Tax and Financial News - Refund Anticipation Loans - Do They Make Sense?
Tax season is upon us and millions of Americans are anxious to obtain their oh-so-important refunds. If you fall into this group, try not to let impatience push you into opting for a refund anticipation loan without first carefully analyzing the costs.
RALs are loans made by banks, in cooperation with tax preparers, to be repaid when the tax refund arrives. Though these loans are sometimes necessary, they can be a high-cost convenience that most are better off without.
How do Refund Anticipation Loans Work?
A preparer who offers RALs will ask if you are interested in obtaining your refund almost immediately. As part of the tax preparation process, you will complete an application for a RAL and be charged both a RAL fee and a refund account fee for setting up a dummy bank account to receive your refund from the IRS. When the IRS pays the refund, the lender takes the money from this account to repay the loan. These fees vary between preparers, but as an example, in 2008 H&R Block charged 1.07 percent of the loan amount plus a $29.95 refund account fee. The fees charged by other preparers can be much higher.
On an average refund of about $3,000, expect to pay anywhere from $62 to $110 to the major players in the RAL market. For independent preparers, the fees can be higher. While this doesn't sound like much for a quick turnaround of a tax refund, your annual percentage rate for the loan equates to anywhere from 77 percent to 140 percent. Some preparers charge other fees that make the rates even higher. On smaller loans, the annual percentage rate can approach 500 percent.
What is Wrong With a RAL?
First, it is important to note that preparers who follow the rules are not doing anything illegal. They are simply providing a service - though somewhat expensive - to their customers.
A key point to remember is that RALs are loans and must be repaid. If the IRS denies your refund, you are on the hook to repay the loan from other funds. This point is lost on some taxpayers.
Since many individuals receiving RALs are lower income taxpayers who claim the Earned Income Tax Credit, the fees charged by preparers and banks reduce the value of that credit. Additionally, the availability of such loans can be a powerful incentive for unscrupulous preparers to falsify income tax returns. By the time the tax fraud is discovered, the preparer is long gone. The result is a consumer with a tax liability, penalties and interest - who actually paid to be put in that position.
Some tax preparers use RALs to hide the true cost of their services. It is not unusual for a preparer to advertise extremely low fees for tax preparation only to tack on other fees. For example, one Baltimore preparer advertised a $36 tax preparation fee, and then added on a $185 electronic filing fee and a $10 transmission/software fee for a total of $195 in added fees. Because these fees are sometimes withheld from the RAL, the true cost of services is hidden from the customer.
Many taxpayers can avoid the high fees by waiting the two weeks it typically takes the IRS to deposit a refund in their bank account.
Is there Anything Good About a RAL?
In some instances, a RAL can be a lifesaver. There are times when you need funds fast to avoid a catastrophe, like the power company cutting off your electricity. In these situations, the RAL can be an effective lifeline.
If you are impatient and simply want your refund immediately, the RAL is a viable alternative, as long as you understand the true cost and risks of it. Just be sure to take time to shop around for the preparer offering the lowest overall cost for this service.
Protect Yourself
Often, taxpayers fail to review their returns after a paid professional has completed it. Such blind trust in the preparer is misplaced.
Recent studies by consumer groups and U.S. Government agencies using mystery shoppers produced disturbing results. Many of the preparers were either incompetent or blatantly manufactured deductions to increase refunds. In one study, every preparer calculated a refund when the taxpayer really owed a small amount.
Be certain you are dealing with a reputable preparer. Those at car dealerships or other store fronts might not have the training or expertise to properly prepare your return. Their objective is to maximize your refund so you can purchase what they are selling, and that could mean a higher risk of filing a fraudulent return. Even though you use a paid preparer, you are still responsible for everything included on your return.
Your best protection is to investigate the training and reputation of a preparer. There are no guarantees, but utilizing the services of commercial firms that require employees to attend training reduces your chance of filing a false return. Using professionals like CPAs or attorneys further decreases your chances of submitting a noncompliant return. You still need to review your return and question anything you don't understand. Competent professionals welcome your review and will attempt to fully answer your questions; incompetent preparers will not.
Conclusion
In some situations, refund anticipation loans serve a purpose for the consumer, but often at a high price. If you find that you need a RAL, or if you simply wish to obtain your refund quicker, take the time to investigate the reputation and fees of preparers in your area before purchasing their services. Insist on a full accounting of fees you will be charged. You will likely find it worthwhile to wait a few extra days for your refund. Above all, take the time to review your return before it is filed.
General Business News - Employee Turnover and Corporate Culture
Why does employee turnover matter? The short answer is simple: money - every employee requires an investment of management time, training costs and other factors that can make replacing the person very expensive.
When an employee leaves your business, some estimates show that the cost to you equals or exceeds 150 percent of that worker's annual salary. While that might sound high, consider the following and it begins to make sense.
- The extra time (and fatigue) of remaining employees performing the tasks of the employee who left;
- The overtime paid to continuing employees;
- Lost productivity while you are searching for a replacement;
- The time and expense of training;
- The cost of advertising (and management time) spent searching for a new employee.
Clearly, seeking new personnel can have a detrimental effect on your bottom line.
What's Culture Got to Do With It?
