I bet the first thing you thought after you screamed “Happy New Year!” was how it was now time to do your taxes. (no? me neither) Unfortunately, it’s now February and it’s time to start thinking about doing taxes! Wheee! To help you along, I wanted to outline all the free resources you have for tax preparation. By this I mean I’m listing every single way I think you can get absolutely free tax preparation based on your financial situation. Some tax prep companies offer free tax filing if your situation is simple (1040EZ, or plain 1040), the IRS offers free tax filing if your adjusted gross income was under $54,000 in 2007 (it’s through third party companies), and some other companies offer free tax preparation for their customers as a fringe benefit. I’ll try to list them all. If I miss one that you know of (one that expands on the group of eligible taxpayers, we don’t need another company that offers free tax prep for the same groups already covered below), please leave a comment or email me and I’ll add to this list.

Why do companies offer free tax filing?

Companies don’t do things out of the goodness of their hearts, so where’s the catch? It appears that many of these companies offer free federal tax filing in the hopes that you’ll sign up for their state tax filing services too. With many of the programs it’s easy for them (and thus easier for you) to transfer the data over and recalculate for your state taxes. They also hope to capture you as a recurring customer since your tax information will be stored in their databases and thus you’ll have a history with them. Finally, some will try to make money off services such as “refund anticipation loans” or “money back loans.” Those “loans” are horrible deals for the consumer, which means they make tax prep companies lots of money. (If you e-file, the IRS estimates that it takes around 8-15 days with direct deposit to get your tax rebate!)

How good could these freebies be?

I haven’t tried them all, but William Perez of About.com has tried a few and wrote about their advantages and disadvantages. I don’t know how accurate that article is because it’s not dated, but it’s a start. I think that most of the major companies are going to give you great free service. The field is simply too competitive for them to risk standing up a sub-par “free” version. Today’s free customer is tomorrow’s paying customer. If my free experience is bad, there will never be a paid experience!

Now, onto the offers!

IRS freefile

The IRS freefile program is designed for those with an AGI under $54,000 in 2007 and some of the companies that offer these services also put age restrictions as well. For example, Free1040TaxReturn.com states: “Free Federal online tax preparation and e-File if your adjusted gross income is $54,000 or less and you are age 49 or under.” (emphasis mine) I suspect that has to deal more with handling the added complexities of Social Security and Medicare and isn’t age discrimination. With any of those companies listed, you’ll definitely get free federal tax filing and e-filing; you may have to pay extra for state. The IRS also offers a wizard to help determine which company is best for you.

One caveat is that not every company listed follows the $54,000 AGI rule the same way. As you’ll see in the description below of TurboTax’s offering, the $54,000 AGI rule only applies to active duty military.

TurboTax

TurboTax offers free tax filing if you:

• earned $30,000 in adjusted gross income, or,
• qualify for earned income credit with an AGI up to $39,783, or,
• served as active duty military with an AGI of $54,000 or less.

As an added bonus, you get free state filing if you live in Alabama, Arkansas, Arizona, Georgia, Idaho, Iowa, Kentucky, Massachusetts, Michigan, Minnesota, Missouri, New York, North Dakota, North Carolina, Oklahoma, Oregon, Rhode Islane, South Carolina, Vermont, or West Virginia.

What does TurboTax cover in their free version? Your standard 1040, 1040A, and 1040EZ forms along with a bunch of schedules. They provide a list of what’s covered in the free version. The first part of that list shows the included forms, the second part shows the forms not included. One notable form excluded from the free filing is Schedule D: Capital Gains and Losses.

TaxAct

TaxAct offers free federal tax filing of 1040, 1040A, and 1040EZ along with free e-filing, with no income restrictions (state filing is, as expected, extra). I was wondering if they had any catches (I realize they say “no catches! no gimmicks!” but c’mon… who takes marketing at face value!?) and discovered this list of “Included IRS Forms.” From what I can tell, it contains everything I could possibly need including Schedule C: Profit/Loss from Business. In fact, I wrote up this review of TaxAct and give it a B+ back in March of 2005. It’s nearly three years later, I might have to try them again and update that review.

State Farm Customers

State Farm is offering free tax filing through TurboTax for its customers.

Just Need Some Assistance?

If you’re just looking for a little extra help but not full blown preparation (or you don’t qualify for any of the above programs), you can turn to the IRS Volunteer Income Tax Assistance (VITA) Program or the Tax Counseling for the Elderly (TCE) Program if you qualify. To learn more about either program and their criteria, please visit this IRS page.

(Photo by gratiot)

During the Spanish-American War of 1898, the government started collecting a 3% excise tax on long distance telephone calls from wealthy Americans and until recently, this 3% tax had been collected month after month after month. You might remember receiving a flier along with your bill telling you to call someone in the government about it. Well, today the Treasury Department and the Internal Revenue Service released press releases announcing the ending of the tax and the return of taxes paid in the last three years (since Feb. 28, 2003) plus interest.

(read full article…)

Double check because more than 84,000 taxpayers didn’t to the tune of $73M dollars, reports CNN/Money. On average the government owes each one of them $871 and has a site you can visit to check the status of your refund. You must have handy your social security number, your date of birth, and the exact amount of your refund. If you don’t like using the internet, you can call also 1-800-829-1040 to check on your refund.

To check up on other places where you might have left money, read how you can search for unclaimed money and property for free.

I finally decided to bite the bullet and give TaxAct (one of the free tax preparation websites out there) a try last night, despite registering for it a few days ago. All in all, my taxes took about 15 minutes to complete and it was a relatively painless process. The result was that I owe around $350 in taxes ($155 attributed to my side business), which made be a bit skeptical because that meant that the company I work for withheld an incorrect amount ($200 less). One problem with using a free product is that sometimes you doubt its correctness. (I’ve sinced used TurboTax and have confirmed the results, TaxAct was and is correctly calculating my taxes)

TaxAct was nice and quick, which I appreciated, but it kept asking me to upgrade to their Deluxe version for $15, which I didn’t appreciate. There was a stretch of about three or four screens where it asked me over and over again to upgrade. I suppose it’s a necessary evil because they need to make money but it was getting ridiculous. Then it would ask me to purchase TaxAct State a couple times and finally it would remind me that to e-File it would cost me. Printing out the forms was free though so I printed them out.

The program itself was good, but not as good as TurboTax in terms of navigation. After you entered in something you still had to navigate the mouse over to the Next button (instead of just hitting Enter) and to go back you had to hit the back button, no quick navigation to a specific screen. Then again, the program was free…

Overall, I was satisfied with the product, even if it asked me about a dozen times to buy a product, but I still am doubting it’s correctness. I think I’ll jump on one of those free after rebate tax product offers as a double check to see if things really are correct. Is it on par with TurboTax? No way. It scores a B+ in my book for moderate ease of use and it’s free-ness, probably an A- if it wasn’t for all the requests to pay pay pay. It doesn’t “look” as pretty as TurboTax and I just didn’t have faith in it. I would’ve rated TurboTax (last year’s edition, which would be doing 2003 taxes) around an A since I also got that for free after rebate.

If you have the time (15 minutes), give TaxAct a try. If you’ve already done your taxes and you paid for them, try TaxAct anyway since it’s free. If you get the same numbers, let me know. If you don’t, please definitely let me know. Also, if you yourself have used a free tax preparation product, let me know what you think about it and I’ll give it a try and see how it stacks up.

Update: TurboTax is also free… maybe I’ll give them a try tonight. (I did try them, review is available here) Also, I have no qualms about TaxAct’s accuracy anymore as TurboTax confirmed the results.