The IRS reported that nearly 70%, or almost 99 million individuals, filed their federal income tax returns electronically during 2010, a 3 percent increase in the IRS e-file rate. This is up from about 30%, 10 years ago. At this rate by 2020, more than 95% of people will file electronic returns. Overall, the IRS issued 109 million refunds last year, averaging $2,994 per refund. Direct deposit refunds averaged $3,189 per refund and were received a week faster than paper checks.
Electronic Tax Filing options
The main benefit of using self-preparation tax software are lower costs relative hiring to a tax professional; and the fact that the software does all the math, includes all the new government payments and taxes, and checks for accuracy. You normally get your direct deposit refund (if applicable) within 10 days. The following well-known companies (always go with established companies for your taxes!) support the IRS e-filing option and provide decent customer service and audit support. Best of all, they are free to use for preparing your return and you only pay when actually e-filing your return. So it’s well worth trying all three for free and picking the one that gives you the best return.
- TurboTax – Turbo Tax has been the #1 rated online tax software for a number of years. There is a reason for that, it makes tax filing a breeze for most users by guiding them step-by-step through possible tax obligations, deductions and credits. They also have a 100% calculation guarantee for their tax software, where if you pay an IRS or state penalty or interest because of a TurboTax calculation error, they pay you the penalty and interest.Competitively priced, it is definitely an option worth looking into when filing your taxes.
- H&R Block – Building on their well recognized brand and national office network, the online version of the H&R block tax software gets better every year and is much cheaper than their offline (i.e real tax preparer in an office) option. What’s also good about H&R block’s online offering is that if the IRS does come knocking you can get free audit support from their enrolled agents.
Free Tax Filing Options
For people that meet certain income based restrictions, filing taxes electronically is actually free. Most good tax software, provided by many of the above vendors, provides guidance through the filing process. Please note that if your income is above a certain level or you have a complex return, the free option will not work for you (no harm trying though).
- TurboTax Free Edition: You get free federal online tax return preparation and e-file if your adjusted gross income is $31,000 or less or if you are active military with an AGI of $57,000. Turbo tax is the most used tax software and in the years that I have used it, I found it very easy to use thanks to its excellent step-by-step program to guide you through filling in your tax return. Like any commercial package though, they will try to “up-sell ” you, so make sure you check the options you really need. Overall, this is the best option for most online tax filers in my opinion.
- H&R Block Online Free Edition: Free federal online tax return preparation and e-file if your adjusted gross income is $57,000 or less and you are age 51 or younger. HR Block has the highest AGI income limit for free filing and a decent step-by-step guide for users, though not as user friendly and intuitive as the above two options. You can also import last year’s tax data from Turbo Tax and certain other software packages.