Saving

Taxpayers Beware: Here’s Who’s After Your Refund

Kelli Grant@kelligrant

QUOTE OF THE DAY

“Success is to be measured not so much by the position that one has reached in life as by the obstacles which he has overcome while trying to succeed.”—Booker T. Washington

(February is Black History Month.)

GROW STRONG

Credit: Witthaya Prasongsin | Getty Images

Say it with me: “Hands off my refund.” Your income tax refund is probably one of the biggest paydays you’ll get all year. The average refund runs about $3,000, and can top $6,000 if you’re claiming certain breaks. It’s money a lot of us count on, to catch up on bills and get ahead financially.

So you need to know about certain products your preparer might pitch to reduce what you get:

  • Refund anticipation loans (RALs) let you borrow against your tax refund, to get part of it immediately.
  • Refund anticipation checks (RACs) don’t get you your refund any faster. But they do let you postpone paying your tax preparation fees until your refund arrives.

Consumer advocates don’t like RALs or RACs, for the simple reason that they can be really expensive. And some of the fees that can kick in aren’t immediately apparent, says Scott Astrada of the Center for Responsible Lending.

“Many times, it’s not as clear-cut as saying, ‘This is the fee,’” he says. “Every $10, every $20, every $50 taken out adds up.”

Think of it this way: The average credit card interest rate is about 17.5 percent. Paying a $40 fee for a RAC to hold off shelling out a $300 tax prep fee for three weeks seems like small change. But it’s like paying a rate of 232 percent on that loan, according to the National Consumer Law Center.

One easy way to sidestep RACs (and the tax prep fees you’re trying to postpone) is to see if you qualify for free tax prep. We talked about how to do that earlier this week. About 100 million people qualify for the IRS Free File program, but only 3 million use it.

If you need early access to your refund, take time to carefully compare your options, Astrada says. Get a full sense of all the fees associated with RALs, and see how they stack up against other products. Community banks and credit unions often offer small-dollar, short-term loans that are cheaper, he says.

That leaves you with more of your refund to help you grow.

WHAT’S GROWING ON

SAVE: Once more, unto the (data) breach

Geez, everyone wants a piece of your tax refund. Even scammers.

A new report from the Identity Theft Resource Center found 1,244 data breaches last year. That’s down from 2017. But the number of records involved in those breaches more than doubled, to almost 447 million. (See chart below for some of the highlights.)

What did they take? Social Security numbers. Credit card details. Login credentials. And much more.

Having your SSN out there is dangerous on its own. For example, at tax time, thieves can use it to file fake returns in your name—snaring your refund and creating a mess with the IRS.

There are a few easy-to-implement lessons researchers spotted that can help you keep more of your personal data safe:

  • Use unique login combos. That prevents hackers from setting off a domino effect, using information they gather in one breach to crack more of your accounts. At the very least, make sure key accounts like your email and bank don’t have passwords in common.
  • Limit what info you give out. Especially your Social Security number, which can be used to perpetuate all kinds of identity theft.
  • Monitor your accounts. Sign up for alerts from your bank to get texts about unusual activity. Check your statements regularly, too.

And one more tip from me: Think about getting your tax return in sooner rather than later this year.

SPEND: Above-the-line vs. below-the-line deductions

Earlier this week, we went over the difference between a credit and a deduction. (To recap, credits are more valuable.) When it comes to deductions, there’s another comparison worth exploring: so-called above-the-line deductions and below-the-line deductions.

So, what’s this line we’re talking about?

Before the tax forms changed this year, the line was the literal end of the first page of the Form 1040. All the above-the-line deductions were listed on that first page, says Tim Steffen, a CPA and director of advanced planning at Robert W. Baird & Co. in Milwaukee. Below-the-line deductions were tallied on another form, called the Schedule A, with the total listed on the second page of the 1040—“below the line.”

(This year’s revamped, postcard-sized Form 1040 doesn’t include any deductions. All of those appear on something new called a Schedule 1.)

But the more meaningful difference in those two kinds of deductions is your ability to claim them. Above the line, “if you have it, you get it,” Steffen says. For example, if you meet the qualifications to claim the break for moving expenses, IRA contributions or student loan interest paid, among others, you can do so.

