Tax season or BUST! How tax time has become a TRAP for low-income taxpayers…
As 2020 came to a close and the end of January came and went (although the IRS just announced it will delay the start of tax season until February 12th), Americans prepare for the annual event that is tax season. According to Tax Policy Center, in recent tax years, more than half of Americans with an Adjusted Gross Income (AGI) less than $50,000 used a paid preparer to file their taxes. Except in a handful of states, paid preparers are not regulated. A recent study by Johns Hopkins revealed that some tax preparation businesses are using unsettling tactics to take advantage of low-income taxpayers and the money they are eligible to receive during tax time.
Studies also have proven that tax returns completed by preparers were not on average more accurate than self-prepared returns and often included mistakes with the tax filers earned income tax credit (EITC). Since 1975, the EITC has become one of the largest anti-poverty programs in the United States distributing billions of dollars to low and moderate-income workers.
For the 2020 tax year, the EITC tax credit ranges from $538 to $6,728 depending on the tax-filing status and number of children per household. To be eligible for the EITC, a taxpayer must have at least $1 in earned income and must meet other income limitations to qualify for the credit. The Progressive Policy Institute revealed that taxpayers eligible for the EITC spent as much as 22% of their refund on filing costs (averaging around $400). In addition, tax preparation chains have routinely targeted areas where the largest amount of EITC claims are made. Zip codes with the highest level of EITC filers have approximately 75 percent more tax preparers per filer than moderate-EITC zip codes.
Nearly every single one of those TAXPAYERS ARE ELIGIBLE FOR FREE TAX PREPARATION! Unfortunately, the paid tax preparers spend a lot more money marketing their above-average cost tax preparation than the government is willing to invest in marketing programs like Volunteer Income Tax Assistance (VITA), the IRS’s free basic tax preparation by certified volunteers for qualified individuals. So, what should you look out for when choosing a tax preparer?
3 warning signs it may be a predatory tax preparer:
1. Preparer claims to be endorsed by the IRS. The IRS does not endorse any tax preparation individuals. By law, every tax preparer is required to have a Preparer Tax Identification Number (PTIN) and will be listed in the PTIN directory. You can look up the list here: https://irs.treasury.gov/rpo/rpo.jsf But remember, being listed here does not serve as an endorsement by the IRS and anyone who claims “he/she is endorsed by the IRS” raises a red flag.
2. They are getting paid based on a percentage of your return. These tax professionals will often beef up returns with information that’s incorrect or not allowed as a deduction, i.e., an exaggeration of charitable contributions, unreimbursed employee or office expenses that are not allowed, and more.
3. Location. Location. Location. Questionable tax preparation services often set up shop in temporary pop-up locations. It should raise a red flag if the tax preparation business isn’t there long before tax season and leaves shortly afterwards. Remember, if there is a problem with your return, they won’t be there to answer your questions (if they have left that location).
Bottom line, if you are paying more than ZERO dollars for tax preparation with an Adjusted Gross Income (AGI) of less than $66,000, YOU ARE PAYING TOO MUCH! Learn more about VITA now by clicking here.
Click the MyFreeTaxes logo below for free online tax prep... everyone is eligible!