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Free Online Tax Prep Guide

The "free" in "free tax software" refers to the fact that there's no cost to use the software and file a federal return electronically. A state tax return often carries an extra fee, although some products also support free electronic filing of state returns.

The software providers featured here are among 14 companies dubbed the Free File Alliance.

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They have partnered with the Internal Revenue Service to offer free federal tax preparation for taxpayers with 2014 adjusted gross income up to $60,000. The IRS Free File site serves as a gateway to participating providers and lists each company's eligibility requirements, which may be more restrictive than the income ceiling set by the federal government. By agreement with the IRS, Free File providers must make available all the commonly used tax forms and schedules, including itemized deductions, business gains or losses, capital gains or losses, childcare expenses, and forms related to the Affordable Care Act.

Taxpayers can skirt the restrictions by accessing similar free tax software directly through the company websites. There, however, users are often subject to continual upselling, and an upgrade to paid software may prove necessary for taxpayers with more complex returns. TaxAct, one of our top picks, stands out for accommodating relatively complicated returns, not only with the Free File edition accessible through the IRS but also with the free software available on its website, which has no income or age requirements. Both versions support the full array of e-file forms and schedules.

Market leaders TurboTax and H&R Block exceed our price range with state filing fees of $27.99 for users of their federal free editions (as of Feb. 24). As members of the Free File Alliance, though, they offer discounted or even free filing to eligible residents of all, or some, states. That means qualifying consumers who access the free software through the IRS website can use one of the big players' products completely free. H&R Block is much less restrictive than TurboTax, allowing taxpayers up to age 53 with adjusted gross income up to $53,500, and anyone eligible for the Earned Income Tax Credit, to use the Free File program. TurboTax requires adjusted gross income of $31,000 or less ($60,000 for active military) or eligibility for the EITC.

FreeTaxUSA rounds out our recommendations. It offers broad functionality and a low state filing fee regardless whether taxpayers use the Free File program or the free edition on the provider's website. TaxSlayer and 1040.com levy relatively high state filing charges and provide limited customer support. See our for detailed pricing and eligibility requirements, and click on the company names above for in-depth reviews of each provider.

Of course, no matter which provider you choose, the entire process will proceed more quickly if you've already assembled all the relevant information, including your W-2, any 1099s you may have received, and a copy of last year's tax return. Many of the Free File editions include free extensions in case you can't get your paperwork in order by April 15. But remember that an extension gives you extra time only to file -- not to pay. In order to avoid penalties and interest, you still need to make an estimated payment by the tax-day deadline.

What We Looked For

Low State-Filing Fees.

If you're not lucky enough to live in one of the nine states that doesn't levy a tax on income, make sure you understand the cost structure for filing state taxes -- you don't want to be surprised by fees after inputting all the data. In most circumstances, state filing is not free, although there is a State Free File program with more than 20 participating states and the District of Columbia. To file state taxes for free, you must reside in one of those states, be eligible for federal Free File, and use Free File software from a company that participates in both programs, such as TaxAct or H&R Block. Otherwise, even providers that offer free federal tax filing generally assess charges ranging from $12.95, with FreeTaxUSA, to $27.99, with the free (non-Free File) editions from TurboTax and H&R Block. Users who meet the federal Free File requirements can often save on state e-filing by accessing the software through the IRS; charges range from $12.95 to $19.95.

Wide Range of Supported Forms.

Consumers who review tax software often complain about "hidden" fees. This usually occurs because the software lets you start a return and fill in all the information without paying, so users may get to the end before realizing there is a charge to file a state return or a required upgrade for a more complex tax scenario.

While free tax software meets the needs of many filers, companies make their money on upgrades -- and you'll get lots of prompts to make that choice (especially if you don't use a Free File edition). The upside of a paid upgrade is access to more features and guidance. Many companies simply deduct the cost of the software from your refund.

If you are self-employed or own a small business, earn rental income, got married or had a child, made or lost money trading stocks, bought or sold a home, or dealt with other complicating factors last year and are not eligible for Free File, some providers may give you no choice but to upgrade to more expensive tax preparation software (or turn to a tax professional). TurboTax Federal Free Edition, for example, accommodates only 1040A and 1040EZ filings and requires users to take the standard deduction ($6,200 for a single person for the 2014 tax year and $12,400 for a couple filing jointly). On the other hand, TaxAct Free Edition supports the same set of forms required in Free File software, with no income or age restrictions.

Importation of Tax Documents and Past Returns.

If you prepare your returns using online tax software, you'll save a lot of time and energy if you can import tax forms, last year's return, and/or data from financial management software. Some free tax prep packages (e.g., FreeTaxUSA) will, at minimum, let you import your return from last year if you used the same program, or auto-fill current templates based on saved information from previous years. The TaxAct Free Edition allows for importing of a previous year's return even if it was filed with TurboTax or H&R Block. Free File editions vary; some don't allow importing when their non-Free File counterparts do (TaxAct), while others (TaxSlayer and H&R Block) support importing that's usually available only with a paid version. For the simplest returns there isn't much information to enter, so document importation isn't always included in the free editions.

