Why "Free Tax Preparation" Is Usually An Oxymoron
Every tax season, the general public is presented with the option of having a professional prepare their taxes, or going it alone with one of the available brands of tax prep software online.
A quick web search reveals that almost 34 million people chose to file their taxes with industry-leader, Turbotax, last year alone. I imagine many of these customers were lured by the ubiquitous seasonal advertisements for their "Absolute Zero" or "All Free" tax filing option.
Well Virginia, maybe there is a Santa Claus, but remember, usually "there's no such thing as a free lunch" in this world.
The Free File Alliance
TurboTax's parent company, Intuit, is part of something called, The Free Tax Alliance, which is a consortium of 13 tax software companies. These companies started this nonprofit back in 2003 by circling their wagons and joining forces in response to a threat by the IRS to offer a free tax filing option to the masses. While benevolence may be the inspiration for many nonprofits, this particular one was probably formed more due to avarice.
In fact, members of the Free File Alliance, led by TurboTax and H&R Block, actually spend millions of dollars every year lobbying congress to make sure the IRS doesn't actually follow through with their promise of offering a free tax preparation option.
The irony is that they then offer the public "free tax preparation," which usually turns out to be anything but free!
Criteria for "Free Tax Preparation"
Have you ever been to a carnival and wasted a few dollars trying to win a prize on one of those rigged games in the midway? Your initial feelings of adrenaline, confidence, and hope are usually dashed quickly by the realization that the basketball hoop you're shooting on is much smaller than regulation, and it's probably easier to land a rover on Mars than a plastic ring on one of those milk jugs.
Even worse than walking away empty-handed, maybe you persevered and dropped a wad of money, only to walk away grimacing, embracing a plush "reggae banana" stuffed with an asbestos-like material from China.
Anyway, such is the case with the free versions of tax software available from the members of the Free File Alliance that are also given Orwellian names like, "Absolute Zero," "FreeFile," or "All Free."
Here are some of the criteria you'll have to meet to be eligible for the free version of their software:
- Adjusted gross Income: While most companies require an AGI of less than $64k, TurboTax requires that your AGI be under $33k unless you're active-duty military. That's pretty close to the poverty line for most families!
- Your age: Surprisingly, there is often an age requirement to file your taxes for "free." H&R Block's Free File requires that you be between 17 and 50 years old, or that you be eligible for the Earned Income Tax Credit
- Your address: Some companies offer free tax preparation only to residents of certain states!
As you can imagine, most people who optimistically begin the "free" filing process online find themselves with a significant expense by the time they actually finish their taxes.
Remember, No Such Thing As a Free Lunch
So, while the average cost of filing taxes with a professional exceeds $270, you'll want to approach the potential savings of filing your own taxes realistically. Most people don't qualify for the "Free" version from most tax prep websites, and may still end up paying over $100, even at a promotional price or with a service code from the company.
So, what's a taxpayer to do? Filing your simple taxes using free software available from top brands can certainly meet, or exceed your expectations, but do your research first.
Also note that while most customer reviews are glowing on company websites, they have the tendency to drop significantly on sites like ConsumerAffairs.com, as many consumers are furious that the product ended up being nowhere close to free.
So, this tax season, be prepared to pay for the "premium or deluxe" version of the software that you thought was free. Or, better yet, go hug your local CPA and ask them to provide you with professional tax assistance at a fair and straightforward price! (Preferably before April)