The Income Tax Return Race Begins for Free Filers

Ready, set, go! The IRS recently said that the 2014 tax filing season for individual returns won’t kick off until January 31, a delay of ten days due to the government shutdown last October. But taxpayers using the IRS’ Free File program can still get a head start. The IRS just announced that the program is open to the public on January 17. Visit www.irs.gov/uac/Free-File:-Do-Your-Federal-Taxes-for-Free.

Of course, the IRS still won’t begin processing returns until January 31. The Free File companies will securely hold the returns until then. So these filers will still be the first ones out of the blocks, but everyone else will be following close behind.

What’s the rush? The faster you submit your return to the IRS, the faster you can get your hands on a tax refund. This can be critical to those taxpayers who are struggling to pay their bills or have the money earmarked for purchases. And others simply want to get this arduous task out of the way as soon as possible.

The Free File program, which was created in 2003, is a partnership between the IRS and the Free File Alliance, a group of tax preparation software manufacturers. Although the number varies year-to-year, 14 companies are expected to participate in the program during the 2014 tax filing season.

Not everyone qualifies to be a free filer. Here are some of the particulars taxpayers should know about.

You’re eligible to 2013 tax return through Free File if your adjusted gross income (AGI) is $58,000 or less. That’s $1,00 more than last year. The AGI cutoff applies regardless of your filing status.
The program is only available for individual returns. So you can’t use it for your small business. However, if you’re a sole proprietor who files Schedule C and you meet the AGI requirement, you can use Free File.
Free File is available for federal returns. Some of the participating companies offer free state tax return preparation and e-filing, but not all.
Similarly, some of the Free File companies will provide electronic filing extensions. But be aware that a filing extension is not an extension to pay tax. Failure to pay the requisite taxes by the April 15^th deadline may result in interest and penalties.

The Free Filing program is growing in popularity along with the trend in e-filing. According to recent IRS data, nearly 44 million tax returns were filed electronically during the 2013 tax filing season, an increase of almost 2 percent from the prior year. Around 3 million of self-prepared tax returns that were e-filed last year were submitted via Free File.

Taxpayers who exceed the AGI threshold may use a fillable federal return form option. Online versions of common IRS tax forms can be accessed on the Free File page. You make the necessary entries and then e-file the documents free of charge.

But don’t confuse the fillable forms option with tax preparation software. This only provides rudimentary calculations and there’s no prompting to tell you what goes where. Furthermore, the information from one form isn’t automatically transferred to related forms. For example, you’ll have to manually transfer the total of itemized deductions on Schedule A to Form 1040.

Free filing and fillable forms are viable options for taxpayers with garden-variety returns, yet it’s not for everyone. In particular, those who have more complex needs are advised to consult with a professional tax return preparer, especially if there’s a significant amount of money at stake. Sure, it’s going to cost you have the return filed for you, but it saves time and will often save you money – even if you have to wait until January 31 to get started.