[TAX PREP] Free Tax Filing Options

Category: Finance

The good news is: about 70% of U.S. taxpayers can get free online tax preparation and e-filing this year. The bad news is: you have to pick your online tax service very carefully. Here's what you need to know...

Options for Free Tax Return Preparation

Dozens of firms now offer free online tax preparation and e-filing. It’s not just for simple, wage-only taxpayers anymore; full 1040 returns with all schedules and worksheets can be prepared and filed online for free, prior to the tax filing deadline of Tuesday, April 18th, 2018. But there are a few caveats.

Most people with an adjusted gross income of $64,000 or less can get free online tax preparation software and e-filing, through a participating IRS Free File provider. However, the multitude of offers has more rules, exceptions, and confusions than cellular phone service contracts.

For example, here are qualifications for TurboTax’s Freedom Edition that offers both Federal and State tax prep for free:

Free Tax Software

  • Adjusted Gross Income: $33,000 or less, and
  • Eligible for the Earned Income Tax Credit, or
  • Active military with adjusted gross income of $66,000 or less

Don't confuse the "TurboTax Freedom Edition" product with "TurboTax Federal Free Edition". They have similar names but are quite different. Freedom Edition is geared towards lower-income filers (regardless of tax return complexity) and is offered through the IRS Free File Alliance (FFA) program. State returns are free and no upgrades are available.

TurboTax Federal Free Edition (also called AbsoluteZero) has no income limits, and also offers free State returns, but is intended only for very simple returns that can be filed on form 1040EZ or 1040A. This version lets you take a picture of your W-2 with a smartphone, and will automatically import that info into your return. Various paid upgrades are available for those who itemize deductions, have investments or rental property, and for business owners.

With H&R Block's Free Edition (also called More Zero) both Federal and State returns are free. In contrast to the TurboTax offering above, H&R Block's freebie can be used by filers with mortgages and itemized deductions. They also have the same easy W2 import features.

TaxAct FreeFile offers free federal and state returns, but you must have an adjusted gross income of $53,000 or less, and be 56 or younger. (For active military the income requirement is $66,000 or less.)

FreeTaxUSA Free Edition has no income or age restrictions, and supports even complex returns. If you own a home, are self-employed, or have investment income, FreeTaxUSA has you covered for the Federal return. State returns cost $12.95 extra. If you used as different program last year, FreeTaxUSA can import your information from TurboTax, H&R Block, or TaxAct.

Credit Karma is one of those sites that helps you monitor your credit score, but they also offer free tax preparation for both federal and state returns. It's easy to import the previous year's return if you filed with H&R Block, TurboTax or TaxAct, and tax specialists are available to help with your tax questions at no charge.

Canadians can use SimpleTax, a CRA-certified and web-based tax prep service that lets you pay what you want, or pay nothing.

Choosing a Free Online Tax Service: The IRS Wants to Help!

NOTE: The U.S. Congress recently passed legislation that promises to simplify tax filing, but those new rules do not apply to the 2017 returns that must be filed in April 2018. You'll have to wait until next year for that.

Is your tax situation simple or complex? Should you file Form 1040 (the long form) or use the short form 1040-EZ or 1040A? It depends on your marital status, dependents, income, deductions, and a few other factors. The IRS has a guide to figuring out which form suits your needs.

The IRS devoutly prays that you will file electronically (much easier to audit your return that way), so it makes a pretty good effort to help taxpayers find a compatible online tax preparation and filing service. Just hop over to the agency’s Free File Software Lookup Tool page and answer six simple questions.

Beyond finding a service that will do the Federal and State returns you need for as little money as possible (ideally, free), it’s impossible to say whether one online tax service will save you more money than another. Each has a unique approach to “interviewing” filers, asking different questions in different ways to elicit data about deductions, credits, and so on. A taxpayer’s answers may differ depending on how a qualifying question is asked. So you may get different results (for example) from TurboTax than you will get from H&R Block.

Thanks to the power of “free,” you could try multiple online tax services and actually e-file with the one that yields the most favorable answer. But that would be like having multiple teeth drilled for free and filling the one that hurts the most. If your tax situation isn’t very complicated, then any variance between online services should be negligible. Look for one that offers free Federal and State returns and e-filing.

