Should You File Taxes For Free?

By Amy Fontinelle | March 01, 2010 AAA
Should You File Taxes For Free?

The majority of taxpayers (70%) qualify to electronically file (e-file) their tax returns for free, according to the Free File Alliance, a group of private-sector tax software companies that have agreed to offer free online tax preparation software and free e-filing of federal tax returns for many taxpayers whose adjusted gross income is less than $57,000. (The number of taxes that we now consider a given did not always exist. Find out how they arose, in The History Of Taxes In The U.S.)
According to the alliance, 4.8 million returns were filed through the program last year, and 24 million returns have been filed since the beginning of the program in 2003.

  • Advantages
    Savings - Using Free File can offer a significant savings over purchasing tax preparation software, which often costs between $30-50 just to prepare and file a federal return.

    Accuracy - Like any tax software, Free File programs perform calculations for you, and check for common errors, increasing the likelihood that you will file an accurate return. Avoiding silly mistakes on your return lowers your risk of being audited.

    Peace of Mind - Receive confirmation within 48 hours that your return was received. If you file a paper return, you won't know your return was received until you get your refund, unless you sent your return with a trackable method (which costs money; and who wants to go to the post office at tax time?).

    Simple Tax Extensions - You can also use Free File to electronically file an automatic six-month tax extension (though any tax you owe is still due by April 15 - an extension just gives you more time to complete the paperwork). (Discover how to get some extra time from the IRS, without paying for the privilege, in Get A Six-Month Tax Extension.)

  • Drawbacks
    State Returns - You may not be able to file your state return for free using Free File. H&R Block Free File, for example, charges $9.95 to prepare and file your state tax return.

    Income Limits - If your adjusted gross income is more than $57,000, you can't use the service. You can only use Free Fillable Forms, which have limited calculation capabilities and won't work for certain taxpayer situations. Also, some members of the Free File Alliance have income thresholds lower than $57,000.

    Form Limits - The IRS cautions that, "Companies are not required to support all forms and schedules to participate in Free File." Before you start your return, make sure all the forms you will need are available.

    Technology Limits - No computer program can help you if you make data entry errors. You should still double check all your entries - don't rely exclusively on the software to help you find mistakes.

    Forced e-Filing. You have to e-file when you use Free File, whereas if you purchase tax software, you can print your return, sign it and mail it in.

Conclusion
So what's in it for the IRS? The easier it is for people to file their taxes, the more likely the government is to collect the money is says people owe. Free File is also designed to increase the number of returns that are e-filed, and e-filed returns are less expensive for the IRS to process. (Finding out you owe when you expected a refund is a nasty shock. Find out how to bounce back, in Top 9 Solutions To An Unexpected Tax Bill.)

To use Free File, visit the IRS website. The IRS provides a list of companies for you to browse, and will help you find one for which you qualify.

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