It is that dreaded time of year when our mailboxes start to fill with those W-2, 1099s and other forms that indicate to us what might be taxable income. Some people simply throw all of the tax documents in a shoe box or plastic bag, and take them to a CPA or storefront tax service for completion of 1040 forms and schedules. Many others collect their tax documents and use one of the many commercially available boxed income tax programs from the likes of H&R Block or Intuit’s TurboTax.
For those eligible, there are a number of respectable companies that offer free online tax calculations and e-filing. According to the IRS, about 70 percent of all taxpayers have an AGI (adjusted gross income) of $57,000 or less, making them eligible to use one of the many free online tax services that are members of the IRS Free File Alliance, the listings of which will be available on the IRS website at freefile.irs.gov starting on Jan. 22.
According to the IRS website, “The Free File Alliance, LLC is a group of industry-leading private-sector tax preparation companies that have agreed to meet the IRS’ high standards for security and privacy and provide tax software options for free.” Over 20 tax preparation services, all members of the Free File Alliance (freefilealliance.org), have offered free online tax calculation and e-filing services to those eligible. Generally, anyone with an adjusted gross income of $57,000 or less is eligible for these free filing services. Some of the services are only available to residents of specific states, while others have other restrictions. Some of the online services also have special arrangements for military families, students or retirees. Most of these services only prepare simple tax returns, which might not be appropriate for many people. All of them meet IRS requirements for safety, security, accuracy and privacy, and will electronically file (e-file) the tax return with the IRS when completed, providing the fastest possible refunds for those receiving them.
No special tax knowledge is necessary in order to utilize these free online services as they use a question-and-answer method to solicit appropriate information from the taxpayer, providing explanations as they go along. All of them will make the necessary calculations, freeing the individual up from trying to comprehend the massive IRS tax tables.
Among the better-known companies offering free online tax preparation and e-filing is H&R Block, with its “H&R Block At Home Free.” This online service is intended only to complete what it calls “simple tax returns.” H&R Block says, “A simple tax return excludes self-employment income (Schedule C), capital gains and losses (Schedule D), rental and royalty income (Schedule E), farm income (Schedule F) and shareholder/partnership income or loss (Schedule K-1).” Taxpayers with any of these forms of income (or losses) will have to use one of the commercial products or paid preparers. This free online product offers many of the same benefits and services as its commercial (paid) counterparts, including H&R Block’s “Accurate Calculations Guarantee” and “Worry-free Audit Support.” The number of IRS forms and schedules that can be completed by this free service is arguably the most comprehensive list available in a free service. H&R Block’s free online service will complete a 1040EZ, 1040A or 1040 as appropriate, along with any additional forms or schedules, as determined by a comprehensive and easy-to-understand interview process. This interview process is somewhat intelligent in that it will attempt to find all lawful deductions and credits in order to maximize any refund or minimize any taxes due.
Another extremely popular tax preparation software or online service is TurboTax, which also offers a free online service for simple. As do most of the other free online tax services, TurboTax uses an easy to follow interview procedure in order to determine the proper forms to use and calculate the proper taxes. According to TurboTax, “We ask questions in plain English and then put your answers on the right forms for you, including 1040EZ, 1040A and 1040. TurboTax skips interview questions that don’t apply to you so you can finish your return faster.” Also, TurboTax guarantees the largest possible refund as well as audit support, if necessary. For those who start with the TurboTax free edition but later find that one of the paid versions of TurboTax would be more advantageous, the free edition will prompt the user if a different TurboTax product would be better for them and will automatically fill out the upgraded (paid) version with the information previously entered into the free version. TurboTax will check the return for accuracy, and then e-file it with the IRS, quickly getting the user a refund if one is coming. Previous users of TurboTax can import last year’s data into this year’s product, speeding up the process. State tax returns can be completed, if necessary, for a nominal fee.
One of the more unusual free online tax services is FreeTaxUSA (freetaxusa.com), also listed online as “TaxHawk,” an identical product and service. FreeTaxUSA differs from all of the other free online tax services in that it is explicitly free for everyone, not just those with an AGI of $57,000 or less. According the FreeTaxUSA website, “Our free service covers a wide range of federal returns, including investment, self employed, home ownership, rental income, farm income, and other tax situations.” Unlike most of the other free products, this service is also available for those with other forms of income and expenses, including, capital gains, office & business expenses, rental income, investment income or losses, traditional and Roth IRAs, retirement and pensions, military income, charitable contributions, gambling income, and farm income. For those who may need additional priority support and services, a deluxe edition is available online for $5.95. State taxes can be completed and e-filed by FreeTaxUSA for $9.95. FreeTaxUSA says it has processed more than 8 million free tax returns.
Another unusual but popular free online tax service, TaxACT, also offers free online tax preparation for everyone, including both simple and complex returns without the income restrictions (taxact.com). According to the TaxACT website, it is “the most complete free tax filing solution for everyone!” A somewhat unique benefit offered by TaxACT is not just that it is available for free online preparation, just like all of the other free products, but it also offers the complete program as a free download, such that it can be completed offline on the computer, rather than online in a Web browser. TaxACT offers guaranteed accuracy, guaranteed largest refunds (if eligible), and audit assistance. Users of either the free online or free downloaded versions can also complete a state tax return for a fee of $14.95. For families with college age children, or adults contemplating a college education, TaxACT also offers a “College Student Financial Aid Worksheet,” which enables the user to easily complete the FAFSA (Free Application for Federal Student Aid), which is a requirement to get financial aid at almost all colleges and universities. For those who may need additional services, TaxACT offers a Deluxe Federal version for online use or download for $9.95, and a bundle with both the Deluxe version and state program for $17.95 (download or online). For the extra $3, those living in states that have a state income tax may find the Deluxe bundle advantageous over the free version plus the state filing.
With dozens of free online tax services available to the 100 million taxpayers with an AGI of $57,000 or less, and at least two free services (including one with free downloadable software) available to everyone regardless of income or family status, the old paper and pencil tax forms are now virtually obsolete.
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