When it comes to 1040 online tax filing for free, what’s the catch?
Have you heard all those commercials for free online tax filing? They puzzled me. How can those companies file taxes for people and charge nothing for their services? On top of that, those guys are paying good money to advertise those services. How do they do it? What’s the catch? Should you take advantage of it?
I did some digging and learned that the federal government set up this “Free File” program. Here’s how it works:
The IRS and some tax software companies partnered. The companies do the returns for eligible participants without charging the consumer a dime. Of course, these companies are getting paid by Uncle Sam, but I suppose it’s cheaper for the government to do this than to chase people who don’t file their tax returns.
Are you eligible?
If your 2010 adjusted gross income is $58,000 or less, you can participate. It doesn’t matter if you are single, head of household or married filing jointly. It also doesn’t matter if your income is generated by capital gains. The $58,000 AGI limit applies. Of course, each company that provides the service has its own requirements. They can set their own standards with respect to AGI or what part of the country you live in.
In order to participate, you don’t have to download any software. You simply go to the company’s website and have at it. These companies have also installed some pretty sophisticated encryption programs, so your privacy is protected. These companies also are required to provide customer support as part of the deal they made with the IRS. This way, if you have questions, you can contact the company and they will help provide answers.
Is free tax filing for you?
Well, if you qualify, I can’t see why not. If you have a complicated return, don’t go for it. But if you are thinking about taking these companies up on their offer, better do it fast. Some of the offers expire prior to 4-18-11.
Ronald Dodge says
I do my own taxes and taxes for other people. My basic tax charge for personal tax returns (including state and local if needed to do local) is $50.00. I also partake in the VITA program as an advanced tax preparer on a voluntary basis, which is done entirely free.
What I find, most people either are too scared of the IRS, so they want to have it done by a professional, or they simply don’t want to learn all of the different rules, so again, they turn to a professional to have them done.
For me, I learned all of the different rules, not so much for tax preparation purposes, (though it certainly does help for that), but more so from a financial planning stand point of view. While you are not to let taxes dictate your moves, you still need to learn the impact to your finances that taxes has on them, so as you can make adjustments appropriately as situations comes about.
One thing about doing other people’s taxes, you get to see many different scenarios that you may not have seen otherwise, which you can incorporate those various scenarios into your own financial plans and make adjustments as needed. Example with me, while I was the one that had set the grading curve on the final federal taxation exam in college (which I forgot to take my notes with me, so I did it strictly from memorization), I still learned other ins and outs dealing with taxes by doing other people’s taxes and what tends to take place which wasn’t mentioned about in that taxation course in high school or college. 1099-R’s is a perfect example of such a case. While federal taxes is taken out, rarely is state income taxes ever taken out. As such, when it comes to retirement time, you must plan on paying your state income taxes yourself at least on a quarterly basis as you withdraw from your retirement accounts to avoid many of those penalties and interest charges the state will get you with otherwise (that is if you live in a state with income taxes).
KL says
When I was younger and making $7.00 an hour (a few years ago) I had no idea how to do a 1040ez. I ended up paying an accountant about $200.00 to do my returns because I had no idea how. My financially illiterate family was of no help. The companies hope to make $15.00 or so on e-filing from the 1040ez customers. I would have taken them up back then rather than giving up a weeks work to a ruthless accountant.
Little House says
The commercials I’ve been hearing mention free tax filing if you are filing a 1040EZ. Which to me seems kind of silly since EZ’s are really, well, easy! I remember filing my EZ by myself at the age of 17, which was many years ago. Heck, if a teenager can do it, can’t anyone?