Published 2/15/09 (Modified 3/8/11)
By MoneyBlueBook

Review Of Free Tax Filing Software Options - TurboTax, TaxCut, and TaxAct

Tax day is a stressful and confusing time for many people as we scramble around with our W-2's and 1040 forms, but it doesn't have to be. Currently, there is a wealth of free tax filing resources available to help people like us with timely and accurate tax preparation, courtesy of organizations like the IRS and the U.S. government. Thus, even those those who do not have the extra financial means to afford premium tax software programs like TurboTax and Taxcut still have a wide selection of competent tax assistance programs at their disposal. Depending on their individual demographics such as age or income, and depending on the availability of other special status factors such as active duty in the armed services, certain taxpayers may even qualify for free federal government sponsored tax preparation assistance and free tax filing.

Free Tax Filing With IRS Free File Offers and Non Profit Volunteer Tax Preparation Services

The various free tax preparation and free tax filing services available can be broken down into two broad categories - offers that stem from the federal government's partnership program to bring affordable partially subsidized tax filing services to lower income people, and offers that are provided by volunteer tax organizations funded by non-profit interest groups.

Taxpayers who wish to prepare and file their taxes electronically for free can take advantage of the "Free File" tax return preparation program provided by private tax vendors such as Turbo Tax, Tax Cut, and Tax Act, in partnership with the Internal Revenue Service (IRS). While the federally sponsored tax preparation and filing programs are indeed free for those qualified, the program costs are only waived for the federal income tax portion. Those who use the online tax services of an IRS "Free File" software provider must be mindful of the inevitable up-sell of the state income tax portion - in which the "Free File" tax software vendors offer the federal portion for free but try to sell you on paying for additional (and often necessary) state tax preparation. Marketing strategy has shone that loyal customers of a proven free software product have a tendency to return to the same familiar product again, even when they may not qualify for the original free trial version anymore. The hopes of these free tax software providers is to get you acquainted with their free federal tax filing programs today so that one day when your income finally exceeds the "Free File" qualification limits, you will be will more receptive to paying for the same service.

Be Mindful Of Inevitable Up-Selling For Paid State Income Tax Preparation and Filing

Oftentimes however, taxpayers using the services of the "Free File" software vendors are surprised by the last second add-ons, tax refund anticipation loan solicitations, and other marketing sales pitches. While there is no obligation for taxpayers to buy any of the products or services marketed by the "Free File" tax providers, because many times these convenient add-ons (for services like state tax form preparation) crop up so late in the free federal tax preparation process, they oftentimes leave the taxpayer with little choice but to pay the extra requested charges or face having to start the lengthy process all over again with another tax software vendor. However, despite the up-sell tactics used, there is nothing really outrageously deceptive or harmful with the practice of product up-selling in the case of "Free File" offers (especially for things like state tax return preparation) as they frequently do save the taxpayer time and hassle, particularly since the tax provider may be able to transfer all of the prepared tax data from the completed free federal tax forms to the paid state tax forms automatically for you. Furthermore, the state income tax form upsales usually only cost an additional $15-20 for electronic E-file. Of course, one probably ought to check his or her state's taxation authorities to see if he or she can e-file or mail in state income tax return forms for free.

As always with utilizing online programs, particularly ones that will necessarily request confidential data and information from you such as your social security number, it's important to be extra careful of the myriad of tax preparation scams floating around the Internet during tax season. Remember, when dealing with a tax preparation and tax filing firm, you are inevitably providing them all of the information they would need to fraudulently steal your identity. Always seek out a trusted and "Authorized IRS e-file Provider", or stick to the popular "Free-File" tax vendors and verified free tax preparation services in the list I've provided below. Remember, it's important to stay vigilant against tax scams and tax frauds to avoid succumbing to the dangers and headaches of identity theft.

Free Tax Filing Is Also Available to Qualified Low Income, Elderly, Or Active Military Personnel

Those���� who are puzzled or confused by the "Free-File" online tax preparation options may consider seeking more personalized live tax help from free volunteer-based tax assistance programs. The most popular free in-person tax preparation programs for qualified taxpayers include the IRS' Volunteer Income Tax Assistance Program and the Tax Counseling for the Elderly����Program via the AARP organization. If you need guidance with your tax return or are not sure which tax credits or deductions to take, you may want to visit one of these volunteer tax assistance sites for some one-on-one tax prep help. Most of the walk-in tax centers provide full service tax preparation help for both federal and state returns with the help of fully trained community volunteers and sometimes professional tax preparers, however, they are best suited for straightforward and uncomplicated tax returns. Most of these community tax assistance organizations are also need-based and limited to certain types of people - such as lower income taxpayers, elderly folks, or active military personnel.

