Tax E-Filing: What Option Is Best for You?

Tax e-filing is an increasingly popular alternative to traditional tax preparation that has grown at a nice pace for years. You only need to look at TurboTax developer Intuit Inc. (NASDAQ:INTU) — whose shares have doubled over the past five years — to understand just how strong the trend has been.

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Whether it’s pros or self-preparers, the world is going to e-filing, with more than 90% of all taxpayers e-filing in 2016. At this point, just about everyone does it.

But if you’re doing it yourself, what tax e-filing option is right for you?

Free Tax E-Filing Options

First off, it’s helpful to know that there are some free e-filing options. The Free File Alliance is a nonprofit that includes 12 top online tax software operators. If your Adjusted Gross Income (AGI) is $64,000 or less (this covers 70% of US taxpayers), you should be able to file your 2017 federal taxes — and possibly state — for no cost. You can sign up for the program at the IRS site linked above.

A variety of online tax e-filing operators — including TurboTax and H & R Block Inc (NYSE:HRB) — have their own free options, too. Like the Free File Alliance, there’s usually a cap on income, and “free” can be limiting, say by only allowing the e-filing of 1040EZ or 1040A forms.

Credit Karma wants to disrupt this approach and has offered a completely free offering for both federal and state returns. How will it make money? Credit Karma says it will leverage the information from customers to provide relevant ads and offers. (But don’t worry: There’s an offer to opt out.”)

From the company:

“Preparing and filing tax returns is a fact of life for many American adults, but one that typically comes with a high cost or upsell, even when using online software that may be advertised as free…As with Credit Karma’s current features and tools, no credit card is ever required to use Credit Karma Tax.”

Paid Tax E-Filing Options

None of this is a recommendation to avoid paid tax software. Many paid offerings are downright necessary when you have complex tax needs, such as rental income, a business, employee stock options, foreign income or estate planning requirements.

Paid tax software also may have other helpful features. Just some include:

  • Mobile Apps: These can help you track expenses and mileage. Apps also can allow you to scan documents, such as W-2s.
  • Help and Advice: Top online tax firms will not only have troves of useful content, but also provide online chat and video help from experts.
  • Data Import and Integration: This can drastically cut down the time of preparing a return, as well as limit errors.
  • IRS Audit Support: TurboTax, for instance, offers free audit guidance from an expert to help understand a notice and how to prepare for an audit. Then, for an additional fee, a program called Audit Defense provides representation for an audit.
  • Archiving of Prior Tax Returns: This will make the preparation of next year’s tax returns much easier. You’ll also be able to effectively keep track of items that can be used in the future, such as unused capital gains and net losses.

Also, well-known tax e-file providers can be the better option because their resources should allow them to provide better online security. Hacking has become an increasingly burdensome issue, and obviously, the theft of all the information on a tax return could be disastrous.

Ultimately, whether you go free or paid for your 2017 e-filing is up to you and your tax needs. But it’s always better to make that decision with a little extra info.

Tom Taulli, who is a JD and Enrolled Agent, has his own free iOS app to estimate your tax refund, which is at PathwayTax.comFollow him on Twitter at @ttaulli.

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