_color=”” button_gradient_top_color_hover=”” button_gradient_bottom_color_hover=”” accent_color=”” accent_hover_color=”” type=”” bevel_color=”” border_width=”” border_radius=”” border_color=”” border_hover_color=”” size=”large” stretch=”default” icon=”fa-arrow-alt-circle-right fas” icon_position=”left” icon_divider=”no” animation_type=”” animation_direction=”left” animation_speed=”0.3″ animation_offset=””]START YOUR FREE TAX PREP NOW[/fusion_button][/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]

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CWF Found Millions in Tax Refunds Last Year. Can We Find a Refund for You?

It’s tax time again! And if the thought of doing your taxes fills you with dread, you’re not alone. The annual ritual can strike fear in even the calmest among us. Taxes are complicated and confusing. With more than 800 forms and schedules from the Internal Revenue Service (IRS), it’s no wonder we procrastinate and end up filing our taxes at the last minute. But here are seven good reasons to file early.

1. You’ll Get Your Refund Sooner

Topping the list, of course, is the fact that the sooner you file, the quicker your refund will be in your hands. Makes sense. That alone should motivate you to take action sooner rather than later.

Getting your refund sooner has financial advantages — if you use it to pay off debt, you may end up owing less in interest if you can pay off your debt sooner. If you’re planning to make a purchase, you’ll be able to buy that important something sooner. 

Even though most taxes are due by April 15, 2021, you can e-file (electronically file) your taxes earlier. The IRS will begin accepting electronic returns in February. Filing your return electronically with direct deposit into your bank account is the fastest way to get your refund. It can take up to several weeks longer for mailed returns, so it is always better to e-file a return if you want to receive your refund quickly.

But if for some reason, the idea of filing early doesn’t help you race to have one of CWF’s IRS-certified tax professionals get to work for you today, we have 6 more reasons why it makes sense to file as early as possible.

2. You May Get a Larger Refund

People who file their taxes by late February tend to get larger refunds than people who file later—about $400 more on average! This may be because the sooner you get started on your tax return, the more time you have to make sure you’re claiming all the tax deductions and credits you’re eligible to receive (see #3).

3. You Can Take Advantage of Every Tax Break & Get Every Credit You Deserve

There’s nothing like waiting until the last minute and rushing only to find you’ve made mistakes or left something out. If you are rushing to file at the last minute, you might miss the benefits you are owed. The skilled and experienced professionals at CWF can help make sure you take full advantage of any tax credit or tax deductions. 

4. It Can Help Protect You from Identity Theft

The longer you wait to file your taxes, the more susceptible you are to identity tax refund fraud. We don’t mean to scare you, but it happens more often than you might think. According to the Government Accountability Office (GAO), the IRS estimated that online tax fraudsters tried to steal at least $12.2 billion through identity theft tax refund fraud in 2016.

Luckily the IRS was able to thwart most robbery attempts, but $1.6 billion still ended up in the hands of these thieves.

Filing early may not eliminate the threat of identity theft, but it can protect your refund. If thieves file a return using your social security number before you do, the IRS will kick out your return because their records show you’ve already been paid. It can take months to clear up the mess with the IRS and finally receive your refund.

5. There’s Less Competition for Tax Professionals

If you wait until crunch time — when everyone and their brother is scrambling to get their taxes done — it can be more challenging to schedule time with a tax professional. The best way to avoid all that hassle is to get an appointment with your advisor as soon as possible.

CWF Virtual Tax Prep makes it easy and safe to have your taxes done professionally . . . without leaving the comfort of home! You still have to get your information together, but all you have to do is pick up your phone or log on to your computer to securely upload your information, and we take it from there! 

6. If You Have a Tax Bill, it Gives You Time to Make a Plan

It’s easy to understand the urge to put off filing as long as possible if you owe money. But if you fill out your tax forms and file them, you’ll know exactly how much you have to pay—and you won’t have to pay in full until the final filing deadline (which is April 15 in a normal year). That will give you more time to save the money you need.

You can save time and reduce hassle by gathering the right paperwork the first time around. Not sure what you’ll need to have in hand to file your taxes? Download your free tax preparation checklist.

