LexChoice Finance

Financial News and Information

Beware of the Tax Preparer Loan

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You have probably seen the signs outside some tax preparation loan businesses. Maybe you have even seen the guy dressed up in a crazy costume trying to get your attention while driving down the road. Many of these tax services offer same day tax refunds to their clients. Don’t be fooled, it comes with a fee and sometimes a hefty fee.

In the past, refund anticipation loans (RALs) drew in millions of cash-strapped consumers to get very high-interest loans for up to the estimated amount of their refunds. Because of recent federal regulations RALs have been stopped. However, many tax services have found ways around the RALs. For example, some are offering Personal lines of credit not based on the anticipated tax return amount. These loans typically range from $200 – $1000 and include monthly fees as well as interest rates as much as 35%!!!

Some tax services have partnered with PayDay Loan lenders. They will basically give you a PayDay loan until you get your tax return. As you can imagine the fees and interest rates for these types of loans will be through the roof!

More than likely you have waited all year for your tax refund. Even if you have to wait another 2 – 3 weeks, it’s worth the wait. Don’t waste your money on the fees and astronomical interest rates.

5 Smart Ways to Spend your Tax Refund

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If you are like most Americans you Uncle Sam will actually owe you back money this year for overpaid taxes in 2015. The IRS estimates that nearly 8 out of 10 Americans will get a tax refund this year. The average amount paid over the last few years was roughly $2,800, according to the most recent IRS data.

Don’t rush out and blow that tax refund on a car, new LCD TV, vacation or something else unnecessary. You should stop and think about where you can spend your refund and get the most benefit to your family. This would be a great opportunity to tie up some financial loose ends! Here are a few ways we think you should spend your windfall in order to get your life back on track!





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Flat tax, my oppinion

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Taxes, the one word that can spark heated discussion among friends, enemy’s and politicians. The United States tax system is so complicated that even our own government has trouble deciphering all the legal codes and laws. Does our tax system need a major overhaul?

A flat rate tax has been mentioned and discussed several times throughout our nations history. There are many proponents and opponents to the flat tax system, both sides having very valid and logical arguments. Would a flat tax system benefit our Nation and is the flat tax system fair to everyone?

Basically a flat tax would ensure that everyone pays the same percentage of taxes on their income. Lets say the rate is 25% someone who makes $20,000 would pay $5,000 in taxes and someone who made $200,000 would pay $50,000. Most flat tax systems allow no or very few exemptions making tax time and tax returns very simple.

I think a perfect system would allow a flat percentage charged to everyone, with very few deductions. These deductions would include children, mortgage interest and charitable contributions (which should be very documented).

Even though I’m not upper class, financially speaking, I don’t think it’s fair to place more of the tax burden on the upper class. Why should the wealthy be penalized for being successful in life. I would hope this new tax system would encourage the wealthy to donate more money to charity and help those who are less fortunate, but I don’t think they should be penalized.

Currently the US Revenue Code is over 9 million words long and contains many loopholes, deductions, and exemptions.  A flat tax system would help eliminate millions of dollars that slide through the cracks every year. It would save the IRS millions of dollars and thousands of man hours.

No matter what tax system we use there will be pros and cons. There will also be thousands of supporters and just as many protesters. I personally don’t know if we “need” a tax system overhaul, but I think things can be done more efficiently

Stimulus Package Tax Savings

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Almost every American household will see some tax savings on their paycheck sometime in April. The average overall estimated tax saving should be about $1179. There are several factors that influence the exact amount of cash you will see including marital status, dependents, etc.

So how will you use your ~$100 per month in savings? I’ve compiled a top 5 list of great ideas of how to use your new found tax savings.

  1. Start an automatic savings account – Just a few posts ago I talked about how easy it is to setup an automatic savings account and have money automatically deducted from your paycheck and placed into savings. It’s a great time to get started since you won’t miss the money.
  2. Pay off some debt. Again since this will be unexpected money why not put it to use before it even gets to your budget. If you have high interest credit cards start paying extra on them every month or even every week. If you have online access to your credit card accounts they allow you to make payments at any time. When you get your paycheck, immediately send it to the balance.
  3. Split the savings into a few different categories of your budget. First, give yourself some extra spending money. After all that’s what the stimulus package was designed for in the first place. Plan to go out to dinner somewhere nice every month and use some of the tax savings. Send some of the other money to a savings account or use it to pay down debt.
  4. Start a Roth IRA or similar retirement fund or increase the amount you are contributing. Now is a great time to enter the market or increase the amount you are contributing. Stocks are at their lowest points in years so there are some great deals to be found.
  5. Start an emergency fund. We all need to have a fund stashed away for a rainy day. Even if it’s just $1,000 in an easily accessible account you will appreciate it down the road. Life is full of unexpected events and being financially prepared will save you more money and stress.

Most of these tips won’t do a lot to stimulate the economy but it will help ensure that you are prepared for tough times. If you are already debt free, have a funded retirement fund, and have a funded emergency fund then have fun! You have successfully planned your finances so enjoy the extra money and help stimulate the economy!

A $400 to $800 credit for many taxpayers

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One of the provisions of the new stimulus package includes a payroll tax credit of somewhere between $400 and $800 for most taxpayers. For the average worker this will equate to an increase of about $8 per paycheck. I’m not here to bash the stimulus package because I really hope it works, but I’m not sure how much $8 a week is going to stimulate the economy. I realize something has to be done I’m just not sure this was a great solution.

With that being said what will you do with your $8 per week pay increase? Again this isn’t going to be much of an economy stimulator but wouldn’t it be a great time to start an automatic savings plan? Technology and banks have made it so easy to save money these days there is really no excuse not to start.

Most employers offer you the opportunity to divert money into different accounts. If you already have your check direct deposited then more than likely you can divide the money into different accounts. Just ask your company accountant or your payroll person to help you with this. Since you will be getting $8 per week extra you won’t miss the money if you set this up before it starts.

Another option it to setup an automatic savings plan with your bank or credit union. Most banks allow you to set this up with just a few clicks of the mouse. Again this is money you aren’t used to getting so why not start the automatic savings plan today? By saving $8 per week at a 2% interest rate (yes you can get this with online banks) for 10 years you will accumulate over $4,200!