This may sound strange coming from someone who prepares taxes professionally, but here goes: If your tax situation is simple, you do not need to hire a pro to prepare your tax return. Save your money while your taxes are simple, grow your personal financial situation, and hire me when your taxes become more complicated.
What counts as “simple” will vary from person to person, but I generally refer to someone who is a W-2 wage earner, lived in (and received income from) only one state during the year, and had no other sources of income besides perhaps savings account interest and/or Social Security benefits. Tax situations can become complicated quickly with dividend and capital gain income, annuity income, or when there are multiple states involved; small business owners have even more potential headaches. If any of that applies to you, professional assistance is going to be worth the money.
Gone are the days when you had to pick up tax forms and instruction booklets from the library or post office, fill them out by hand, attach your W-2s, and mail them in. Tax software makes this process much easier for both taxpayers and the government! Each software program is different, but each offers the same basic approach by guiding you through the process step-by-step, typically in a simple question-and-answer format. Depending on your chosen software program and your employer’s payroll service provider, you may be able to simply upload an image of your W-2 or even download it directly.
Many tax software providers will offer low-cost or no-cost return preparation if you meet certain requirements, such as being below a certain income threshold or having prior or current military service. But before you start on your personal tax preparation journey, be sure to check out three programs that may allow you to prepare your taxes for free.
IRS Free File
The first option, which has been around for over two decades, is IRS Free File. This is a public-private partnership between the IRS and various software companies that “provide[s] free and secure online tax preparation and filing services to taxpayers.” IRS Free File typically has more flexible eligibility requirements than going directly through the software vendors, but to access these benefits you must log in via the IRS Free File website. If you want to use TurboTax, for example, be sure to log onto IRS Free File, and then select TurboTax from among the various options; do not simply go to the TurboTax website directly.
There are a few drawbacks to IRS Free File. First, you will probably need to re-enter your information each year. When you use a paid software program, it will typically pull your information from a prior-year return (if you used the same software previously) so you do not have to re-enter it each time. However, spending a few minutes to re-enter your personal information is probably a good tradeoff to paying for the service. If your return is relatively simple, you will not have to worry about stuff like suspended passive activity losses or carryover excess charitable contribution deductions.
If you have carryover “tax attributes,” you can still theoretically use free software and manually enter the numbers each year, but I do not recommend this approach because it is easy to make mistakes. Even a simple mistake could be very costly, so call in a pro at that point.
The second drawback to IRS Free File is that most of the partners will not file your state return(s) for free. (If you live in a state without state income tax, then you can skip to the next section!) You have two options here: (1) suck it up and pay the fee to file your state return or (2) go to your state tax website and file your return directly. You could also complete your state return by hand, print it out, and mail it in, but that takes a lot more effort!
Most states allow you to file your state return for free directly via their website. This is more cumbersome than using software—especially since a state return is often little extra work once you finish a federal return—so you have to evaluate if the extra effort is worth it to save the extra cost.
IRS Direct File
A new pilot program this filing season is IRS Direct File. It is essentially the same concept as IRS Free File, but instead allows you to file directly with the IRS rather than utilizing a private partner. You are eligible to use IRS Direct File if you live in one of the participating states and have relatively simple taxes.
You are not eligible for IRS Direct File this year if you do not live in one of the participating states; because this is a new program, the IRS is testing it out on a limited basis before opening it up nationwide.
As with IRS Free File, IRS Direct File does not prepare state returns. However, if you live in certain states within the pilot program, IRS Direct File will “guide[] you to a state-supported tool you can use to prepare and file your state return.”
It is up to each state to partner with the IRS for filing purposes. If your state does not already participate, make sure your elected representative knows that their constituents want this option!
IRS Fillable Forms
If you do not meet the eligibility requirements for IRS Free File or IRS Direct File, you can still file your return for free with IRS Free File Fillable Forms. This program is open to anyone regardless of income level or state of residence. It does not provide the step-by-step guidance offered by typical software programs, but lets you choose the forms you need, fill them out online, and submit them electronically. You will still need to file your state tax return separately.
If you have simple taxes, you are an excellent candidate for free do-it-yourself tax software. Be sure to weigh your options. Worst case, if you start on your own taxes and later change your mind, you can always reach out to me for help at that point!
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