Refund/Owe Meters.

All the best free online tax software providers update the size of your refund or the amount owed with an onscreen meter of some sort as you complete each section. In addition to providing the feel-good motivation of seeing your potential refund rise (or the panic as the amount due mounts), these tickers can help you decide which tax software provider to use. Because each company's proprietary software has its quirks, the refund (or taxes due) may vary slightly. Most providers don't require any upfront payment, so you can try out a product or two before making any financial commitments. Be wary of a large discrepancy, however; it may indicate that one of the providers isn't handling your situation properly (or that you mistakenly entered different information). You may want to dig a little deeper before hitting "submit" and risking an audit.

Error Checks and Guaranteed Accuracy.

All of the better online tax software includes an error check feature that monitors your work as you go along and alerts you to potential mistakes. The downside to these error checks is they can give you a false sense of confidence. If the software misses a mistake and you notice it only after you've filed, you'll have to submit an amended return and often pay a fee. If all the data you've entered is accurate, most software companies -- including all those we researched but for 1040.com -- offer a guarantee that the calculations are correct.

Help and Customer Support.

Although no one should expect to receive hours of assistance while using free software of any kind, there should be at least basic help with tax-related questions and, ideally, technical support for the software. Email correspondence is by far the most common form of support. TurboTax and H&R Block also feature live chat and forums, where taxpayers ask and answer questions (and tax professionals chime in). Tax guidance and/or technical support over the phone often costs extra or is available only with paid editions. H&R Block stands out for offering free tax advice by phone, although free tech support calls for an upgrade.

H&R Block also offers in-person audit support at no charge to all online filers. Free audit assistance is available by phone with TurboTax and via email from TaxAct; both also host online support centers with related information. No matter which provider you choose, this type of assistance is limited to guidance from someone who can help explain the process. Full-service audit defense, including representation by a tax specialist, comes at a cost (which must be paid before you receive a notice from the IRS). Time magazine points out that most requests are fairly straightforward and your money may be better spent on a receipt organizer.

Offline Versions.

To keep costs low, most tax software providers offer free tax software only online. Some people concerned about fraud and hacking of personal information may prefer a downloadable version or a CD so they can store everything offline and submit their returns by mail. TaxAct offers its free edition via download at no charge, or you can order a CD and pay $5.99 for shipping. Generally, though, that's not an option when using free tax software.

Review continues below

What We Ignored

Alternative Refund Options.

Most tax programs let users choose to receive a refund by direct deposit or paper check. Some also offer Visa or MasterCard prepaid cards, gift cards, or U.S. savings bonds. Watch out, though -- sometimes the prepaid cards come with fees. Most users just want to receive their refunds quickly and securely, no matter what the payment method.

Tax Software Reviews

We waded through a lot of tax software reviews from experts and consumers and found that each of the top providers garners its share of partisans and detractors. The annual chore of preparing a tax return is rarely fun, and sometimes it's hard to know whether an online reviewer is really struggling with a particular software package or simply venting about taxes and/or the preparation process. Some complaints reflect lack of understanding about the tax issue at hand. For example, we came upon tax software reviews griping about refunds not yet paid, a situation that's out of the software company's hands. We also read reviews of free tax software (e.g., 1040.com) asserting that a return was filed incorrectly or not at all -- a clear case of a faulty system and a product that should be avoided.

Tax rules and tax software change every year and it's often difficult to tell which version a reviewer is referring to. This is an important distinction, because pricing may change from year to year and sometimes there are new features added or massive improvements in the interface. Although we looked for companies with a strong track record of users returning from one year to the next, what really matters is the version at hand. It's not always possible to find reviews for the current year's edition, however, because few people have filed their returns early and taken the time to post comments. Still, we tried to rely on reviews for the latest editions.

We winnowed the list of free tax software providers based on usability and customer service, in addition to pricing and features.

Interface and Ease of Use.

Most tax software relies on a guided interview format that asks simple questions about your marital status, family, income, expenses, and other circumstances that affect your tax situation. The general idea is to keep the tax-filing process as simple and painless as possible. You should be able to navigate smoothly from section to section, easily figure out what information goes where, input data quickly, and get results that avoid over- or underpayment. Expert reviews at sites such as PC Mag assert that TurboTax software has an especially user-friendly approach.

Customer Service.

Support comes in two forms: tax guidance and technical support. It also comes in several media: email, chat, forums, phone, and in-person. Tax software reviews show a clear preference for phone support, not just online advice. Typically this is a paid upgrade, so H&R Block is notable for offering unlimited tax advice by phone. It's also the only provider in our roundup that includes in-person audit support with its free software. No matter what the type of issue or communication, the support team should be polite and helpful when answering questions. We disqualified free tax software with too many complaints that questions were ignored or engendered rude, one-sentence answers.



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In this review:
  1. Best Free Online Tax Software
  2. Discount Tax Preparation Software Features Comparison Table
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