Tax season is in full swing, and again this year, the Internal Revenue Service is offering a program that allows many U.S. taxpayers to electronically file their tax returns for free:
The Free File program provides free federal income tax preparation and electronic filing for eligible taxpayers through a partnership between the Internal Revenue Service and the Free File Alliance LLC, a group of private sector tax software companies. Many companies offer free or paid state tax preparation and efiling services. Some companies may not offer state tax preparation and e-file services for all states.
I’ve shared this service with GRS readers in the past, and will do so every year in the future (so long as the program exists). I think it’s awesome.
- For the 2010 tax year, you can use Traditional Free File (where you use tax software with step-by-step help) if your adjusted gross income is $58,000 or less. By using software, you don’t have to do the math, and the programs check your inputs for accuracy. (Note that not every partner company provides state tax preparation.) This year, the IRS has a “help me find a Free File company” wizard to match users to the appropriate program.
- There’s also a version of Free File with no income limits. This option doesn’t include any sort of fancy software or step-by-step help; instead, you fill out online versions of blank IRS forms 1040, 1040A, or 1040EZ. (The forms do have basic calculation abilities.) There’s no state option with these free fillable forms.
Free File is a great deal for many people. Check into it if you haven’t done your taxes yet. For more info, read the Free File FAQ at the IRS website. (The IRS website is actually awesome. You can find tons of tax info there. I’m not ashamed to admit that I’ve spent many hours digging through their resources.)
If you’ve used Free File before, please share your impressions. I’m sure other GRS readers would welcome hints and tips. For myself, I’ll be off to see my accountant as soon as I return from Africa. I don’t qualify for Free File — and besides, my accountant always saves me money. (He’s better at doing taxes than I am, believe it or not.)
This article is about Money Hacks, Taxes, Tools
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How can one tell (or estimate) if an accountant would save them money?
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Having used Free file it is great if you usually do the forms yourself but if you do not know which form to use or which deduction to take you can miss out.
Usually I do my own forms anyway however this year I tried out TaxAct (www.TaxAct.com) since they offering to do your federal return for free and they ask you the basic questions to get the most common deductions.
Note: One thing to watch out for (if you use TaxAct) is that they are always trying to get you to upgrade to their paid service.
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Normally I’m a paper gal for my taxes, but this year mine were a little more complicated, so I thought I’d try to file electronically (as I figured it would be more accurate than I might be). I was filing in two states, and fortunately, there was a freefile program that included both of my states. I picked up a paper copy at the library and did my best to figure out what my taxes (and return) would be. Then, I used freefile. Fortunately, the numbers matched! It was easy to actually file/submit them, and I didn’t have to worry about them getting lost in the mail or processing time. I am glad that I did the paper version first, as it was a little unsettling going from the methodical, linear approach required by paper tax forms to the online version where you just enter in the information as the program asks for it. (For people who don’t enjoy doing paper taxes, I would think this would be a godsend– it definitely didn’t feel like doing taxes to me!) I had a great experience with it, and I will definitely do it again next year.
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Did it Feb 1 through Turbo Tax and it was a piece of cake, got a nice fat refund soon to be wired to my bank.
We did a simple return and took the standard deduction, It was way quicker than doing the numbers on paper, which is always a nightmare because of the little boxes and where you’re supposed to fill them and you check and recheck and oh, surprise, you made a mistake and have to start with a clean form. Doesn’t happen here.
This is the first time in AGES that I don’t a) file on April 15 at 11:55pm, b) request an extension, c) spend money stupidly on a tax preparer using a computer program. I love it!
So I highly recommend it! If I wasn’t eligible for free file I’d probably go with Turbo Tax paid version. They seem to be great at doing all the work for you, including keeping up with State laws. And for Mint/Quickbooks users, it seems to be all integrated as well.
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Tax Act is free for all federal returns, and allows you to file both federal and state returns online, accelerating your tax return process. (It does cost money to file your state return online through Tax Act, however).
Pat
http;//compoundingreturns.blogspot.com
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I used Free File for my 2010 taxes. It was amazing and very easy to use. It has a caluculate button that preforms some of the simple mathematics and transfers data from worksheets. With access to the IRS form instruction booklet it allows for further understanding of why you did/didn’t qualify for certain deductions and/or credits. Submitted my taxes on January 28th and tracked my expected refund (on irs.gov) for February 15th. My refund amount matched the amount turbotax gave me when I ran my numbers through their site (I, however, didn’t submit my taxes through Turbotax).