Below-the-line breaks include those for charitable donations, state and local real estate taxes, and so on. “Those are the ones you only get if you itemize,” he says—which means the value of those deductions is greater than the standard deduction. (This year, that’s $12,000 if you’re single and $24,000 if you’re a married couple filing jointly.)

It’s a high bar. Before the new tax rules went into effect, just about 30 percent of taxpayers itemized, according to the Tax Policy Center; this year, far fewer people are expected to.

INVEST: Building your business for 20 percent off

Credit: Caiaimage | Agnieszka Olek | Getty Images

Add “juicy tax break” to the growing list of reasons it’s awesome to work for yourself. Whether you’re a full-time entrepreneur or have a side hustle, you may be able to deduct up to 20 percent of your qualified business income under the new tax rules.

As CNBC reports, there are a lot of ins and outs, with requirements around the structure of the business, the industry you’re in and how much you make. And there’s still some confusion over who qualifies for the break, especially as the IRS continues refining the rule.

But the rule is friendlier for solopreneurs. No matter what industry your small biz is in, you can take the 20 percent deduction if you have taxable income that's less than $157,500 as a single filer (or $315,000 if you’re married).

INSPIRE: Tackling poverty through an NFL award

Credit: Scott Cunningham | Getty Images

J.J. Watt of the Houston Texans presents the Walter Payton NFL Man of the Year trophy to Chris Long of the Philadelphia Eagles.

Kudos to Philadelphia Eagles star player Chris Long, the newly minted 2018 Walter Payton NFL Man of the Year. Each year, the award recognizes a player who excels at the game and gives back off the field. It comes with a cool half a million in donations—$250,000 made in the winner’s name to the United Way’s Character Playbook program to help teens and tweens develop healthy relationships and a $250,000 gift to the charity of his choice. Long’s foundation, whose initiatives include access to clean water and military veteran support, will receive the second part of that donation.

"I am incredibly thankful that football has provided me with a platform to give back," Long tells Around the NFL. “I am proud that so many of my colleagues have decided to use this stage to create positive and impactful change in our local communities and around the world.”

GROW A LITTLE EVERY DAY

A moment of mindfulness.

“We can do no great things, only small things with great love.”—Mother Teresa

EMAIL US

We’d like to hear the financial goals you’re fired up about and the milestones you’re hoping to achieve. Let us know your best strategies and successes. If you need us to tackle a specific topic, just ask! We’re in this together, so let’s get this conversation started. Send an email to getgrowing@cnbc.com.

Disclosure: NBCUniversal and Comcast are investors in Acorns.

acorns+cnbcacorns cnbc

Join Acorns

GET STARTED

About Us

Learn More

Follow Us

All investments involve risk, including loss of principal. The contents presented herein are provided for general investment education and informational purposes only and do not constitute an offer to sell or a solicitation to buy any specific securities or engage in any particular investment strategy. Acorns is not engaged in rendering any tax, legal, or accounting advice. Please consult with a qualified professional for this type of advice.

Any references to past performance, regarding financial markets or otherwise, do not indicate or guarantee future results. Forward-looking statements, including without limitations investment outcomes and projections, are hypothetical and educational in nature. The results of any hypothetical projections can and may differ from actual investment results had the strategies been deployed in actual securities accounts. It is not possible to invest directly in an index.

Advisory services offered by Acorns Advisers, LLC (“Acorns Advisers”), an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”). Brokerage and custody services are provided to clients of Acorns Advisers by Acorns Securities, LLC (“Acorns Securities”), a broker-dealer registered with the SEC and a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Acorns Pay, LLC (“Acorns Pay”) manages Acorns’s demand deposit and other banking products in partnership with Lincoln Savings Bank, a bank chartered under the laws of Iowa and member FDIC. Acorns Advisers, Acorns Securities, and Acorns Pay are subsidiaries of Acorns Grow Incorporated (collectively “Acorns”). “Acorns,” the Acorns logo and “Invest the Change” are registered trademarks of Acorns Grow Incorporated. Copyright © 2019 Acorns and/or its affiliates.

NBC Universal and Comcast Ventures are investors in Acorns Grow Incorporated.