How to File Your Taxes for Free
Many taxpayers, especially those with children, pay hundreds of dollars to file their taxes, even though they could save that money tax-free by using the free services sponsored by the IRS. They are often lured by advertising by tax preparation services, most of whom charge by the number of forms required for the tax preparation. This means that many single parents, who need the money more than anyone, may pay $300 to $400, or more, to have their taxes prepared. The reason why single parents pay more than single taxpayers is that parents who qualify for the Earned Income Credit, Child Tax Credit, and the Additional Child Tax Credit, each of which requires a different form, must pay for each additional form, which increases the tax preparation cost. Many of these parents will receive thousands of dollars in tax refunds, so they tend not to blink at the tax preparation expense but blink they should! It is crazy to spend hundreds of dollars for something that could be done free of charge, especially when the parents need the money for their children.
Taxpayers have several options for free tax filing. They can either use the IRS Free File Program or use IRS-sponsored volunteer services.
IRS Free File Program
Millions of Americans can file taxes for free, but many of them are not aware of the Internal Revenue Service’s Free File Program. Instead, many low- and moderate-income Americans pay hundreds of dollars to 3rd parties to file their taxes. Many of these companies, such as Intuit and H&R Block, offer services for the Free File Program, but they also sell their services to many people who go directly to their websites or to their retail sites, selling even to those people who qualify for the Free File Program. There have been reports that some tax preparation companies have been steering tax filers away from their free services to their paid services. The IRS is taking steps to ensure that more taxpayers will learn about the free program: New Free File agreement signed to strengthen program, help taxpayers | Internal Revenue Service.
To ensure that you qualify for the free filing of taxes, you must go through the IRS website, Free File: Do Your Federal Taxes for Free | Internal Revenue Service. The maximum income for the Free File Program was $66,000 in 2019 and $69,000 in 2020. According to a Treasury Inspector General For Tax Administration (TIGTA) report, only 2.5 million taxpayers out of the 104 million eligible for the program used the program, a participation rate of only 2.4%.
Carefully read the requirements for the free services. All these services, of course, have an upper-income limit, but some even have a low-income limit. Why? Because many people do not carefully read the requirements, so they assume they are poor enough to qualify for the free services, but then, after filling out the tax forms, the service asks for payment because, evidently, they are too poor, their income was less than the lower limit. This is just another scam to take advantage of people! When people realize they must pay, many of them will pay simply to avoid redoing their taxes. So read the requirements carefully!
Another important factor is that most of these free online services were provided because the IRS was going to provide a free service to the public, so to prevent that, the tax companies decided to offer free services for low-income people. So, the IRS stipulates that they must follow certain rules. Remember, to take advantage of these free services, go through the IRS website, Free File: Do Your Federal Taxes for Free | Internal Revenue Service, to ensure that you are getting the free service. If you go directly to the websites of the tax preparation companies, then they do not have to abide by the IRS rules. So, for instance, if you want to use TurboTax, then go to the IRS site and access TurboTax from there instead of going directly to the TurboTax site.
More than 20 states also have a state Free File program patterned after federal program, which means many taxpayers are eligible for free federal and free state online tax preparation. Those states are Arkansas, Arizona, Georgia, Idaho, Indiana, Iowa, Kentucky, Massachusetts, Michigan, Minnesota, Missouri, Mississippi, Montana, New York, North Carolina, North Dakota, Oregon, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, and West Virginia, plus the District of Columbia. Read reviews on which tax software is best to use.
The IRS also offers Free File Fillable Forms, where you can fill out the IRS tax forms directly on the IRS site. These forms do calculations, but do not offer tax advice, so they should only be used by people who know what they are doing and who do not qualify for the Free File program. Most states also offer fillable forms.
Free Tax Preparation Provided by Volunteer Services
Many communities provide free tax preparation for people who earn less than a certain amount. In my community, free tax preparation is provided by the United Way for all those with earned incomes of less than $62,000, although this figure will vary with the geographic location and the tax year. Other restrictions may also apply. Because most of these services are provided by volunteers, they cannot handle complex tax situations. For instance, a self-employed person with more than one business probably would not qualify for the free services.
These free tax services are provided under the Volunteer Income Tax Assistance (VITA) grant program, an IRS initiative designed to support free tax preparation service for the underserved through various partner organizations. This service helps low- to moderate-income individuals, persons with disabilities, the elderly, and limited English speakers file their taxes each year. IRS awards matching funds to these support organizations that offer free tax preparation services during the tax filing season at locations in all 50 states and the District of Columbia. You can find your nearest location by using the IRS finder tool: Find a Location for Free Tax Prep | Internal Revenue Service. Note that you will only find free tax assistance by searching between mid-January and April 15, since these are the times when free tax assistance is available.
