I’ve been blogging about personal finance for four years now and I have a little tip for anyone out there who hasn’t filed their taxes yet (which may not be that many, because I went through half a dozen “winners” for the TurboTax Deluxe free filing card before I found someone who hadn’t filed their taxes yet, go pro-active Bargaineering readers!). At the end of March, most of the tax preparation companies will increase their prices.

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We’re deep in the throes of tax season and with the economy in the sorry shape that it’s in, I’m sure many taxpayers are looking to gain an edge. I mean we’re already paying taxes, surely it makes less sense that we have to pay to figure out how much we’re going to pay in taxes right? Fortunately, there are a lot of different ways you can get tax filing software or assistance absolutely free.

In addition to the nationally available programs I’m about the list, there are also a lot of local programs. Each state’s tax website will usually list the free tax filing resources or services available in the state. many of these are simply listings of data made available through the IRS Free File system but you might be able to find some gems in there as well.

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PC Magazine named its 2009 Editor’s Choice for personal tax preparation software and the winner was Intuit’s TurboTax, beating out H&R Block’s TaxCut and TaxACT. Before you run out and just buy a copy of TurboTax, read the review itself. The advantage TurboTax has over the competition is in their breakdown of difficult and complicated topics. TaxCut won more points because of pricing and matches up in terms of functionality, it was TurboTax’s goes the extra mile in explanations. TaxAct is billed as the product if you’re “more budget-conscious and knowledgeable.”

PC Magazine’s Editor’s Choice

In PC Magazine’s review of TurboTax Premier 2008, a product that retails around $90, they compare the three products on a variety of levels. The real distinction is in what PC Magazine calls “guidance systems:”

There’s a much clearer distinction between the competitors when it comes to their guidance systems. TurboTax makes help more obvious in many places, and gives more—and more useful—explanations more often. Take home-office expenses, for example. After you’ve told TurboTax the dimensions of your home office, it asks for a list of expenses for your entire home, like insurance, mortgage interest, and real estate taxes. It tells you up front that it will prorate those expenses for you, and warns you not to duplicate some amounts you’ve already entered.

TurboTax also offers direct importing of W-2 data from ADP, Paychex, and ProBusiness; TaxCut doesn’t. TurboTax’s FAQs are more context sensitive, TaxCut are less so. It sounds like TurboTax has a lot of nice features that can make your life a little easier, if you’re the type who transposes numbers incorrectly often enough.

Pricing

However, when it comes to pricing, H&R Block’s TaxCut wins out. Their TaxCut Premium Federal + State + E-File 2008 only runs you $45 compared to the TurboTax Premium, which goes for $90. Twice the price for a few bells and whistles? I’m not sure if it’s worth it.

All that goes out the window if you qualify for free tax filing. If you qualify for free tax filing, just go with the one you’ve always used and the one you feel most comfortable with. I have always used TurboTax because I could file for free and it didn’t matter which I used. When you’re filling out a 1040EZ and you aren’t paying a cent (except the e-filing fee), it doesn’t really matter which one you use!

Summary

If I had to choose which one to use, I’d go with the cheaper one. I have a pretty simple tax situation without any crazy investments or schedules I need to account for. If you have a more complicated tax situation, but not so complicated you need a living breathing accountant, maybe it would serve you better to use TurboTax and it’s superior interface and greater degree of handholding. Either way, using one of these packages beats walking into a tax accountant’s office!

Which do you prefer? Do you agree with PC Magazine that TurboTax is better? Or are you a TaxCut fan?

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.

I finally decided to bite the bullet and give TaxAct (one of the free tax preparation resources 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.