January 2008
Tax prep that won’t overtax you
Online programs let you fill out and file your forms easily and inexpensively
If you're among the millions of converts to do-it-yourself tax software, you might be ready for the next step: Online tax
preparation. There are dozens of Web-based programs that will help you to electronically prepare, store, and file your tax
returns, either free or for a relatively modest charge.
Preparing your taxes online can be less expensive than using store-bought or downloaded software. Aside from cost, online tax preparation has one big benefit over downloadable or store-bought software such as Intuit's TurboTax or H&R Block's TaxCut. As with those programs, you can start your work, store it, and return to it later for changes and electronic filing. But with online software, the information on your returns and schedules is stored on the tax-prep service's server, so you can retrieve it from any Internet-connected machine. That could save you if your computer is lost or damaged. Keep in mind, though, that these services only let you prepare and file one federal and one state return per account.
While none of those Web sites can guarantee total safety from hackers, you can feel more confident if you use sites that have been certified by TRUSTe, the Better Business Bureau, or both. Also look for the logo "Authorized IRS e-file Provider" on the site's home page. All of the sites listed below also comply with Consumer Reports WebWatch guidelines, which cover privacy, consumer service, and other factors.
The best online tax-prep bargain by far is available only to taxpayers who have adjusted gross incomes of $54,000 or less. Those taxpayers are eligible to prepare and file their federal returns at no charge using one of the companies that participates in the Internal Revenue Service's Free File program. Go to www.irs.gov/individuals/index.html and click on "Easy. Fast. Find out more. FreeFile." Note that some require that you meet other qualifications, such as residency in a particular state.
Preparing state returns is generally not free, but many states offer free e-filing directly through their revenue departments' Web sites. Other states have partnerships with private companies that charge a filing fee. Check the Web site of the Federation of Tax Administrators (www.taxadmin.org/fta/link/internet.html) to see which states offer what.
If you're not eligible for Free File, you can still find online bargains. Several services, including H&R Block's TaxCut (www.taxcut.com), Intuit's TurboTax (www.turbotax.com) and TaxAct (www.taxact.com), offer free or low-cost (no more than $20) tax prep and filing for people with reasonably simple returns using 1040EZ and 1040 forms.
TIPS AND TRAPS
Fortunately, all of those services are easy to try. Most don't charge you anything until you file. If you have the time and inclination, you can test as many as you'd like to see which one delivers the greatest tax savings. With some you'll have to wade through solicitations to upgrade to pricier services. (Though the sites are secure, you might want to wait until you're ready to file before putting in your Social Security number.) Also consider these tips:
Check which of the IRS forms and schedules the site supports. Most sites provide Form 1040 and Schedule A for itemized deductions, but they might not handle more-specialized forms. For example, www.average1040.com and www.citizentax.net do not include the regular Schedule C for self-employment income.
Make sure the site can handle your state taxes. At www.average1040.com, for example, you pay no more than $8.62 to prepare and file a federal and state return, but it only works for Arizona, Georgia, Illinois, Michigan, North Carolina, Ohio, and Pennsylvania.
Check the site's price list. Many of them charge to send you a printed copy of your return. Some charge for filing an extension. And prices for online tax prep can go up closer to filing deadlines.
Consider the cost of help. Most services provide e-mail support for basic tax questions. If you don't think that will be enough, look for a service that offers inexpensive phone support.
Preparing your taxes online can be less expensive than using store-bought or downloaded software. Aside from cost, online tax preparation has one big benefit over downloadable or store-bought software such as Intuit's TurboTax or H&R Block's TaxCut. As with those programs, you can start your work, store it, and return to it later for changes and electronic filing. But with online software, the information on your returns and schedules is stored on the tax-prep service's server, so you can retrieve it from any Internet-connected machine. That could save you if your computer is lost or damaged. Keep in mind, though, that these services only let you prepare and file one federal and one state return per account.
While none of those Web sites can guarantee total safety from hackers, you can feel more confident if you use sites that have been certified by TRUSTe, the Better Business Bureau, or both. Also look for the logo "Authorized IRS e-file Provider" on the site's home page. All of the sites listed below also comply with Consumer Reports WebWatch guidelines, which cover privacy, consumer service, and other factors.
The best online tax-prep bargain by far is available only to taxpayers who have adjusted gross incomes of $54,000 or less. Those taxpayers are eligible to prepare and file their federal returns at no charge using one of the companies that participates in the Internal Revenue Service's Free File program. Go to www.irs.gov/individuals/index.html and click on "Easy. Fast. Find out more. FreeFile." Note that some require that you meet other qualifications, such as residency in a particular state.
Preparing state returns is generally not free, but many states offer free e-filing directly through their revenue departments' Web sites. Other states have partnerships with private companies that charge a filing fee. Check the Web site of the Federation of Tax Administrators (www.taxadmin.org/fta/link/internet.html) to see which states offer what.
If you're not eligible for Free File, you can still find online bargains. Several services, including H&R Block's TaxCut (www.taxcut.com), Intuit's TurboTax (www.turbotax.com) and TaxAct (www.taxact.com), offer free or low-cost (no more than $20) tax prep and filing for people with reasonably simple returns using 1040EZ and 1040 forms.
TIPS AND TRAPS
Fortunately, all of those services are easy to try. Most don't charge you anything until you file. If you have the time and inclination, you can test as many as you'd like to see which one delivers the greatest tax savings. With some you'll have to wade through solicitations to upgrade to pricier services. (Though the sites are secure, you might want to wait until you're ready to file before putting in your Social Security number.) Also consider these tips:
Check which of the IRS forms and schedules the site supports. Most sites provide Form 1040 and Schedule A for itemized deductions, but they might not handle more-specialized forms. For example, www.average1040.com and www.citizentax.net do not include the regular Schedule C for self-employment income.
Make sure the site can handle your state taxes. At www.average1040.com, for example, you pay no more than $8.62 to prepare and file a federal and state return, but it only works for Arizona, Georgia, Illinois, Michigan, North Carolina, Ohio, and Pennsylvania.
Check the site's price list. Many of them charge to send you a printed copy of your return. Some charge for filing an extension. And prices for online tax prep can go up closer to filing deadlines.
Consider the cost of help. Most services provide e-mail support for basic tax questions. If you don't think that will be enough, look for a service that offers inexpensive phone support.