According to BusinessDictionary.com, corporate culture can be defined as the "pervasive, deep, largely subconscious and tacit code that gives the 'feel' of an organization and determines what is considered right or wrong, important or unimportant, workable or unworkable in it, and how it responds to the unexpected crises, jolts and sudden change." Corporate culture is essentially the tone of your business and is generally set by top management, though not always.
Ideally, the culture of a business inspires the best in all employees and contributes to its profitability. In practice, however, this is not always the case. Unless top management lives the values it desires, those down the line will not take them seriously. For example, part of a business' mission statement might be to create a team atmosphere. If the rewards of that business go only to the few (those adept at company politics), sooner or later the word team will become a joke and the business will surely suffer.
On the other hand, when management lives the values it professes, the company can excel. For example, Southwest Airlines' culture is based on its mission statement to employees.
We are committed to provide our employees a stable work environment with equal opportunity for learning and personal growth. Creativity and innovation are encouraged for improving the effectiveness of Southwest Airlines. Above all, employees will be provided the same concern, respect and caring attitude within the organization that they are expected to share externally with every Southwest customer.
Southwest management takes this mission statement seriously and in return, it has been able to excel as a low-cost airline in the midst of turbulent economic times. By all accounts, it has happy employees who work for the good of the company and not just for their own self-interest.
How Do You Build Corporate Culture?
There are four essential steps. The first one is the most important: determine what values matter to you. Take time to examine what you believe is important for creating business success. Look into management books and try what others say will work. Examine your personal values and determine how you are willing to live day to day. As your business' leader, you must have a clear vision of the following:
1. How employees should be treated;
2. How employees should treat you;
3. How employees should treat each other;
4. And how you and employees should treat customers and other business partners.
Once you have defined your own core values, your next step is to engender buy-in from company personnel. Soliciting input from your employees is an effective step in gaining their agreement with those values. Depending on the size of your business, you might circulate a proposed mission statement and seek input, hold small meetings with your staff or speak one-on-one with key employees. Whichever way you choose, it is important that the entire workforce sees the process as collaborative.
Part of any organization's success is hiring the right people, but it can be difficult to determine if a candidate is suitable in just one sitting. The task is further complicated by the questions you cannot ask during the interview process. Design your hiring process with this in mind, and whenever possible, assemble a team to evaluate potential employees. In many companies, managers will perform the initial interview, and then the candidate will spend some time with employees who will be their coworkers. This informal atmosphere might bring out the candidate's personality more readily than a formal interview setting.
Finally, reward the behaviors that align with your corporate goals. Recognition for a task well done or an innovative idea is powerful. Even more powerful is rewarding those who exhibit the behaviors you value. When employees see that there are both tangible and intangible results to living your business' values, they are more likely to perform at their peak. The result is increased profitability.
Conclusion
Every business organization has a culture. One that inspires and rewards its workers will enhance employee retention. If you don't guide your business, others in the company will - and you might not like the results. Spend a little time this month to evaluate how your company's culture aligns with your core beliefs and how your employees fit in with the environment you want. Then, take steps to make any necessary changes.
Tip: A Better Bottom Line in 2010
As the New Year dawns, it might be time to take an honest appraisal of your business and set some goals for improved cash flow and profitability. Here are a few thoughts for you to consider.
First of all, a realistic assessment of your business is the starting point. Don't focus only on sales or income - look closely at profit and loss statements, payroll and payroll-related costs, employee retention and major capital expenditures. Get an accurate view of where last year's money came from and where it went. Get input from your tax professional and financial advisors. In order to measure results, you need a clear picture of the business' strengths and weaknesses.
List your goals for this year and put them in order of priority. Are you looking to increase your income, expand your business or create a strong enterprise to sell in a few years? Your goals might not be attainable in one year. That's why an honest assessment and outside input is important. Both enable you to assess your business more accurately against comparable ventures, to set priorities and to devise a realistic plan. The following steps will help you plan and implement your strategy:
- Determine which business services/products are most popular. Look at previous customers - especially repeat customers - is there a specific segment in your line of business that commands most of your time? If so, that's your niche. Don't try to be everything to everybody. It goes against the grain not to pursue every business lead when times are tough, but conserving your time, resources and efforts to target customers in your particular niche is key.
- Develop a marketing message that addresses your clientele. Keep it simple and in everyday laymen's terms. No one wants to decipher a long statement to figure out where your company excels.
- Ask current customers how they found your business and/or your products. This will help you identify the best way to reach new customers - online, social networking, local newsletters, flyers, yellow pages. With existing customers, have a formal contact program in place and keep in touch with special offers, new product news, etc.
- Invest in technology that will improve productivity and effectiveness, and the training needed to use it. Would your salespeople be more productive if they had smartphones with applications that let them log orders or check on accounts receivable from the road? Don't neglect the basics. If your invoicing procedures are cumbersome and collections haphazard, your first priority is to upgrade with the right hardware and software. Don't forget to check out the software available through Internet-based computer technology known as cloud computing. This pay-as-you-go option gives small businesses access to cutting-edge solutions and applications they could not otherwise afford.
- Hiring and firing in a small business environment can be an uncomfortable task, but in a small enterprise it's crucial that each person have the skills and commitment to do the job well. You might start by having each employee write up their own job description with a list of essential skills and compare this with your version. Write job descriptions for each position essential to your operation. If your current workforce does not have the skills you need, perhaps the situation can be fixed with additional training. If this is not viable, you might need to look for someone else who is adequately qualified and able to do the work.
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