Monday, January 24, 2011

How To File Free Tax Returns (Or Almost Free!)

Yes, it’s true! You can actually file your federal taxes for free. The real question becomes, however, “Is that always beneficial?”

It’s no secret that nowadays folks are scrambling to save a buck wherever possible. Even though many Americans over pay their taxes and expect some level of tax refund, the promise of a few thousand dollars should not negate the fact that you need to do your homework in order to save money when possible. The sweet spot in all this is the point where the tax refund, tax preparation costs and the nasty possibility of long term IRS penalties and fees due to error all balance out nicely. Don’t be a robot and just do what you’ve always done year after year. Who knows what you can be missing out on or even getting yourself into! And, for heaven’s sake don’t just do something in particular because that’s what your mama used to do OR because that’s what’s working for your neighbor! Make the decision based on your individual situation in the isolated tax year being analyzed.

In all scenarios described below, I would only recommend these methods if you have a straightforward return (standard W2, investment or bank interest/dividends, basic primary home ownership or renter), etc. Honestly if you work from your home, sell any real property or investments, work as a consultant paid via 1099, have unusually high medical bills, filed bankruptcy, endured foreclosure, have a dependent in college, received an inheritance, etc, etc, etc… then just find yourself a good CPA. That person will know what you can and can’t deduct. At that point its worth having someone who is knowledgeable of tax code and can bend things in your favor! So, don’t be cheap.

Related Post: 5 Last Minute Tax Tips For 2010

Back to the majority of Americans:

Scenario #1

If you have adjusted gross income or AGI of less than $58,000, which is approximately 70% of all taxpayers, you can prepare federal tax returns for free using the IRS’s Free File program. It's a fast and safe service, which allows you to track your refund within 72 hours of filing. Note, however, that this does not necessarily include state returns which you will still be responsible for filing.

Scenario #2

Another option with very nominal fees are sites like Citizen Tax, which offers a very simple and straightforward service with no bells and whistles, but costs only $29 when you do both federal and state filings with them.  But again, make sure that your tax return is very straightforward if you plan on using a service like this.

Fast and Easy Tax Preparation with CitizenTax.

Scenario #3

If you choose to do it yourself, but the free and overly simple routes scare the hell out of you, use whatever software you are comfortable with as there are plenty on the market. Software like Turbo Tax or H&R Block at Home are both user-friendly programs with good reviews at a decent price range of about $44.95 to $59.95. The best parts about the home software, however, are the “peace of mind” guarantees that are offered. For example, TurboTax offers Audit Defense for an additional $39.95 per return. Don’t be cheap and see this as money that could be in your pocket. See it as an investment! This protection makes sure you never have to meet with the IRS if there is an audit. That alone should be priceless!

The bottom line is to not get stuck using the same method each year if there are times when you can go a simpler route or when there are times when you really need professional help and doing it alone won’t cut it. Take each year as it comes and be prepared to do whatever’s necessary and makes sense for you. Find your sweet spot!

Until Next Time,

Seek Wisdom, Find Wealth & Be Blessed!

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