- By Bob Goren
- Published 12/13/2011
It’s good to know that Congress is increasingly finding ways to make federal tax collection easier. This year, many Americans can file their federal and state tax forms for free online – this is not only convenient, but also expedites the processing of tax refunds.
Free online tax filing is typically best for people with relatively simple tax returns. Other taxpayers tend to benefit from using more advanced tax software or consulting with a professional accountant.
This particular guide will give you an overview of your current options for free online tax filing.
Filing Federal Taxes for Free – Know Your AGI
For the 2011 tax season, the IRS offers a special free filing option to taxpayers with an adjusted gross income (AGI) of $58,000 or less. While individual adjustment will of course vary significantly, approximately 70% of taxpayers fall into this category.
If your income and expenses have remained relatively constant, then you can find an estimate of this year’s AGI by looking at last year’s tax return.
Your adjusted gross income is calculated as your total gross income (for example, the sum of your wages, pension and capital gains) minus expenses for certain items. The long list of deductible items includes, but isn’t limited to, certain business expenses, moving expenses, college tuition and health savings accounts.
If your AGI works out to $58,000 or less, then you’re eligible to use free federal tax filing software through the IRS website from January 17, 2012 or the companies that are officially registered for the program.
What You Need to File Federal Taxes Online
To file your federal taxes online, you’ll need the same information you’d share with a tax attorney. The main paperwork includes your W-2s or 1099s and a copy of your previous year’s tax return. Also, if you’d like to use direct deposit or direct debit for a either a tax refund or payment, you’ll need your checking account number as well as your bank’s routing number.
Other paperwork which will help you clarifies your possible tax deductions are:
· Medical bills
· Moving bills
· Out-of-pocket job expenses
· Education expenses
· Receipts for charitable donations
· Receipts showing sales tax.
Additionally, people who are self-employed can often itemize their office rent, vehicle wear and tear, equipment costs and other such expenses. For this reason, many entrepreneurs find it worthwhile to use more advanced tax preparation software or hire a tax professional to maximize their deductions.
Filing & Submitting State Tax Forms for Free
For many Americans, free tax software that allows for online submission is only a federal option. Exceptions this year include residents of California, Illinois, Massachusetts and several other states. Here’s a summary of their free online tax programs.
The State of California features two online tax preparation tools. The simplest tool is called ReadyReturn. This program uses information from your W-2 and last year’s tax return to automatically fill out a California state tax form. It is only available for the taxpayer who has received wages from one employer and is filing either as single or as head of household.
California’s more advanced tax tool, CalFile, is designed for taxpayers of all filing statuses. The AGI limit is $162,186 for a single individual and $324,326 for a married couple filing jointly.
Both Illinois and several other states now offer I-File. Like California’s ReadyReturn, this free tax preparation and e-file program is designed for people with very basic returns. Some other states with I-File include Indiana, Maine and Maryland. Wisconsin offers a similar system called e-File.
Massachusetts boasts the most advanced free filing system, called WebFile. It can handle a variety of not-so-common tax forms and is available to virtually all residents and businesses in the state. One exception however is people who are eligible for the Brownfields Credit or the Economic Opportunity Area Credit. Another exception extends to people reporting certain capital gains on the Schedule D-IS form.
Just like the federal e-file system, the state computer systems let people choose to pay their taxes either immediately online or mail a payment. Tax refunds are generally processed within ten business days.
To find out whether your state has a specialized free online tax program, check with the IRS website. You can also research the companies that are signed up to the program as many offer both simple free software to help with your tax or advanced software for those who have more complex finances.
If you have a relatively high income or a less straightforward financial situation, then free online tax filing probably isn’t for you. However, for millions of Americans, it makes sense to file taxes online with free government-recommended tax companies. Given the savings associated with paperless returns, state and federal governments are likely to offer more comprehensive options for online tax filing in the future.
About the Author: Bob Goren is an independent online tax filing advisor.