You don’t need a tax professional or tax software to prepare your income tax return. Okay, let me qualify that statement. You may actually need a tax professional to help you interpret the tax law, discover unknown deductions, and accurately prepare your tax return. However, if you have basic knowledge of tax law and a very simple tax situation, you may not need a tax professional. And you won’t even need to shell out good money for a tax software program.
You can file electronically for free.
On January 15, the IRS announced the launch of Free File, available on its website at Do-Your-Federal-Taxes-for-Free. The IRS has offered this free service since 2003. Free File is made possible by a multi-year agreement between the IRS and the Free File Alliance (Free File, Inc., a 501(c)(3) nonprofit) to provide free tax services. Up to 70 percent of U.S. taxpayers (100 million) qualify to use the program.
According to the IRS, since its inception more than 46 million people have used Free File, saving nearly $1.4 billion based on a conservative $30-fee estimate. If you made less than $62,000 in 2015, you are eligible to use the IRS Free File program.
There are many changes and updates for 2016, including more free state tax return options and easier Form W-2 imports. According to a statement released by the Internal Revenue Service, “For 2016, there are 13 brand-name tax software providers making their federal tax return products available for free. Taxpayers whose adjusted gross income was $62,000 or less during 2015 are eligible for at least one, if not more, of the 13 tax software products. The income limitation is $2,000 higher than last year.”
When you log into Free File, peruse the software options available to determine if one of the packages also offers to prepare your state income tax return for free. If your state is not included in the list of states offering free tax preparation, you may still use Free File to prepare your federal return. Also, some of the tax software providers within the Free File system are also offering state tax return preparation for a fee. State tax return offers are at the discretion of the providers.
Additionally, new for this year, several software providers also are offering the easy importation of Form W-2 data which can help reduce errors. Many larger employers provide the import of W2 data for the convenience of their employees. If you work for a small employer, this service is likely not available.
The question and answer format of tax software will help you find tax breaks. This could include tax credits, such as the Earned Income Tax Credit or the Retirement Savings Contributions Credit (Saver’s Credit). The software selects the appropriate tax forms and does the calculations for you.
Free File also can help taxpayers with the new health care requirements. Just as last filing season, almost everyone will need to do something when filing a tax return this year. For each month in 2015, taxpayers and everyone on their return must:
- Report health care coverage, or
- Claim an exemption from coverage or
- Make a shared responsibility payment with their tax return.
Most people will simply have to check a box to report health care coverage for the entire year. If you had health care coverage for the entire year, using IRS Free File should prove easy. If you did not have health insurance or were covered for only part of the year, you will find the filing process a little more difficult.
Moreover, if you purchased coverage from the Health Insurance Marketplace, you may be eligible for the premium tax credit. And if you, your spouse or dependent(s) opted for advance payments of the premium tax credit to help with monthly insurance premium payments, the return may get complicated. You will receive Form 1095 with data that must be reported on the tax return. And even if the recipient has no other filing requirement, a tax return must be filed to report the health care and premium tax credit information. According to a statement released by the IRS, “Taxpayers must reconcile their advance payments with the amount they were due.”
It’s this health insurance data that complicates even the simplest of returns. Be sure to carefully follow the instructions and if you get stuck, review your tax return with a tax professional before filing it. Learn more about the Affordable Care Act at IRS.gov/aca.
If you earned more than $62,000, you have the option of using Free File Fillable Forms, the electronic version of IRS paper forms. “You don’t have to be an expert on taxes. Free File software can help walk you through the steps and help you get it right,” said John A. Koskinen, IRS Commissioner. “For 13 years, this partnership between the IRS and the Free File Alliance has helped taxpayers. The real winner in this partnership has been the nation’s taxpayers.”
According to the IRS, “The Free File Alliance and its members also are active participants in the Security Summit Initiative to provide additional identity theft safeguards for tax filing and for the Security Awareness campaign – Taxes. Security. Together. – that encourages taxpayers to take steps to better protect their data.”
For security purposes, the only way you should log onto the IRS Free File program is by first going to the IRS website: www.irs.gov then select Free File on the right side of the page. Following a link in an email from an unknown sender could lead to identity theft.
Once your return is prepared you may schedule a tax payment as late as the tax deadline, April 18, 2016. Taxpayers who cannot meet the April 18 tax filing deadline can also use Free File to file a six-month extension. But remember, the extension is only for additional time to file, not additional time to pay. If you anticipate owing taxes, you must pay them with the extension form.