The AARP also provides tax services for senior citizens. You can find the nearest location here: Tax Aide Class Locator
Here is a list of items to bring with you, if applicable or available:
Records from the Government or Financial Institutions
- Previous year’s tax return(s).
- Social Security cards and/or ITIN notices/cards or other official documentation that show the taxpayer identification numbers for every individual on your return.
- Government-issued photo ID for each taxpayer.
- Checking or savings account information if you want to direct deposit any refund(s) or direct debit any amounts due.
- Identity Protection PIN (IP PIN) (for each individual if applicable).
- W-2 for each employer.
- 1099-G form for unemployment compensation or state/local income tax refunds.
- SSA-1099 form showing the total Social Security benefits paid to you for the year, or RRB-1099, Tier 1 Railroad Retirement benefits form.
- 1099 forms (or other statements) reporting
- interest (1099-INT), dividends (1099-DIV) and/or proceeds from sales (1099-B), plus documentation showing the original purchase prices if you sold stocks or other assets.
- 1099-R form if you received a pension, annuity, or IRA distribution.
- 1099-MISC, 1099-K, or other 1099 forms. If you have a business, bring a summary list of all your income (cash and non-cash) and all business-related expenses.
- Information about any other income of any form including cash or other than cash.
- Records of any federal and/or state and/or local income tax paid (including quarterly estimated tax payments) if not shown on income documents.
- Most taxpayers have a choice of taking either a standard deduction or itemizing their deductions.
- If you have substantial deductions, you may want to itemize. If so, bring the following information:
- 1098 form showing home mortgage interest.
- A summary list of medical/dental/vision expenses including doctor and hospital bills and medical insurance premiums, prescription medicines, assisted living services, long-term insurance, and bills for medical related home improvements, such as ramps and railings for people with disabilities.
- Summary of cash and noncash contributions to charity.
- Property tax bills paid during the year (frequently shown on mortgage statement).
- 1095-A forms if you purchased insurance through the Marketplace (Exchange).
- 1095-B/1095-C forms (optional).
- Any exemption correspondence from the Marketplace (if applicable).
- Dependent care provider information – name, address, telephone number and employer ID or Social Security number and amount paid to provider.
- 1098-T form for education expenses plus statement of account from the educational institution showing tuition and fees actually paid and scholarships, grants, etc. received. Also bring a summary of any other education expenses.
- 1098-E form for student loan interest.
Services provided by United Way or other organization providing free tax preparation services will do both federal and state tax returns.
When you do have your tax returns done by a professional service, you can save time and money in succeeding years by simply doing it yourself, especially if your tax situation has not changed significantly. Use your prior year's tax returns as a guide to see what needs to be done. So if you can't find, or qualify for, any free services, this is something you can consider. Both the IRS and all states provide forms that you can fill out online. While these government-provided forms do some calculations, it will not give you any advice on how to reduce your taxes, but if you already know what you are doing, then this is a free way to file that does not depend on income or complexity. But generally, a previous tax return would be a great guide for doing your future returns, especially if your situation or the tax laws have not changed much.
Reading tax books can give you some ideas on how to save on taxes. Some books, such as those provided by Nolo Press, are written by lawyers and cover the tax law generally, but not specifically. For detailed instructions, you would need a book such as JK Lasser, which is published every year, or even read what you need to know from the IRS website.
Hiring a Pro
If you want tax preparation, but you do not qualify for the free services, then you will need to search for someone who can provide tax preparation services. But do not fall for tax scams. Every year the IRS lists the most common types of scams.
IRS concludes "Dirty Dozen" list of tax scams for 2019: Agency encourages taxpayers to remain vigilant year-round | Internal Revenue Service
To find someone competent to do your taxes, ask friends, family, and coworkers for referrals. Tax preparers, CPAs, attorneys, and enrolled agents are authorized by the IRS to file other people’s tax returns. Every paid tax preparer must have a preparer tax notification number, or PTIN. Since anyone can apply for a PTIN, it is not indicative of expertise or experience. However, the IRS does keep a directory of everyone who has a PTIN, the RPO Preparer Directory, which can be searched by the public.
Enrolled agents specialize in federal taxes and are authorized by the IRS to advise and prepare taxes, and they can represent taxpayers before the IRS. They also maintain a directory: Find a Tax Expert | Find a Tax Preparer | National Association of Enrolled Agents (NAEA).
Taxes are complex, and even tax preparers with many years of experience make many mistakes. When interviewing tax preparers, ask questions you have the most problems with, so that you can compare the answers from each tax preparer. This will give you a better idea of how competent they are.