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@Steve (#1): In the interests of full disclosure, I say this as a licensed CPA who has worked at a firm that provides tax preparation services. If one is looking to go the “save money” route, hiring an accountant is probably not the answer. While one can very easily find an accountant that won’t break the bank and will maximize their refund, tax preparation software has made such progress that one can most likely get the same refund (thus, “saving” the difference between the software and the accountant) by picking up a copy at a local office store and doing their taxes themselves. Bonus: by doing your own taxes, you learn a lot of little tips and tricks that make all future returns that much easier! In short, an accountant is less for those wanting to save money and more for those who want the convenience of not having to do taxes at all.
That being said, however, there are a couple of occasions where it would be extremely wise to explore the accountant option:
1) You have a complex or uncommon tax situation. If you’ve got three LLC’s, two partnerships, 4 S corps, all of which are funneling money and real estate to each other… time to explore the accountant option. Accountants have the resources to continually keep up on new tax law (which doesn’t come out just once a year like tax software does). Tax law, and especially tax law regarding complex situations, is continually amended and modified. If you suspect these changes may affect you, I would definitely recommend thinking about an accountant.
2) You need tax help outside of tax season. If you have tax questions that arise in October or you need additional accounting or bookkeeping services (e.g. you own a home business and don’t know and/or care to bother with the books), you can’t ask the software box what to do. A CPA can be extremely helpful in getting everything in order, particularly in knowing which documents you will or will not need come tax time. If you have an accountant handling all of your financial documents throughout the year, tax time will be a very smooth ride.
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You only need an accountant if you have lots of transactions to file. If you dont work for yourself, have no side business, dont actively trade stocks or other investments in a non-tax advantaged account, etc… then you should be able to file taxes yourself. If you own your business, trade frequently, etc… then you might be better off seeing an accountant.
I’ve used free file before. Usually you get to file the federal tax for free electronically, and then they try to stick you with a $15.99 charge to electronically file your state taxes. Since its already calculated for you, most people just pay the money and off it goes, taxes done.
Free file worked fine for me, but my taxes were fairly straightforward. Last year I couldnt file electronically because of the homebuyer tax credit, and had to fill out tons of paperwork myself and mail it in.
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Steve – having an accountant is similar to other professional relationships – doctors, veterinarians, etc. It is nice to be able to call him/her and bounce questions off and plan ahead. Otherwise, we become reactive and simply filing tax returns on April 15th when there is nothing we can change. This is especially true if you have a business, like JD.
Some people feel comfortable preparing their own tax returns, some don’t and thus look for professional help. Taxes are one of the biggest personal expenses we have, sometimes it makes sense to pay a pro to help reduce that expense.
Disclosure – I’m a CPA.
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I have never paid to file my taxes. I have always been able to use online forms from one of the major brand names and file for freeeeeeee! The software programs ask you all the questions to determine your deductions. I think this is the way to go unless you own a small business.
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@KT – until recently all forms of free e-filing have had an income limitation.
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I used H&R Block (and I have used Turbo Tax before). The free programs both offer are plenty sufficient for the majority of people (even homeowners like myself). I really think this comes down to confidence in your abilities vs. the cost of an error. If you want to pay $30 for the software, or $100 for a professional, I’d say that’s worth the peace of mind. But really, taxes are not that complex for 99% of people.
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I plan on using an accountant when my money gets more complicated (as in, enough deductions to actually itemize). But, at my age, taxes are pretty much just making sure I have all my numerous W2s from my many jobs
I use the free version of Turbo Tax. My state has a free-file option through Turbo Tax for my income level, which is nice. For a few years, I managed to have W2s from more than one state each year, and Turbo Tax has done really well with helping me figure out exactly how much to pay. I’ve used Turbo Tax for 3 years, free file each time, and have been really pleased with my results.
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Last year I did my own taxes. I sent in my forms and my payment, and several months later got a bill from the IRS for $9,000.
I immediately hired a tax guy (a recommendation from a friend) who resolved the $9,000 bill and turned it into a $9 refund.
Guess who will be doing my taxes this year?
Hint: not me. Not even for free.
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I’ll admit, I’ve never seen the point of paying a human to do your taxes for you, in most cases. Things are either deductible or they’re not. If you didn’t know they were deductible, you probably didn’t save the documentation needed to deduct it.