Below is a list of the verified and legitimate free 2009 tax preparation and tax filing resources I am aware of for tax year 2008. Please share your personal experiences with any of the the ones I've listed or have failed to mention:

1) TurboTax Free File Edition - Intuit's TurboTax currently offers a free online edition of its popular tax preparation software to taxpayers who only need to file 1040EZ or simple straight forward 1040 tax return forms. The TurboTax free edition is designed for those who have simple tax returns and don't need much tax guidance regardless of income level. If you have complicated child care expenses, mortgages, medical expenses, have made charitable donations, own stock investments, rental properties, or run your own business, you may need to upgrade to a paid premium edition of TurboTax. The TurboTax Free Edition doesn't cover tax Schedules C, D, E, and F (required for taxpayers who own a business or have sold investments). Otherwise, those who have simple tax returns with just the standard deduction or a few basic itemized deductions, should take a test run of the TurboTax free version. At the very least you can try the program without cost and decide whether your needs are fulfilled by the free entry level version or whether you will require a more sophisticated software upgrade.

The TurboTax online free edition offers an intuitive, interview format tax preparation process featuring data compatibility with Quicken and various personal finance spreadsheet programs, along with integrated electronic state filing (at an additional cost). TurboTax provides a list of all the tax schedules and tax forms included in the federal Free File Edition, and as you will note, most of the major forms such as Schedule A (for basic itemized tax deductions) are included under the free filing program. While TurboTax is indeed free for federal return preparation and filing, those of you who need to file a state return as well will have to pay a little extra ($25.95).

• TurboTax Freedom Edition - As a special promotion, TurboTax also offers free federal and state tax return preparation and e-filing to qualified taxpayers who either have an adjusted gross income (AGI) of $30,000 or less, qualify for the Earned Income Tax Credit (EITC), or can qualify as active duty military members with an AGI of $56,000 or less. Qualified taxpayers can prepare and file their federal returns for free with the TurboTax Freedom Edition. Freedom Edition participants may also qualify for free state tax filing as well if filed in a state that sponsors its own "Free File" state program. Free File Program states include: AL, AR, AZ, GA, ID, IA, KY, MA, MI, MN, MO, MS, NY, ND, NC, OK, OR, RI, SC, VT, and WV. Otherwise, if your state's not included, you can still prepare and file a state return with the Freedom Edition for just $9.95. Still not a bad deal at all for lower income taxpayers who qualify. Although the TurboTax Freedom Edition supports the Form 1040 long form with itemized deductions in addition to the basic Form 1040EZ, it does not support tax situations that are uncommon to lower income taxpayers, such as complex investments, rental property, and royalty income.

2) H&R Block TaxCut Free File - HR Block offers a basic free online tax preparation software and free federal E-filing package with its TaxCut Free Federal Edition for those with simple returns, such as those who are filing 1040EZ's or have run of the mill 1040's. The TaxCut Free Federal Edition offers a simple tax preparation process via an easy to use, step by step tax interview with automatic error and anti-audit double checking. However, if you're looking to import your prior year's tax data or if you're looking to get extra tax preparation guidance for your Schedule C, home mortgage, rental property, home office, or business expenses, you will have to go with a more premium TaxCut version instead. While federal income tax preparation assistance is indeed free with the TaxCut Free File Edition, adding a state income tax return will cost extra - an upsell added price of $29.95.

3) TaxAct Free File - While not as popular as TurboTax or H&R Block's TaxCut, TaxAct has quietly competed well against the two tax preparation giants. TaxAct offers its own free federal edition for those who would prefer to do away with paid complete tax support in favor of free tax preparation and free E-filing. As always with free tax preparation programs, TaxAct's free filing edition is best suited for those with basic, non complex tax returns. Free TaxAct supports all of the major tax forms (view list) including 1040 and 1040EZ with itemized deductions. The only major TaxAct features not supported in the free version are data importation and complex deduction calculators for those who run their own small businesses. Otherwise, the TaxAct free version functions just like the paid version, allowing you to prepare your taxes at your own pace and return to your saved work as needed until you are finished.

Cost-wise, your free federal E-file is included, but tacking on an additional state income tax return will cost $13.95 (which is still a lot cheaper than both TurboTax and TaxCut's state tax preparation prices). If you're filing both the federal and state tax forms together, TaxAct's Free File offer is one of the cheapest deals around.

4) TaxSlayer Free Tax Filing For Active Military - TaxSlayer online tax preparation and tax filing is free for active duty military personnel. While the online TaxSlayer classic edition offers free federal and state tax preparation services for non-military civilians with downloading, e-Filing, and printing at $9.95 each, active military personnel get to enjoy both the tax preparation and filing for free. Active military servicemen and women also get to add multiple state returns with no additional charge. If you are not sure whether you qualify, please visit the TaxSlayer website and submit your military EIN number from your W-2 Form into the query box to see if you are eligible for free TaxSlayer services.

