For those of you slackers out there (I mean, really busy people who waited six months after the first tax filing deadline…), the October 15th extended tax filing deadline is a week and a half away. TurboTax is still offering the same promotion for extended tax filers that they offered back in March and April this year:

• Free Edition is still free, 1040EZ & simple returns, with free eFile,
• $49.95 Deluxe Edition for folks who don’t qualify for the Free Edition, it also includes free eFile,
• $74.95 Premier edition for those with investments and retnal properties, free eFile,
• Finally, $99.95 home & business with free eFile.

Free Edition Users: There is really no reason why you should be waiting this long to file your taxes. There is a pretty good chance that you are owed a refund, in which case you given the government an even longer than reasonable interest free loan (not that they’re complaining, they need it!), and your taxes aren’t nearly as complicated as you think they are. (oh, and you may have been delayed getting that tax stimulus check everyone else has already spent!)

Everyone else… you have a week and a half, get on it!

Procrastination usually doesn’t usually have concrete and actual added costs in your personal life. You put off rolling over an IRA or changing your 401(k) contribution, you don’t feel any costs (you may lose potential gains or avoid potential losses, but it’s never that concrete) However, in the case of tax preparation there is a real cost to putting it off.

TurboTax does this every year (as long as I can remember) so you have absolutely no excuse. Silver lining finders will say that they incentivize people to file their taxes early by increasing the cost to file two weeks or so before April 15th, cynics will say that TurboTax is gouging people. Either way, it costs you five bucks more you lazy bum. The new prices are (price doesn’t include state filing):

• Free: Still Free!
• Deluxe: $49.95
• Premier: $74.95
• Home & Business: $99.95

Fortunately, you can’t increase the price of FREE, so their Free Edition is still free (here’s the full rundown on all the free tax filing resources).

Doing your taxes is unavoidable. Almost everyone has to do it (you should file even if you don’t have to this year because of the economic stimulus check) and everyone has to do it by April 15th. In fact, since most people get a refund, you have a vested financial interest in doing your taxes as early as possible so you can get your own money back as soon as possible; so why do people avoid it? They avoid it because it’s a pain in the you-know-what.

Think of all the other things that you wouldn’t do willingly but that you still do because it’s good for you… like get up early in the morning to go to a meeting at work. Like run on the treadmill to shed a few pounds. Like not eat double stuffed Oreos because they make your butt look fat. Like wake up early to dress your kids and make sure they eat breakfast. Like go with your spouse to Bass Pro Shops/Gander Mountain (or Ann Taylor/Macy’s/MAC). Like watching The Little Mermaid every single day for two months because your daughter loves Ariel and Sebastian.

See how many things we do that we don’t like to? (or don’t do but would love to?) Taxes are like those, except instead of a spouse/child getting upset, it’s Uncle Sam and he holds a serious grudge. If you were going to do your taxes on TurboTax but didn’t because you were putting it off, it’s too late; just don’t make this mistake next year! There’s no reason why you should give TurboTax your money when you can use it to buy your kid a new Disney movie to love every single day for two months.

(by the way, you have less than two weeks left!)

(Photo by parl)

I’ve been working full time for five years now and have used TurboTax for the last four (I did it by hand the first year, I have no idea why!). I’ve never walked into a tax preparation store like an H&R Block or a Jackson Hewitt but my friends have and walked away with experiences that hardly warranted the $300 fees they paid. On one hand, my tax situation had been fairly simple for the last four years. Single income (one year I had two W-2s but that’s hardly rare), standard deduction, twenty minutes in TurboTax and I was done. I went to an itemized deduction two years ago because of the mortgage interest but that hardly registered. Two years ago I even added on a Schedule C for income generated from side ventures, again that wasn’t much of a curveball for TurboTax. I don’t have a complicated situation… why would I pay $300 for someone to ask the same questions a box would ask?

What’s your take on tax preparation? Worth it? Not worth it?

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)

As promised, I am going to review TurboTax and, perhaps unfairly, compare it against TaxAct. I believe TurboTax did a more thorough job than TaxAct and it asked me questions TaxAct didn’t. I also have to admit that I have more faith in TurboTax because of the Intuit name (I used the full product last year, free after rebate), but it seemed as though TurboTax asked more questions than TaxAct. The amount I owe remained the same (the result of my side business no doubt) though, so TaxAct wasn’t “wrong”.

TurboTax’s interface was cleaner and nicer. It was also web-based, which may be a turnoff for some of you, but I liked it. I have high-speed Internet so a dial-up user with a questionable connection might be hesitant to use this.

One feature that was absent in TaxAct was the ability to import W2 information straight from your payroll company. Mine happened to be ADP, which was supported. This won’t be available for all users but a vast majority of companies use ADP for payroll processing so you’ll find it very convenient. Unfortunately, it asked for some verification information (SSN, Box A and Box 1 from the W2) and I couldn’t find Box A for the life of me so I missed out.

A great feature missing from TaxAct was a comparison of deducting sales tax versus state income tax (read more about it here). I live in Maryland (5%), which apparently wasn’t high enough to make the state sales tax deduction worth it based on the spending tables.

Some more differences? TaxAct never asked about a Roth IRA, to my knowledge, TurboTax did. Again that thorough-ness gave me faith my return was complete and correct. The entire process took about fifteen minutes, about the same as with TaxAct, and ended with some useful survey information. It showed how other filers in my general income bracket compared, in terms of taxes paid and deductions taken. I was paying more tax and taking less deductions, troubling but expected as I don’t own a home.

TurboTax asked me only once (to my memory) to purchase an upgrade. ONCE. TaxAct asked me what seemed like four times before I even entered in a number for my W2’s. When I clicked “Yes” for side business income, TurboTax suggested I upgrade because it had more features. I politely declined and it never asked again.

TurboTax also seamlessly, after asking permission, transitioned into the Maryland State return, which wasn’t free. I can probably do that one by hand relatively easily so I’ll go with that option. It did tell me how much tax I should expect to pay, so I have a double-check whenever I do it by hand.

Overall? TurboTax scored much higher than TaxAct. The interface differences weren’t significant but because TurboTax did the income versus sales tax comparison was reason enough to go with TurboTax. It’s a significant change in the tax code and TaxAct was remiss in not including it in their product.

Have some experience with either product? I’d love to hear about it.