The Do-It-Yourself Option

If your income or age disqualifies you from using one of the free online tax prep services, you can still get free tax software in the form of FreeFile Fillable Forms. These online versions of every IRS form won’t give you advice or hold your hand; you need to know what forms you need. On the other hand, if you know your tax situation well then you don’t need to waste time on all the hand-holding that novice-oriented tax programs provide.

These forms are “intelligent” in that they can perform basic math, e. g., totaling all of the lines of data you enter in a form, multiplying dependents by exemption amount, etc. But they don’t offer advice and explanations as the pricey programs do. This seems like a good option if your job and financial situation hasn't changed since last year. Just look at last year's tax return, see which forms you filed, and you should be good to go.

The AARP Foundation Tax-Aide program offers free tax preparation to people 50 and older, even if you're not an AARP member. Tax-Aide has more than 5,000 locations in neighborhood libraries, malls, banks, community centers and senior centers, staffed with IRS-certified volunteers who will assist with your returns.

There are still many taxpayers who haul shoeboxes full of receipts to a tax preparer’s office, and there may be a handful who still struggle with paper and pencil five minutes before the April tax return filing deadline. But the majority of Americans now do their own taxes using software, and for the savvy ones there is no need to pay for tax software. That said, if you have a complicated return or you own a small business, a competent CPA or professional tax preparer may end up saving you money, even if you have to pay for their services.

How will you get your tax preparation done this year? Post your comment or question below...

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Most recent comments on "[TAX PREP] Free Tax Filing Options"

Posted by:

02 Mar 2018

I would rather Pay the $30.00 on Turbotax. If you opt for the free they do not Import your last years Tax. You then have to fill it all in and the Form also is not Populated, lots of extra work. I do not need to file a State Form which they often try to sneak in. It took me only 10 minutes to fill out the deductions. comparing them to last year. 20 minutes later my filing was accepted by the IRS and 8 days later the refund was deposited into my Bank Account. Have filed with them for over 18 years.

Posted by:

02 Mar 2018

How can these businesses afford to provide free tax preparation services and free e-filing? We enter a lot of personal data (name, address, SSN, sources of income, etc.) into our tax returns. They wouldn't harvest and sell that information, would they?

Posted by:

02 Mar 2018

In the end Timmy (Turbo Tax) Geithner didn't care for Turbo.

Posted by:

Kenneth Heikkila
02 Mar 2018

I'd rather pay Turbotax to be sure to go through all the possible deductions- even a tax prparer isn't guaranteed to do that and I have run into time issues with the ones I tried. If I were just filing a simple standard deduction tax return, I'd do it in pen or in Open Office. Also as pointed out above, TT saves all your previous years' data in a spot where I can find it, even reminding me what I claimed on the same line last year. Totally worth what I pay (a lot more than $30 as my wife also has a business.)

Posted by:

John Silberman
02 Mar 2018

I still do not understand why people file on line. It costs money to file on-line, it only cost postage

Posted by:

02 Mar 2018

Easy I do not pay TAXES

Posted by:

02 Mar 2018

For Canadian readers: list of free tax progs; I've been using Studiotax for years.


Posted by:

02 Mar 2018

I used Credit Karma again this year after a good experience last year. Of course, I know they use my info for their own purposes, but they also promise not to sell that info to others. The cost for both federal and state filing was zero. Just be sure you are providing all the information the IRS requires as they will not represent you in an audit like a paid provider usually does.

Posted by:

Terry Hollett
03 Mar 2018

As a Canadian I've also been using Studiotax for a few years now: http://www.studiotax.com/en/?page=1

Posted by:

Bob Sanders
04 Mar 2018

I have used all three of the main ones; TurboTax, H&R Block (TaxCUT in those days), and TaxACT. I have NEVER filed online as I don't want my personal info out there where I can't control it. I have paid for the program and keep the data on my computer in Veracrypt. I have never had a problem with any of them (other than cost) and have found them to be very equal as far as final results.

Posted by:

05 Mar 2018

Hi Bob:

I have been using the paid H&R Block Deluxe tax software for years with excellent results. It is easily available on CD for less than $25 (including shipping) and includes a free state tax module.

I would NEVER consider filling out my tax forms online and risk having my SS number, or other personal information hacked! After the Equifax breach - can we really trust any of our financial data to reside in the "cloud"?

For the small cost of a pair of movie tickets, I can be assured that my critical data remains exclusively on my own eset protected computer - with frequent backups that contain and protect my tax forms from previous years.

Why be "penny wise and pound foolish"?

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