It’s mid-February and my taxes are already done. Not only are they done, but I’m actually getting money back, which came as a surprise. Part of that is because I used free online software to prepare my taxes. The services found deductions that I might have missed. This year, it took me twice as long to prepare my taxes – two hours instead of one – because I used two services as a comparison. More details on that tomorrow. Today, I focus on how filing taxes online saves money.
Remember, even if you don’t owe taxes, you must file a return this year in order to qualify for the tax rebate being provided by the government this summer.
File Taxes Online Free with the IRS
The simplest way to file federal taxes online is to go to the IRS website and click the Free File button. If you owe taxes and adjusted gross income was less than $54,000 this year, then this system is for you. Unfortunately, this system is not currently available for those filers who don’t actually make enough to owe taxes but need to file for the rebate. Check back in early April to see if it’s available then. Or you could file form 1040A on paper now. Personally, I’d give the IRS a little more time to update the software before resorting to paper.
File Taxes Online Free with Other Services
If you don’t qualify for the IRS free file program, review their list of e-file partners. Several offer free federal e-filing, although they do charge for the state. Go down the list and click through to view the offers. Spend a little extra time at each site to see if there are other offers that don’t appear on the splash page. For example, TaxAct show their fee-options on the splash page, but if you click over to the main page, you’ll find the free option.
The IRS Free File program doesn’t complete state taxes. If you live in an income tax state, check with your local tax board to see if they have free online tax software. If not, you can paper file in your state or pay to use the software.
Compare Prices and Pay to File
California is an income tax state and a complicated one at that, so I use the pay software to also complete my return. However, I don’t use the most expensive service. When it comes to these services, they’re generally equal (as you’ll see tomorrow), but their prices are not. I would look for a reasonable offer from a robust site and use that one. If you’re concerned that it won’t be up to the task, you can usually use the software without paying. Prepare your taxes once on the cheap site and once on the expensive site. If the returns are the same, use the cheaper option.
Use the Same Service Annually to Save Time
As a bonus time saver, use the same service every year. If you’ve used them in the past, the system will copy over your old information. So, if you haven’t moved, changed employers, or changed your dependents, you can simply click to confirm that information is still accurate and then enter new wage and withholding information. If your information has changed, updating it is simple.
Run Through the Deluxe Q&As
Some services provide tax Q&A screens if you’ve had major life events. I’ll show you more on that tomorrow, but it’s always worthwhile to check the boxes for your major changes and run through the questions. You may discover that you’re owed deductions or credits you wouldn’t otherwise be aware of. Common deductions include medical costs, moving expenses, excess social security deposits, adoption fees, and more.
Avoid an Audit
Finally, these services help you avoid an audit by checking your return for errors and flags. Now, this doesn’t save you money directly, but you will have to miss time at work and travel to an IRS office if you do get flagged for an audit. The screens reduce your chances of being flagged for an audit, unless of course you lie on your taxes.
Never Accept a Refund Anticipation Loan
Refund anticipation loans are rip-offs of the same order as payday loans. When you file online and use direct deposit, your refund will appear in your bank account within five to fourteen days. In some cases, it can take that long for the anticipation loan application to process, and you’ll have to pay additional fees and interest on that loan. Even if you get approved immediately, you still have to pay exorbitant fees of $30-90, plus interest of 178-700%.
Filing taxes is never fun, but with online software it almost feels that way. I love watching that little refund number in the corner go from red to green. This year it meant that we paid almost exactly the right amount in withholding, which means we didn’t loan the government much money. That’s the best savings of all!