Post: #1

Short story, by luck and intrepid endeavor I have learned the business model for low income tax preparation. I know how it works and how the money is made and it is akin to a cash advance/paycheck loan type market.

The customers are "need cash now" types who are in line to get a hefty tax refund, the tax preparer partners with a bank to hand them a refund check minus fees...and the fees are crazy for the simplicity involved with someone working a wage earning job.

Here's the catch, its all in the marketing. There are VITA tax centers all over america run by volunteers that will do a person's taxes for free if you make under 58,000. You get your refund via direct deposit and pay fees to no one.

I am undecided if this is an avenue I should pursue, the money would be good but part of me feels like its running a legal scam...ie like setting up a "borrow books for 25 cents" stand in front of a library.

I'd be interested in hearing from others who have incomes made from low income customers.

Post: #2

Money has no morals. It changes hands from the poor to the rich and back again.

I see nothing wrong with that type of business, as long as you run it legally.

Wal-Mart also caters to low income people, is that immoral?

People make choices everyday, no one's putting a gun to their head and forcing them to come to you to have their taxes done.

If you decide to do it, get ready to make some big money off of it.

Cash advance companies (similar) absolutely kill it.

Post: #3

I actually got my taxes done this year by those volunteers. I was debating trying to become a volunteer next year just so I could learn how to do it.

Post: #4

Dr. Howard, you are providing a service. Basically, you are doing a form of asset based lending. You know what they are getting (a refund which to them is a receivable - so an asset). You are providing liquidity.

Since you know people do this already, you know there is a business for it.

If you want to feel like you were up and up about it - you can explain to them the financial implications of taking the immediate cash.

I'd get my hands on those forms that the other places use, I am sure there is plenty of legal nonsense that you need to write into the contract.

Post: #5

Don't think of it like you are taking advantage or hurting them. Your providing a service that they want. If anything, you should be feeling like your service is helping the poor (your customer), not hurting them.

Post: #6

Dr. Howard, Liberty Tax, Jackson Hewitt, and H&R Block are already in this business. They make their money by partnering up with a bank or if the customers do not have one they will give them a debit card for a fee. Back in 08, H&R block made paying by peddling mortgages to their tax customers.

It is a good business model but there is a lot of competition in the space. Just something to think about.

Post: #7

Do it. Everyone makes money off everyone, provide a service, get the rewards.

Post: #8

(04-15-2014 08:59 PM)Dr. Howard Wrote:  Short story, by luck and intrepid endeavor I have learned the business model for low income tax preparation. I know how it works and how the money is made and it is akin to a cash advance/paycheck loan type market.

The customers are "need cash now" types who are in line to get a hefty tax refund, the tax preparer partners with a bank to hand them a refund check minus fees...and the fees are crazy for the simplicity involved with someone working a wage earning job.

Here's the catch, its all in the marketing. There are VITA tax centers all over america run by volunteers that will do a person's taxes for free if you make under 58,000. You get your refund via direct deposit and pay fees to no one.

I am undecided if this is an avenue I should pursue, the money would be good but part of me feels like its running a legal scam...ie like setting up a "borrow books for 25 cents" stand in front of a library.

I'd be interested in hearing from others who have incomes made from low income customers.

I had a buddy who did something similar a few years back. He was in the mortgage industry but not the same as it used to be. During tax season he'd rent a small office from my gf at the times dad for like $300 a month. It was right behind a old people home and in a lower income area with lots of cheap apartments walking distance to the office. He would do peoples taxes, charge like $75 to $150. It was basically all very simple stuff none of these people were itemizing it was like a simple 1040 return with like one or two w2 for everyone. He could do their taxes in probably less than 5 minutes. Like you said these people could very easily use the free online services for ez 1040s or even go to the public library or one of the many places they do it for free but he still got good business.

He didn't get inot the loan side of things though. That would scare me. I know nothing about the industry but does their return go straight to your bank or is there anyway they could fuck you, take your loan and keep their return? That is what would scare me. Also legally I think that complicates things with how high of a % you can charge on a loan, recordkeping, etc. Also, what happens if these people lie and get a higher return like don't give you all their w2's or something. Then the gov wants more money, are you tied into that because you got their original return?

Post: #9

I don't see any problem. You are using your expertise to calculate and maximise the tax refund they are entitled to and providing the cash to them far in advance of when they'd receive it by filing the taxes themselves.

I also don't like the payday loan type companies and the interest they charge, and approve of attempts to reign them in. But if the state thinks this sort of tax preparation service is predatory they must pass laws banning/regulating it. If it makes you feel better you can state outright to your clients, after calculating the refund, that their refund would be $837 and received in three months time if they filed themselves, but of you file for them you'll give them $763 today and they can be on their way. Most will still allow you to file for them. i.e. You can be completely up front and honest and keep almost all of your business.

