It is that time of year again. We are in the process of receiving W-2 forms, 1099s of various types, and other documents that we will need in order to prepare our income taxes. While many people still use the paper-pencil-calculator method of completing the mandated Federal tax forms, there are a variety of free online and downloadable tax software packages that are available, as well as several popular commercially available income tax packages, with TurboTax and H&R Block at Home (formerly known as TaxCut) being the top selling commercial packages. For those who prefer to have others prepare their taxes, CPA firms and storefront tax services are readily available.
As it has done in the past, the IRS has compiled a list of 16 approved online tax preparation services on its FreeFile Web site (apps.irs.gov/app/freeFile ) that will, for free, prepare and e-file federal income taxes for eligible individuals. While the eligibility standards for each of the IRS listed free services varies, the IRS still claims that about 70 percent of all individuals are eligible for the free filing services. What is new is that the IRS (through a third party, www.freefilefillableforms.com ) has now made electronic versions of many of its forms available, which can be completed by anyone for free and e-filed without using one of the other free online services or other commercial tax preparation products. These free fillable forms can be filled out on the computer or printed and filled in by hand, and then e-filed. Unlike the online and commercial tax software that computes the users’ taxes, the free fillable forms are just interactive blank forms, and do not carry out any calculations or give any advice.
Something else that is available this year is an independent third-party rating of the free tax services by Gizmo’s TechSupportAlert.com . The Gizmo community based service has tested and rated all of the free tax services listed on the IRS FreeFile Web site, and has posted its reviews, ratings and recommendations (www.techsupportalert.com/best-free-income-tax-filing-software.htm ). While the IRS FreeFile list has 16 services listed, the Gizmo ratings can only recommend eight of those listed. In addition to the eight free online services recommended by Gizmo, there is also one top-rated “10 Star” stand-alone tax program that can be downloaded and run on the user’s computer. This downloadable free program is TaxACT Free Edition, and has earned “Gizmo’s Freeware award as the best product in its class!”
(www.taxact.com/s_taxact/free_taxact.asp ). Available for Windows computers only, this free program is limited to a single tax return, but can process almost all federal forms and schedules. College students may find TaxACT Free Edition helpful as it also includes a college student financial aid worksheet.
The Gizmo community also reviewed the IRS’ new IRS Free File Fillable Forms, but only gave it a rating of 5 stars (below Gizmo’s minimum recommended rating of 6 stars). While these free fillable forms are available to everyone, without limitations, Gizmo states that these, “ ... online versions of paper forms [are] designed for people comfortable preparing their own tax returns. No interview process. No help screens. Many values must be transferred manually from the Schedules to other places in the return. Many calculations must be done manually, ... federal only, no state returns.”
While the IRS claims that 70 percent of taxpayers can use the free online tax services for preparing and e-filing their taxes, eligibility for each of the 16 listed services varies. Generally, users of these free online services must have an adjusted gross income (AGI) of $57,000 or less (the $57,000 AGI is the upper limit for the IRS approved FreeFile services), with some services having even lower eligibility requirements. The TurboTax Freedom Edition is one example, offering its free service to anyone with an adjusted gross income of $31,000 or less, unless active duty military, then the $57,000 or less eligibility kicks in. Anyone eligible for the Earned Income Tax Credit can also use the TurboTax Freedom Edition. Several of the services have eligibility restrictions based on the states of residence and are either available only to residents of certain specified states or are available to the residents of any states except those explicitly listed. For example, there are several of the free filing services listed by the IRS that are available to residents of most states, but not Texas (and others). Those services as listed by the IRS that are explicitly not available to Texas residents are OnlineTaxPros.com, Free1040TaxReturn, Tax Simple, 1040NOW.NET, and ezTaxReturn.com. The other 11 free services listed by the IRS allow eligible Texas residents to use their services. Some of the services are for the residents of all states, while a few are only for residents of a small number of states; obviously, this can be a strong influence on which service to select based on the state of residency.
Some of the free services are only available for taxpayers of certain age ranges (with some exceptions); TaxSlayer is for people age 25 or younger (with some exceptions), while FreeTaxUSA IRS Free File Edition is only available to people between the ages of 23 and 64. 1040NOW.NET is for age 72 or younger, while Free TaxACT is for those between 19 and 55. Details and eligibility requirements for each of the IRS approved FreeFile providers is available on the IRS Web site at apps.irs.gov/app/freeFile, and should be reviewed before selecting a free online tax preparation service.
Since the eight Gizmo top-rated free online tax preparation services and the free downloadable software from TaxAct all use an interview method to collect relevant tax information, make all necessary calculations, and check for errors before e-filing, those would be the ones that I would recommend to eligible taxpayers with an adjusted gross income of less than $57,000. Since 70 percent of taxpayers can use these free online services to prepare and e-file their federal income taxes, eligible taxpayers can save a lot of time and money by utilizing these services.Listen to Ira Wilsker’s weekly radio show on Mondays from 6-7 p.m. on KLVI 560AM.