IRS Free File Program

Take advantage of free tax preparation and filing

Beginning in the 2003 tax year, the IRS partnered with several online tax preparation and filing services to offer free preparation and electronic filing. This year, 20 services are participating. Each service has different qualification specifications; all require that your adjusted gross income be less than $56,000, but some restrict income even more. For example, the program's version of TurboTax caps income at $30,000, but TaxCut's cap is set at $56,000 mark. TurboTax, TaxCut and TaxACT are among the available services. However, they do not offer the full functionality of the more expensive versions of the commercial programs. This year, the IRS will also provide free electronic tax forms and free electronic filing to all taxpayers, regardless of income. However, those earning more than $56,000 are limited to the forms alone, and are not eligible to use the participating software programs for free.

There are a few catches to the Free File program. First, you must link to the partner website through IRS.gov -- if you don't, your online return will most likely not be free. Second, most of the services only offer free federal tax filing. You may have to pay to prepare and file your state return using the same website or use state tax forms (online, if provided by your state, or on paper). Cost for state preparation and filing runs $10 to $30 for most websites. Lastly, you need to be online to prepare your taxes, so you'll need a reliable Internet connection and online security software. The IRS has banned all of the free tax programs from trying to push refund loans.

You'll need to spend some time on the IRS Free File website in order to determine which service is best suited to your particular needs. Once there, the IRS' "Guide Me to a Service" link will help you find a website that matches your situation. Reviews recommend the free versions of TaxACT, TaxSlayer, TurboTax or TaxCut over the other free tax preparation services. About.com's William Perez says that CompleteTax also offers a straightforward Free File program.

If you are comfortable completing your taxes online, the IRS program is a terrific option. You'll be using government-approved software on secure websites, and the whole process may cost you only about $20 for federal and state online preparation, along with electronic filing for both. If you don't want to spend anything at all, you can usually choose to print and mail your state taxes for free. You'll be able to print copies for your records. If you don't want to prepare your taxes online, experts say your best bet is Intuit's TurboTax. Although it costs more, you'll have a hard copy of the tax software, which you may install on each computer in your home. Plus, you'll be able to work on your taxes offline.