When it's time to file your taxes, finding a free or low-cost method can be crucial. This guide will walk you through your best options and explain how tax filing works in the United States.
Understanding the U.S. Tax Filing System
Every year, U.S. citizens must file and pay their taxes. Despite the IRS knowing your earnings and owed taxes, they won't tell you directly. Instead, you're advised to use a private company to input your data, which these companies then use to sell you additional products. This complex system is due to tax preparation companies lobbying Congress to maintain the current convoluted tax code.
However, a new initiative from the 2022 Inflation Reduction Act aims to simplify this process. The IRS has been mandated to set up a direct filing system, allowing people to file directly with the IRS starting in 2024 through a pilot program. This pilot is available to residents in certain states with straightforward returns. Here’s a list of participating states, including Arizona, California, Massachusetts, and New York.
Direct Filing with the IRS
If you qualify for the IRS direct filing program, it's worth trying. It could be the future of tax filing, eliminating the need for third-party companies.
For those who don't qualify, let's explore your alternatives: TurboTax, H&R Block, Cash App, and FreeTaxUSA.
Common Features of Tax Filing Software
All these platforms:
- Are authorized by the federal IRS e-filing program, ensuring they meet security standards.
- Function like a giant calculator, providing the same results if you input the same data.
- Offer a free trial to see your results without commitment.
- Guide you through the filing process with easy-to-understand questions, making it accessible even if you're unfamiliar with tax jargon.
TurboTax
Pros:
- User-friendly interface with a navigation menu.
- Multiple W2 input options: upload, scan, or manual entry.
- Allows logging into financial institutions to import data, which can be helpful for those with extensive stock transactions.
Cons:
- Slower page loading and extensive clicking required.
- Expensive upgrades if your tax situation is complex.
- Prices can exceed $100 if you need more than the basic free features.
H&R Block
Pros:
- Similar to TurboTax with slightly more upload options for W2s.
- Some employers coordinate directly with H&R Block for easy W2 uploads.
Cons:
- Slower and clunkier interface than TurboTax.
- Free only for simple tax situations, with costs quickly adding up for more complex filings.
Cash App Taxes
Pros:
- Completely free for both federal and state returns.
- Fast and straightforward interface, available on desktop and mobile.
- Simple manual entry for W2s.
Cons:
- Requires signing up for a Cash App account.
- Limited to certain filing situations, such as not supporting multiple state returns.
FreeTaxUSA
Pros:
- Federal returns are always free.
- State returns are only $14.99.
- Straightforward and fast interface, works well on mobile.
Cons:
- Limited support for complex tax situations.
- No mobile app, only a mobile-optimized website.
Pricing and What to Watch Out For
TurboTax and H&R Block:
- Free for simple returns, but costs can quickly escalate for more complex situations.
- Both companies try to upsell additional services.
Cash App Taxes:
- Truly free, but requires a Cash App account, and the company uses your data for marketing additional services.
FreeTaxUSA:
- Transparent pricing: $15 for state returns with optional upgrades.
- No upselling of unnecessary services.
Conclusion
If you qualify for the IRS direct filing pilot, it's a great option to avoid third-party fees. For others, FreeTaxUSA offers a straightforward, low-cost solution with no hidden fees. While TurboTax and H&R Block provide extensive support, their costs can add up. Cash App Taxes is a great free alternative if you're comfortable with their data usage policies.
I recommend FreeTaxUSA for its ease of use and clear pricing. If you choose to use FreeTaxUSA, consider using my affiliate link below for additional support.
No comments