I can see the advantage where you have a huge number of transactions and you just don’t want to deal with them. But I wouldn’t think that’s most of the population….
A computer program, like any good software, is useful automation for filling out very tedious forms, looking things up on tables, doing the calculations. Saves me enough time to be worth the $25 it costs.
Used Free File in college; I make too much now.
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We filed for free through Taxact.com like we have for the past several years. It’s easy and quick. Taxact does prompt repeatedly to pay for the upgrade but I just click no and continue. We don’t have a state income tax so no worries there. We had our first child last year and wow did that bump up our return. I’ve already adjusted the W4 for this year. Our return is already pending in our bank account.
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I’ve used the free fillable forms last year, prior to that I’d used some kind of tax program. The only part that gave me pause was that I withdrew some of the money I had been tossing in my Roth IRA, so figuring out just what ‘basis’ meant was the most complicated part. I did a sanity check against H&R’s software, and even got the exact number, so just sent in my paperwork (had to be mailed due to homebuyer credit).
Really all most of my taxes are involve gathering up the various documents I get mailed and tallying them up to drop in the appropriate 1040 boxes. Also I find it pretty hard to ‘miss’ tax deductions if you just read down line by line since it pretty much goes over any and every possible tax deduction (from retirement contributions to several farmer only deductions, it’s all there). Only took about two hours (once all my forms were in front of me) of easy if somewhat boring or meticulous work.
Maybe if I had stock trades in more than the single digits, I’d want to hire someone if only to eliminate the drudgery of entering numbers on forms so many times.
Interesting note: Taxes are based on a table that step in increments of $50, so if your AGI is close to one of those levels, sticking an extra few bucks in a retirement account (or donating them if before the end of the year) could end up taking more off your taxes than you’re putting in.
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I’ve never paid to do my taxes, not a person and not for software. When I was in college, I just filled out the forms myself, I didn’t have anything that couldn’t be done in 5 minutes with the 1040EZ.
The last few years, I’ve been using free online services. Taxact is the most aggregious of them, but all of the major free filing services will attempt at several points to get you to upgrade to a paid version.
As far as state income tax, I let the website figure out the amounts, and then I just fill out the forms myself. The Colorado return is pretty simple and can be filed online for free for all returns (although there is a credit-card processing fee if you pay a tax bill online.
One thing I would recommend for those nervous about using a free service to do their taxes, run it through a couple different ones to make sure you get the same numbers. This year, I prepared through TaxAct, H&R Block, and FreeTaxUSA
@Kate, Taxact lets you pay for free each year? I couldn’t use them last year, because I did the free return the previous year and wasn’t given the option of the free filing, it wanted to force me into Deluxe.
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Thanks for the link, JD.
I agree with Mike B. above–it’s always been worth it to me to pay a little bit for a computer program to save me the time in tracking down the right forms. Even with a home business and itemizing, it’s been accurate and quick.
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I have used Turbo Tax Deluxe the last three years (do not qualify for free version), and think it does an excellent job walking through all steps. I keep a tax folder all year so that I have everything I need to help me prepare the next year, including a checklist of all back-up from the year before. I go down my checklist to make sure I’ve received all 1099s, etc. that I got the year before and when everything is in, I can file. The only frustration this year is that I’m forced to wait until mid-February to actually file because I itemize my deductions (for me, a much bigger refund). I also have to send in by mail this year because of the first time homebuyer credit. It kills me to see how big my refund will be, but not be able to mail it in yet! Why oh why am I loaning so much money to the government???
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I *heart* FreeFile! Full disclosure: I’m a volunteer tax preparer (VITA) so I feel completely at home among mountains of tax forms & terms. I’ve used FreeFile (both TurboTax and TaxAct) for my federal returns the past several years, ever since becoming an “un/under” (employed, that is). Usually I start returns in both TT and TA and go with the one that works best to my advantage. Oh yes, there are often differences!
A word of caution: The tax code complexity has increased significantly in recent years, and in previous years the FreeFile programs seemed to do a better job of walking you through step-by-step. This year’s TurboTax version seems less interactive, and I would recommend it only for those who are tax savvy, otherwise you may miss out on deserved deductions/credits. I have not yet checked out TaxAct but will check it out along with other “brand name” vendors. I’m skittish about vendors protecting my private info, so I only go with the “brand names”.