Post: #10

This sounds like the payday loan system where business exploit the desperates of the population. If someone is a decent and honest individual with morals, it is something you would avoid (unless you are desperate for money yourself!).

Post: #11

Ask yourself if your slave owner/boss has these same qualms when deciding not to give you a raise this year.

Your not exploiting these people, simply offering a service. If it does make your feel bad on a moral level then if your doing good ($) then just give back to the community. You can volunteer to referee some basketball games, or help plant a garden or something.

I'd rather hustle wealthy people for their money...that is just me... but I have no issues making that money off anything, or anybody, as long as its clean.

Post: #12

The tax preparation industry seems, to me, like a mess.

Post: #13

Thanks for the feedback guys.

McQueen - I see your point, I'm a fan of Walmart already and I don't balk at their in store check cashing etc.

Osiris - yes, they'll train you at a VITA center http://www.irs.gov/Individuals/IRS-Tax-Volunteers

Samsamsam - the banks handle all of the forms, legal things and there are ones that specialize in this so they make it easy for the preparer

Lou Pai - HR block, liberty etc do the same but their franchise owners usually started out doing it on a small scale and then bought into the franchise later one, something I'd probably do when it got established.

Jamaica - the loan side is where the better money is on low income tax prep as for risk if a a person game me a false W2...its on them, as long as I can show that I saw it, its fine. They attest to the validity by signing the return.

Kosko - good idea on the volunteer work, or even just providing a donation with part of the money. I already work for myself, making money off of people on the other end of the spectrum.

Yeti - I'm behind more regulation, the ways that one can really work the system with illegal abuse people is wide open right now and they have to be caught after the fact. Organized crime also seems to like it for false returns...something like 4 billion worth of false or stolen identity returns were filed. Thats why its good to file your taxes early, once your SSN is in the system with a 'current year return' check box beside it the system bounces out and false returns filed with your number filed by identity thieves.

Post: #14

(04-16-2014 07:51 PM)getinherenow Wrote:  This sounds like the payday loan system where business exploit the desperates of the population. If someone is a decent and honest individual with morals, it is something you would avoid (unless you are desperate for money yourself!).

This is actually more or less true, except for the desperation thing. People who are desperate for money aren't smart enough to sell people payday loans, they're the ones applying for payday loans. Slinging payday loans IS a really shitty thing to do, but who cares really. If you don't sell it then somebody else will. The way I see it, money is better in my pocket than somebody else's. When you start running shady business it feels weird, but as soon as you start making money from it you'll quickly stop caring.

Post: #15

I get where your comming from from an ethical standpoint however essentially everyone pays more for not being rich. Look at an upper middle class family in a mcmansion. They are paying 5% for 30 years comming to hundreds of thousands in interest. Why because they dont have that kinda cash upfront and thats what mortgages cost. Same way with lower income people they dont have money and are a high risk so theyll pay more as well. I agree with sum other posters. Tho not even really necessary if you wana be upfront and be a nice guy outright tell people your fees. i would bet 90% of peoole will use your service anyway

Post: #16

Poor people are desperately under banked for various reasons.

Poor folks in Appalachia have different issues than ones in the Southside of Chicago or in East LA, but for the most part retail Banks don't find those places profitable. Either the population doesn't bring in the savings deposits for them to make loans on, and the retail checking aspect costs them money in terms of personnel.

So coming in to assist with financial matters to population that is typically undeserved, is doing them a service.

If you feel that you're "ripping them off" by offering a rapid refund, you're assuming that they don't need the money RIGHT NOW. 3 weeks can often mean the difference between having a running car, and being out of a job because your car isn't running and the bus isn't reliable.

The more studies you read, the more you realize how financially sophisticated the unbanked are, but have to resort to
- payday loans
- check cashing
- making money under the table
- in store credit

Because of 1) lack of truly gainful employment in their area, 2) poor decisions - avoidable or unavoidable in the past.

The other thing is, Jackson Hewitt, H&R Block, Liberty Tax, and a bunch of other people have figured out what a lucrative market this is. Competition drives down prices, basically making it a win/win for everyone.

But if the whole thing is distasteful to you, and you really want to help poor people...

Open a factory or business that will train folks on the job and not require technical certification or a college degree.

If it works in Bangladesh, China, and Mexico, then it works here

WIA

Post: #17

I import products from factories where I know the workers make less than 1$ a day.

If I dont buy they dont work then they dont eat.

Besides its hard to feel a lot of regret (let alone guilt) when you fire up your AMG

Post: #18

"It’s immoral to let a sucker keep his money” - Canada Jones Bill