How Do you do as a Tax Preparer to receive your client's Tax money and give him a Cash Advance or loan for it?

Answer 1

The tax preparer cannot take possession of the client's tax refund. That is against IRS regulations. The process is a three party transaction with the client, the tax preparer, and a bank.

The tax preparer partners with a bank. The bank loans the client the refund amount (less fees to the bank and to the tax preparer). The money may be instantaneous, or in 1 or 2 business days. The client signs a loan agreement with the bank, which allows the bank to receive the client's refund in repayment of the loan. The bank receives the refund, the loan is paid off and the bank pays the tax preparer.

The entire process normally takes from 8 - 15 days. The current APR on these loans is as low as 36%, far below what the rates were a few years ago before the industry became extremely competitive.

Answer 2

I don't! I could go to jail if I did!

Some tax prep firms have partnered with banks to provide short-term loans equal to the taxpayer's refund, less any tax prep fees and the fees and interest for the loan. One such bank is HSBC -- a British bank actually headquartered in China. (Bet you didn't know THAT!)

The drawback with these loans is that the fees and interest are EXTREMELY high. I've seen interest rates over 2,500% APR! If you have your return e-filed and deposited into your bank account directly, you'll normally see your refund in 8 to 15 days. That loan will get you your money about 5 to 12 days faster, that's all.

Personally I recommend that people NOT take those loans unless you are facing immediate eviction or need the money to feed your children. If you're planning on buying a new HDTV or take a vacation with it, skip the loan; you'll have a LOT more money in your pocket to splurge by not taking out the loan.

If you are expecting a large refund and ARE facing eviction or hungry kids, have your withholdings adjusted at work so that you get more money in your take-home pay so you won't get yourself in that situation again.

Making an interest-free loan to the government is just plain dumb, IMHO. I'd much rather pay a few hundred when I file than ever get a refund. That way I'M in control of my money, NOT the government!

Answer 3

You can't. It is against the law!

A law was passed years ago forbidding tax preparers from receiving client refunds directly.

To do a loan or advance on the refund, it must go through a financial institution.