When expecting tax refunds, cash-strapped households might consider refund anticipation loans or RALs. However, Better Business Bureau of Southern Arizona warns filers that RALs come with risks.

Based on taxpayers’ expected tax refunds, these short-term loans typically target low-to-moderate income families who could benefit from immediate cash. RALs can carry annual percentage rates as high as 500 percent. In fact, these loans are so expensive that the Military Lending Act bans them for service members.

“With tax refunds, patience is a virtue,” says Kim States, BBB president. “Waiting extra weeks for tax refunds can save consumers from ‘over borrowing,’ excessive fees and high interest rates.”

BBB encourages eager refundees to remember these points:

• RAL recipients are responsible for repaying the total loan amounts, even if tax returns are less than expected.
• Understanding the terms and conditions of RALs is critical. According to The Center for Responsible Lending, the average RAL APR in 2010 was 149 percent. Unexpected fees can cause serious financial damage.
• The Federal Deposit Insurance Corporation has forced all major national banks to discontinue these types of loans. Be wary of sketchy lenders, both online and off.

Don’t bet when borrowing; visit bbb.org.

During tax season Better Business Bureau of Southern Arizona advises taxpayers to take the proper steps to avoid making mistakes when selecting tax preparation help to avoid costly mistakes on their returns.

Since the beginning of January, BBB has received over 500 inquiries from consumers into Southern Arizona tax preparation services- a 95 percent increase over the same period a year earlier.

“The increase in our inquiries about tax preparation shows that people are being more cautious about who they choose for assistance in their taxes,” said Kim States, BBB president. “Your BBB advises taking the time to be thorough the first time around to avoid a headache in the future.”

Denisse DiPierto, owner of Ms. Tax- a Tucson accountancy- told BBB that consumers should take a long look at a tax preparer’s track record before bringing their business to them.

“Consumers should go to an experienced and ethical professional who knows the tax law,” DiPierto said. “The cheapest isn’t always the best- you want someone who really knows the tax laws, and will take every allowable deduction on your behalf.”

DiPierto stressed that since taxes and financial matters have so many legal ramifications it’s extremely important that consumers do their homework before hiring anyone. BBB reminds consumers that if a mistake is made on their tax return the IRS will hold them solely responsible for it, not their tax preparer.

BBB Tips:

Ask around. Get referrals from friends and family on who they use, and check the BBB Reliability Report on tax preparation services free-of-charge at www.tucson.bbb.org.

Look for credentials. Ideally, tax preparers should either be a certified public accountant, a tax attorney, or an enrolled agent. All three can represent taxpayers before the IRS in all matters, including an audit. Also, find out if the preparer is affiliated with a professional organization that holds its members to a code of ethics.

Don’t fall for the promise of a big refund. Be wary of any tax preparation service that promises larger refunds than the competition, and avoid any tax preparers who base their fee on a percentage of the amount of the refund.

Think about accessibility. Many tax preparation services only set up shop for the months leading up to April 15. In case the IRS finds errors, or in case of an audit, consumers need to be able to contact their tax preparer throughout the year.

Read the contract and know what you’re paying for. Consumers must read tax preparation service contracts closely to ensure they understand issues such as, how much it is going to cost for the service, how the cost will be affected if preparation is more complicated and time consuming than expected, and whether the tax preparer will represent the consumer in case of an audit.

For more trustworthy advice from BBB on tax preparation visit www.tucson.bbb.org or call (520)888-5353.

Better Business Bureau of Southern Arizona warns taxpayers that they are not exempt if their tax returns are prepared improperly by third-party professionals. BBB advises consumers to evade unqualified tax preparers:

Designations: All tax professionals should be able to provide proof of credentials. Turn to the Internal Revenue Service for insight on Enrolled Agents or EAs.

Standings: Check for registration status and disciplinary actions through state and federal agencies. Beware of unanswered or unresolved complaints on bbb.org.

Advertisement Claims: Watch out for those who assert that they can secure higher refunds or deliver faster than other professional preparers.

PTINs: Ask preparers to disclose Preparer Tax Identification Numbers or PTINs before providing services. PTINs should also be enclosed on completed tax returns.

Service Fees: Get costs upfront and in writing. Look for flat fees; avoid rates that fluctuate based on refund percentages.

Electronic Filing: Paid preparers should be able to process returns electronically through IRS e-file, unless clients opt to file paper returns instead. The IRS lists authorized e-file providers.

Documentation: Be wary of those who offer to file without W-2s, records or receipts. Review returns and other tax forms carefully; be skeptical of preparers who try to rush the process, don’t answer questions and encourage clients to sign blank documents. After filing, retain original W-2s and copies of completed tax returns with preparer signatures and PTINs.

Contacts: Ensure preparers will be accessible in case questions or issues arise, even after April. Collect full contact information.

Taxpayers have the right to prepare their own returns. The IRS offers resources at irs.gov/filing.