Instant tax refunds

Q: I'm expecting a tax refund and could really use the extra cash right now. I've heard of instant tax refunds for a small fee. Is this a good idea?

A: (Attorney General Rob McKenna) Some tax preparers tempt you with the promise of instant refunds. But these "refund anticipation loans" come at a high cost that is rarely worth the amount of time saved.

On top of your tax preparation fee (typically about $100), you'll pay a loan fee of $30 to $115. Some preparers also charge an average of $32 for additional administrative or application fees. If you want your check cashed immediately, you'll pay a fee for that, too.

The fees may seem small, but they amount to annual interest rates ranging from 40 percent to more than 1,700 percent, according to a 2005 report by the National Consumer Law Center and the Consumer Federation of America.

These "refund" loans drain more than $1 billion in fees from the wallets of taxpayers, and are often aimed at those who need the money most. Here's how to get a quick refund without paying a lot:

• File your tax return electronically and request direct deposit. The IRS will deposit the refund directly into your bank account and you will receive your refund in about 10 days.

• Use free tax preparation software, available to help low- and moderate-income workers electronically prepare and file taxes. The software is available in English and Spanish and can be accessed at www.icanefile.org.

• Get free tax assistance. Workers who qualify for the Earned Income Tax Credit (EITC) and senior citizens can receive free help at Volunteer Income Tax Assistance sites. IRS-trained volunteers will help complete and electronically file returns for a rapid refund. Services are available in a variety of languages. For locations in King County, contact United Way of King County at www.uwkc.org/eitc or 206-315-8722. For other areas, call the IRS at 800-TAX-1040 or visit the National Community Tax Coalition's Web site at www.tax-coalition.org.

• Avoid check cashers. They charge an average of 3 percent to cash a refund anticipation check.

To suggest a future topic for this column, write asktheag@atg.wa.gov or "Ask the AG", Attorney General's Office, 900 Fourth Ave. Suite 2000, Seattle, WA 98164-1012.