How to: file taxes online for free

Most of us know that we can e-file our tax returns online, but did you know that you can file your federal taxes online for free? The IRS (Internal Revenue Service) offers what is called the “free file” program. The program uses companies that the IRS deems worthy, and that are authorized IRS e-file providers. These providers often agree to allow you to electronically file your federal taxes online for free. The providers that take part in this program usually make their money by offering extra services, such as charging for your state tax filing and/or charging for "refund anticipation loans", which are loans that bank on the fact that you will be getting a refund.

There is actually no risk to the lender on refund anticipation loans, and if your tax prep service screws up, you still have to pay the outrageous percentage to the loan lender, as well as any money that was covered by your return amount. Avoid all refund anticipation loans!

There is one major eligibility catch! You must have an AGI (Adjusted Gross Income) of $57,000.00 or less. Most of U.S. taxpayers fall into this category, and the IRS estimates that approximately 70% of all U.S. taxpayers meet this criteria. But what exactly is your AGI or Adjusted Gross Income?

In order to file your taxes online for free you will need to find or figure out your AGI. Your AGI or Adjusted Gross Income is defined as gross income minus adjustments to income. The easiest way to find out your AGI is to look at last year’s tax return paperwork. For reference, you can find your AGI by looking at the following:

• Line 4 of your 1040EZ form, if you used the 1040EZ form to file your taxes last year.
• Line 21 of your 1040A form, if you used the 1040A form to file your taxes last year.
• Line 37 of your 1040 form, if you used the 1040 form to file your taxes last year.

If for some reason you cannot find your tax form from last year, or you used a different form, there is still another easy way to calculate your AGI. An easy to use online calculator is featured below.

With the economy of late, many U.S. taxpayers may have made less than the prior year. It may in fact have put your AGI in the green for free filing, and who couldn’t use an extra dollar or two? If this is the case, and you want to make sure that you qualify before attempting a free filing service, I would suggest using the following website’s calculator to figure out your AGI.

I personally suggest using efile.com’s tax calculator as it seems to ask more questions that may be relevant to computing your AGI. It also seems very user friendly. There is also the AGI calculator from CNN’s money page. Both calculators can be found below.

Cnn Money AGI Calculator

http://money.cnn.com/tmp/networth2.html

Efile.com tax calculator

http://www.efile.com/tax-service/tax-calculator/

As a note, If you are going to use the efile.com tax calculator, you only need to go as far as step #6, or “Review your tax information”. An example of what step number six looks like is to the right with an example AGI underlined in red.

Now that you know that you qualify for “free file” the next step is to visit and use the IRS “Free File” wizard to choose your best option. I recommend (and so does the IRS) that you visit the IRS website and use its “free file” wizard to find the appropriate IRS authorized e-file provider. The list changes every year, and you may end up finding a new company with a better deal next year.

The filing process with the IRS authorized e-file providers is pretty simple to follow. If you have the patience to sit through and read before you submit, you will do just fine. Despite common fears, filing taxes is not as hard as you think.

You can access the IRS’s “free file” wizard here: http://apps.irs.gov/app/freeFile/jsp/wizard.jsp

Below are some helpful e-file tips. These tips are not just for free filing, but are also helpful for any tax filing you do!

Make sure to read through every step. There are often tips provided by each e-file provider, and these tips can often save you from an audit or help you get more money back. Also, the new e-file software bridge, used by every e-file service to do federal e-filing, makes it nearly impossible to have mistakes in your filing paperwork, unless you are purposely entering fraudulent information. Just remember to always check, and double check your information and be honest!

Did you know that most single people who do NOT have children (dependants) neglect to claim their EITC even though they are eligible? EITC or Earned Income Tax Credit is basically free money. If you are age 25 to 65, and you have earned any kind of an income from either a regular paying job or being self employed, you may qualify for EITC. To check and see if you are eligible for EITC, visit http://www.irs.gov/individuals/article/0,,id=130102,00.html to use the EITC assistant and choose the appropriate tax year that you are filing for.

After filing your taxes online for free, make sure that you keep a record of the documents you submitted. The IRS has a couple of different “period of limitations”, which is government legalese for "how long you should keep your records". A list of these can be found here: http://www.irs.gov/businesses/small/article/0,,id=98513,00.html.

I personally store my “hard copy” or printed records in a fire-proof safe. I also keep PDFs of these on my dropbox for easy digital access when needed. (Dropbox rocks by the way! I can’t recommend it enough!)

It is best practice to keep your tax records for the past seven years. If you are self employed, you are required to keep your tax records for the past seven years, and it is suggested that you keep your tax records for the past 10 years. Not only will this help protect you against an audit but it will also help you file the next year’s taxes.

Also make sure to keep your W2s, 1099s, and all other supporting documentation with it. I usually store all of these together in a manila envelope.

If you can afford to wait the extra time to receive your return, do so! The “convenience charge” used by most tax preparation/e-file services for refund anticipation loans are expensive! In short, it's a ripoff!

The typical return turnaround for federal income tax returns is only eight to fifteen days AFTER YOUR RETURN IS ACCEPTED and IF you use a direct deposit method. (Direct deposit is when your return is directly deposited into your bank account.)

As for state returns, each state is different, and some states, like California, can take up to eight weeks.