Early filing may help eliminate the need to file an extension. If you file an extension but don’t pay what you owe if you have a balance due, the IRS will charge you interest and penalties on the outstanding tax debt until it is paid in full. And no one wants to have to pay more than they owe to the IRS!

7. It Eliminates Tax Deadline Stress

“I want more stress in my life,” said no one ever! Facing the taxman can be stressful. No shocker there! Any time you face an unpleasant task, it’s best to get it out of the way as soon as possible. Income taxes are no different. So, gather your information and put it in the capable hands of our IRS-certified tax professionals. 

In Summary: There are valuable benefits to filing your taxes early, and CWF can help!

We understand the temptation to put off doing your taxes until the last minute. As you can see, there are good reasons to become an early bird when it comes to filing your taxes.

Preparing your taxes can be confusing and complicated, but working families and individuals in Southeastern Pennsylvania and Southern New Jersey earning less than $57,00 per year can get free, professional help from CWF. Get your full tax refund and file with us!

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Time flies when you’re having fun — but not when it’s time to file your taxes.

The Internal Revenue Service (IRS) has more than 800 different forms and schedules. While most people only have to concern themselves with a few forms, if you operate a business, you need to add Schedule C on Form 1040 to the list of forms you should understand (at least minimally).

Who Needs to Include a Schedule C?

1. Businesses that operate as:
   1. Sole proprietorship
   2. Single member limited liability company (LLC)
2. Anyone who works outside of their regular job and receives a 1099-NEC form (formerly a 1099-MISC form)

What Qualifies as Business Income?

Any money you earn because you own and operate a business of any kind is considered income by the IRS. According to the IRS:

“If there is a connection between any income you receive and your business, the income is business income. A connection exists if it is clear that the payment of income would not have been made if you did not have the business.” (Publication 334)

Business income can include:

• Income received for services rendered as an independent contractor, freelancer, or other non-employee position
• Income received from government contracts

What Can I Deduct to Lower My Tax Bill?

You can subtract business expenses (such as products and materials you purchased or other services you needed to complete your business) from your income. The IRS defines these as expenses that are “ordinary and necessary” for conducting your business. 

“Ordinary” applies to expenses that anyone in your line of work would have. For example, anyone who operates a lawn service business would need a lawnmower or hedge trimmers.  

“Necessary” means that those expenses are aligned with your business and necessary for you to make money, like gas for the equipment if you run a lawn service business.

Examples of business expenses might include tools that are necessary for your work. For example, if you do construction, you may need hammers, drills, saws, and more. The cost of those tools would qualify as a business expense that you can deduct from what you owe the IRS. Your mileage to drive to and from the places where your business is conducted is also a business expense. Office supplies and equipment—like copy paper, computer, and postage—all qualify for business expenses.

Miscellaneous Business Expenses

Schedule C on Form 1040 also includes a place to deduct several other miscellaneous expenses. Expenses that are considered ordinary and necessary business expenses but aren’t explicitly addressed on Schedule C fall into this category. Some of them may be small, but they can add up. 

Some common miscellaneous expenses you can deduct include:

• Costs for your business website and other internet-related expenses
• Bank fees and charges
• Club dues and memberships, but only for business and professional clubs
• Credit card fees, including late fees.
• Education and training for yourself and employees (there are many limits and qualifications on this one).
• Incidental expenses paid through petty cash
• Subscriptions to trade, professional, and technical journals 
• Travel expenses (standard mileage rate only)
• Client and employee entertainment
• Advertising and marketing

Remember, there are limits to what you can deduct, and an IRS-certified tax professional can help answer all these questions.

In Summary

Taxes can be confusing and complicated, and adding business taxes can further complicate things. But CWF is here to help!

You work hard for your money, and you don’t want to leave it on the table. If you have a business, are freelancing, work as an independent contractor, earn less than $57,000 per year, and live in Southeastern Pennsylvania and Southern New Jersey, you can get free, professional help from CWF. Our team will make sure you’re capturing all the deductions and complying with all the regulations to avoid any penalties.

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