Maybe I just shoulda stayed in bed………what morning radio and your Taxes have in common

Of all the things Consumer Courage thought we’d have to warn people about in October, Tax-refund loans was NOT one of them.  But, this morning, Consumer Courage heard a strange commercial on the air, on our way to hitting the snooze button (it’s not so much that the radio people have the nerve to wake me up every morning that sticks in my craw.  It’s more the fact that they manage to be so damn chipper at 5:45 a.m.  I mean, can’t they act even a little bit tired?…. but, I digress)

The ad ran thusly:

“C’mon in to our dealership and have your taxes done!  Why should you wait until January for your money? We’ll do your taxes for 2013 right now!  Just bring in your pay-stubs and we’ll do your taxes and tell you how much the Government will give you in January.  Then, you can use your refund to buy one of our cars!”

Let’s review

Here’s the premise: they want a CAR SALESMAN to do your tax return 5 months early; and then sell you a car, based on what they guess your tax refund amount will be.  This reminds me of a scene from the movie “Stripes.”  John Candy is playing poker with a fellow soldier who is not the sharpest guy.  After looking at his buddy’s cards and realizing that he is going to win the hand, John (pretending to help the poor guy) utters the famous line ‘Go ahead….Bluff me!’  The metaphor is perfect, here.  THEY prepare your return; THEY make a separate tax-preparation fee based on how high your refund is; THEY make another commission selling you a car (and THAT is based on how much they can jack up the price) Does this sound good to anybody?

Eee-gads.  Where to start?

First of all, there is no shortage of print materials about what an incredibly bad idea, getting a Tax Refund-Anticipation Loan (or RAL) is.  (You can click HERE,  HERE,  or HERE to find an echo of the message to stay away from Tax Refund Loans) You will be paying an artificially high percentage of your refund to somebody whose business model is based on their ability to rake you over the coals. (It’s no secret that the typical RAL fee depends on how high the tax refund is)

Second of all, the refund-loan people are not signing your return and are (almost always) NOT public accountants. Why should this matter?  Because, if they make a mistake and short the IRS,  YOU will be the one who has to pay the amount you really owe.  (part of the problem with this idea is that they have  a tremendous incentive to somehow, some way show that you are getting a refund.  After all, if it looks like you owe money to the IRS, do you think you are going to buy one of their cars? So, you are having someone who has a financial incentive to ‘miss’ bad news prepare your tax return) 

“But,” you say “my tax return was Easy-Peezy last year.  I only have one job and don’t take many deductions.  How hard could it be to do my taxes and give me the right amount back?”   You’re right, it’s not so hard . . . . when they do this in January.  At that point, there’s no question about how much you made, and how much the Government has to repay you.  No guess-work.   But, if they do your 2013 taxes, before the year has ended, they are guessing about how much you will make and how much you should get back.  (if they’re not guessing, at least they are trying to predict the future)  What they don’t tell you is that you are the only one who is gambling, here.  They make their money either way.

Since they can look into the future, let’s try to do it ourselves.

What will happen if you let the car salesman do your taxes now, but they figure out in January that it was wrong and your refund is smaller than they thought.  You’ll get a call from the car lot that goes something like this:

“Uh yeah, remember that car that you bought from us?  You know, the one that had a 30-day warranty; but, had the transmission break on the 33rd day?…..and, after we refused to honor the warranty, you spent your Mother’s last thousand dollars to fix it.  Yes, that one!  Do you remember how we reduced the sale price of the car by $2,000, because that’s what your tax refund was going to be?  Unfortunately, the IRS says that your refund was really only $800.00.  Boy is egg on our faces! We’re really sorry. 

Oh, you don’t have the money?  Gee, that’s too bad, because you signed a paper that says that you understood that we’re not accountants and that we just might ‘goof up’ when making out your return (nobody’s perfect!).   And, I don’t know how to say this; but, you also signed a paper that said that if the refund was reduced for any reason (and, I realize that we told you that this would NEVER EVER happen ….Woops!) – you signed a paper that said if this ever happened, we would be able to repossess your car to make up the payment.

What’s that? The car still doesn’t run? Oh, don’t worry about that, we have a tow-truck.  (this happens all the time!)”

C’mon how much could change in six months, anyway?

Besides the list of 5 things that the IRS says to look out for when using a paid tax preparer (By the way, our car dealer violates almost every one of the IRS’ no-no’s) Here is a list of things you don’t think could happen (but just might) that would put you on a fast-track to hearing the conversation that you just read about.

    • Tax law changes – How many of us remember that the tax laws changed on the last day of December 2012?  That’s right, when the ‘sequester’ kicked-in at the end of 2012, the IRS had to re-do some of their rules and manuals and it took until mid-February for them to start handing out refunds.   So, THAT could change; 
    • No money for X-mas bills – Nearly everyone counts on the tax refund to give them a little pick-me-up when the December credit card bills come due.  If you can actually remember using your income-tax refund check to pay bills last year, you’re probably gonna need that money again NEXT year. Don’t spend it now!;
    • Job changes/life changes – If you can guarantee that you’ll still have the same job you’re in now and make the same amount of money come January, raise your hand.  And, that’s the point.  If you do your tax return now AND spend the money, any income hiccup that might occur between now and the end of the year would be all on you.

The next time you hear a commercial like this, if you’re even tempted to let a car dealer do your taxes 5 months too early JUST A LITTLE, hit the snooze button. (Or better yet – smash your alarm against the bedroom floor.  You’re better off asleep)

Posted by: Mark Wiseman (who would need a LOT of Starbucks, before he could be a morning DJ)