5) IRS Free File Program - Through a partnership between the IRS and a group of private sector tax software companies called the Free File Alliance, those whose adjusted gross income in 2008 was less than $56,000 may be eligible for free tax services. If your income was less than $56,000 in 2008, you may be qualified to select a free tax preparation and free tax filing vendor from the the IRS Free File website to process your tax paperwork for you. To participate, you'll need to visit the IRS' website, fill out a short tax related questionnaire, and get matched up with an appropriate free tax preparation company. Those who wish to know more can obtain a list of all the Free File Alliance companies here. Those who can meet the program's income restrictive terms should definitely take advantage of this government sponsored offer.

6) IRS Free File Fillable Forms - The IRS Free File Fillable Form option is not a free tax preparation software, but the most basic way of electronically filing your federal tax return without charge. Simply put - the site's just a series of blank tax forms. You simply select the tax forms desired, fill in your appropriate tax return numbers, and E-file for free. There are no income restrictions and the service is available to everyone. For those of you who know exactly what you are doing and prefer to do your taxes manually by hand (not sure why anyone would want to, in this day and age of computer assisted tasks), this is a free tax filing option to consider, especially for those whose high income limits would otherwise disqualify them from other free electronic tax filing alternatives. Do keep in mind that the IRS Free File Fillable Forms service is not the same as the IRS Free File Program. The IRS Free File Program offers free tax preparation with free electronic filing, while this one only offers free basic filing without the extra preparation assistance.

7) Volunteer Income Tax Preparation Program (VITA) - The VITA program consists of a network of IRS sponsored tax volunteer sites that provide free tax preparation and free filing services to those people with low to moderate incomes, or those with limited English language abilities. Generally, the VITA sites assist taxpayers who have net incomes below $42,000 - individuals who are usually eligible for low income tax benefits such as the earned income tax credit. The certified tax preparation volunteers provided by the free program usually receive tax training to help prepare basic tax returns in places around the country. These free walk-in VITA centers are usually located in local community facilities such as libraries, elementary schools, shopping malls, and other neighborhood centers. While there is no comprehensive list of VITA locations available on the Internet, you can find your nearest VITA site by calling: 1-800-829-1040.

When I was in law school, I worked as a tax preparation volunteer through the VITA program and witnessed a great deal of care on the part of VITA volunteers. The VITA tax preparation volunteers may not always be the best trained to handle complex tax law issues, but they are generally fairly knowledgeable and very eager to help with basic tax cases.

8) AARP Tax-Aide Clinics (For Senior Citizens) - The VITA volunteer tax program's sister companion is the Tax Counseling For the Elderly Program (TCE). Currently, the free tax assistance initiative for low income taxpayers with special attention to those 60 and over is being spearheaded by the AARP's Tax-Aide program. Those who are age 60 or older with low to moderately low incomes may be able to call in and schedule an appointment for some free tax preparation and free tax counseling assistance. At any one of the AARP Tax-Aide locations, you'll find trained tax preparation volunteers who can help you file your federal and state tax returns. Oftentimes, many of the volunteers who provide the tax filing assistance are themselves senior citizens affiliated with various IRS grant funded non profits. If you wish to find an AARP Tax-Aide center, please run a search with this online Tax-Aide finder tool, or locate your nearest AARP Tax-Aide site by calling 1-888-227-7669.

9) Low Income Tax Payer Clinics (LITC) - Low income tax preparation clinics are partially funded by the IRS and their goal is to provide affordable representation to low income taxpayers before the IRS in cases involving tax audits, tax appeals, tax collections, and federal tax litigation (usually for free or for a small nominal charge). The low income taxpayer clinics are usually operated and managed by non profit groups, law schools, or business schools with each independently evaluating prospective clients for program eligibility in terms of income limits and suitability.

When I was in law school, I participated in my school's low income taxpayer clinic program as a law student where I assisted clients of limited financial means with their tax related problems. During my time in the clinic, I helped my clients resolve a variety of tax related issues including helping a few negotiate Offer In Compromise settlement negotiations with the IRS for lower fixed payments. For those who qualify, I highly recommend the low income tax clinics as a way to resolve more complex consumer tax issues affordably with the help of trained tax professionals. While tax clinics run by places like law schools are usually staffed by law students in training, such clinical programs are usually supervised by a fairly hands-on tax law veteran. In my case, while working at my school's low income taxpayer clinic, I was supervised by a law school professor who was also a major partner at a prominent tax law firm nearby.