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My credit union is offering Turbo Tax for free online for the first time. It’s free if you only need to use the 1040 EZ or 1040A, and the fees for more complicated forms are very modest.
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I have tried Free File, including this year. However, it would not accept my e-file for some unknown reason. I tried again a few days later with TaxCut and had no problems. For now, I’ll stick with TaxCut.
BTW, the link J.D. gave to states with free e-file left out California! I have e-filed free with CA for the past few years…just have to do it through the Franchise Tax Board website (ftb.ca.gov).
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I used to Tele-file my taxes (yes over the telephone) when I first started working and my taxes were simple. Then I switched to filing online when I opened a savings account and had to declare interest. I’ve always had a problem digitally signing my return. I had an issue a few years ago where it wasn’t signed properly though I thought I received email confirmation that it was, and I almost filed my taxes late.
Another time I filed state along with federal, and thought the state would draft what I owed out of my checking account. However, the state could only deposit a refund. They didn’t have the capability to take money out and that wasn’t mentioned anywhere on the site. I received a notice from the state months later asking for my payment along with a late charge. I called and explained how I misunderstood and the fee was waived. After that I decided no more and I’ve snail-mailed it ever since. I don’t get refunds so I don’t care how long it takes my return to be processed. It’s a little more inconvenient now that the IRS doesn’t mail booklets anymore, but I strangely feel more secure doing it this way than online.
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I have used HR Block for freefiling and it was very convenient. I want to help a friend who has a very small, small business and I wonder if he can use any of the free filing sites for that?
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I am a big fan of TaxAct because it has no income limit for the free version (I’m not sure why the IRS web site says otherwise). The free version even allows itemized deductions.
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I think Free File is great if you qualify. I usually use Turbo Tax free edition (1040A or 1040EZ) and then pay for my state e-file, but I do not go straight to Turbo Tax’s website. Instead, I check the websites of all my financial institutions to see which site offers the largest discount on the Turbo Tax products. Usually it is my Credit Union that offers the best deal.
I did go to H&R Block a few years ago when I had an unusual tax year, but I ended up feeling ripped off. I went in there with what I thought was the correct form from research I did on the IRS.gov website. When I told the rep that I was not sure about it, it was obvious she was not either, but she basically said “this looks right,” and after paying H&R Block’s $150 tax preparation charge versus the $22 I usually pay for the state e-file, I thought I’ll just do it myself from now on.
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I have used Free File the last two years. The first year I used TurboTax’s freedom edition and this year (because I made slightly more and no longer qualified for TurboTax) I used the H&R Block software. I prefered the first version but both times were easy as could be. And on my 2009 taxes I had actually done them by hand first before realizing I wanted to efile. When I ran the numbers through TurboTax I found that I had been forgetting the Making Work Pay tax credit so I got an extra 400 dollars back by using the software which automatically checked that I qualified and threw it in the tally.
Doing my taxes took a couple hours and involved a fun look back at my years financial choices. And I already have my 2010 refund direct deposited in my credit union account. Needless to say I’m a BIG fan of the free file system.
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For me H&R Block’s software for the pc is a better option. It includes free federal efile. You have to pay for efiling your state return. Still I’d rather have the guidance the software provides so I get the most out of my deductions I can.
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If you make $57,000 or less you can also try out http://www.myfreetaxes.com. This is a site run by the non-profit One Economy. They have also partnered with the United Way in some large cities to provide free in-person tax filing. The other bonus is a tax van tour that is visiting 22 cities this tax season for more free in-person help. Check out the site to see if your city is on the schedule.
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I’m one of the few still paper mailing my tax forms. Why? All of the free e-file schemes come at the cost of privacy. A taxpayer cannot file directly on the IRS website, all e-file involves a third party.
I see no reason to give any third party my name, my Social Security number, the name of my employer, my address, my phone number, my occupation, and of course my income and deductions.
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I attempted to use TaxAct once, but was stymied by the fact that as a graduate assistant who paid into a non-SS plan, my SS payments from my W-2 were clearly incorrect since they did not match what they should have been. After that I used H&R Block’s free online service, printing everything to pdf for future reference and had no problems with it whatsoever. I am currently deciding whether the paid version is worth the $20 vs. me filling all of the pdf forms manually, as I no longer qualify for the subsidized programs (which is a good thing).
In all cases, however, I have filed directly online for my state income taxes, since they tend to ask for entries from the lines on the federal return.
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