By Michelle Singletary
Sunday, January 18, 2009
You know the saying that there's no free lunch? Well, the Internal Revenue Service is trying to prove you can get something free when filing your taxes.
This year, all taxpayers can file returns for free electronically without having to buy tax software or go through a tax preparer.
Since 2003, people with low to moderate incomes could file their tax returns electronically at no charge by going through the Free File program. The program is run through a partnership between the IRS and the Free File Alliance, a group of private-sector tax-preparation companies.
Free File, which is available in English and Spanish, enables taxpayers with adjusted gross incomes up to $56,000 -- 70 percent of taxpayers -- to use commercial tax software to file their federal tax returns. Participants are asked a series of questions to smooth the process and to determine the deductions and credits for which they are eligible.
Last week, the IRS announced that for the 2009 tax-filing season, regardless of your income, you can file for free electronically by going to http://www.irs.gov. Even if you earn too much to qualify for Free File, you can still use that program's e-file forms to complete your taxes.
"The bottom line is there is virtually no reason every taxpayer shouldn't be filing electronically this year," said David Williams, the agency's director of electronic tax administration and refundable credits.
I've always thought Free File was a good program, but it was irritating that it wasn't available to those brave souls who file on their own. In 2008, 62.8 million people relied on tax preparers to electronically file their returns, while 26.9 million taxpayers e-filed returns using purchased software.
Some tax preparers offer to file their clients' returns electronically without a fee. Similarly, a number of large software companies are now waiving the $10 to $12 additional fee to file electronically, Williams said.
I want to make it clear that only participants in Free File get to use the free software that gives you step-by-step help by asking questions about your tax situation.
If you are filing though the IRS Web site and are not eligible for Free File or you're not using commercial tax software or a tax preparer, you will not get the question prompts or tax advice when you e-file. The free, self-serve e-file option available only through Free File does not include an "interview" process, Williams said. But it does allow you to electronically enter your tax information, perform basic calculations, sign and submit your return electronically, and print it out for your records. Basically you are replacing the paper return you would file with an electronic version.
"We think this product is best for folks who are comfortable with the tax code, know what forms they will use and who don't need assistance completing their returns," said Jim Dupree, IRS spokesman for Maryland, Virginia and the District.
Williams said he didn't expect a large number of people to file electronically on their own because it doesn't come with help from software or a professional.
And why isn't it likely that many will go it alone?
Come on, you know why. Because the tax code is so darn complex that many people have to get help, not just those with intricate tax situations.
But at a time when people are looking for ways to save, this move by the IRS presents a much-welcomed opportunity. The average tax-preparer fee for an itemized IRS Form 1040 with Schedule A and a state tax return is about $205, according to a survey by the National Society of Accountants. The average cost to prepare a Form 1040 and state return without itemized deductions is $115.
If you need help preparing your tax return, hire someone or get some software. Better to spend the money for professional help now than to make an expensive tax mistake. The tax software checks for errors during the return preparation and again during the e-filing process. The error rate for e-filed returns is about 1 percent, compared with 20 percent for paper returns.
There's also free tax-preparation help through the IRS Volunteer Income Tax Assistance program and the Tax Counseling for the Elderly program, which provides free tax help to people ages 60 and older. For more information, call (800) 829-1040. AARP also offers tax help. Call (888) 227-7669, or go to http://www.aarp.org/money/taxaide.
Last year, nearly 5 million taxpayers used Free File, a 24 percent increase over the previous year, according to the IRS. Almost 58 percent of all returns were filed electronically.
One of the benefits of filing electronically is that your refund gets to you faster. Taxpayers who choose the direct-deposit option can get refunds in as little as eight to 10 days, as opposed to the four to six weeks if your return is sent by regular mail. Last year, the average refund was $2,429. Regardless of how soon you need your money, e-filing is definitely the way to go.
· On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and at http://www.npr.org.
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