Don't Get Taken by a Tax Scam

March 24, 2006— -- I doubt you need me to remind you that tax day is right around the corner. But I do want to remind you about some problems you could face because of other peoples' greed or your own missteps. Tax time can be a drag, but if you're not careful, you can make things even harder on yourself.

If you're one who doesn't mind tax time because you love getting a refund, a few words of caution: Many accountants and tax preparation firms offer what they call rapid-refund loans or refund-anticipation loans. They sometimes put the word "loan" in smaller print. These companies hype the fact that you can get your refund money in 24 to 48 hours. But they downplay the fact that it'll cost you a lot of money.

You see, when you participate in one of these programs, the money you're getting is not coming from the IRS. It's a loan from the tax prep company. With fees and interest, this loan can cost you up to 30 percent of your refund. Expressed as an annual percentage rate, or APR, it can be as much as 116 percent! Say you're expecting a $1,500 refund -- that's $450 that you're giving away for no real reason. And that's just the cost of the loan. The price of preparing your return is not included in that!

Sometimes it's best to stick with specialists for your various financial needs. One state has just filed suit against a nationwide tax prep firm, saying the company steered its tax clients into expensive Individual Retirement Accounts. The lawsuit says the IRAs were bound to lose money because of hidden fees and low interest rates, and it also alleges that 85 percent of customers' accounts have decreased in value so far. Listen, it's a great idea to use your tax refund to start a retirement account, but it's best to carefully research the financial adviser and type of account before committing.

For years we've all received "phishing" e-mails that look like they come from banks and ask us for our personal financial information. If you fell for it, the bad guys might have used your data for identity theft. Of course, if you didn't have an account at the bank named in the e-mail, you were bound to be suspicious.