As millions of Americans prepare to file their taxes before the April deadline, there are online financial solutions to be aware of.
You don’t need a tax professional or tax software to prepare your income tax return – 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; you won’t even need to shell out good money for a tax software program. You can file electronically for free.
The Internal Revenue Service (IRS) started allowing taxpayers to file their returns near the end of January 2023 if they had all the required documentation from their employer, bank or other financial institutions. April 18, 2023, is considered Tax Day in the United States because it is the deadline in the country for individuals to file their income tax. Moreover, Tax Day has fallen on or slightly after April 15 since 1955.
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In January 2016, 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 multiyear 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% 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.
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.
Beginning in 2016, several software providers started offering the easy importation of Form W-2 data which helped reduce errors. Therefore, many larger employers can provide the import of W-2 data for the convenience of their employees. If you work for a small employer, this service is likely not available.
The Q&A 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.
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The program offers a variety of services that makes filing taxes easier and more efficient compared to other online options. Taxpayers are able to report the type of health care coverage they have, as well as claim an exemption 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 complicated.
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 your 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. 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 is 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.
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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.”
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For security purposes, the only way you should log onto the IRS Free File program is by first going to the IRS website, then selecting 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. Taxpayers who cannot meet the April 18 tax filing deadline can also use Free File to file a six-month extension. 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.