Free Tax Preparation? Not Necessarily

If you haven’t yet put the onerous task of filing your taxes behind you for 2019, here are some things Billshark thought you should know about the heavily advertised “free” tax preparation available to you.

Why some tax prep is “free”

First, a little background. When it comes to filing tax returns, much of the rest of the world isn’t like the United States. In at least eight European countries as well as New Zealand, the government figures their citizens taxes, fills out the form, sends it to the taxpayer for signature, and it’s done. If the taxpayer disagrees with the contents of the form, or has additional deductions not included there, they are free to make changes before returning it. It takes the average taxpayer five minutes to review the form.

This or similar proposals have been offered over the years for this country, but two forces hold them back: the anti-tax zealots and the tax preparation industry. The anti-taxers such as Grover Norquist believe that dragging us through this agony every April will help us hate the IRS enough that we’ll support their concept of shrinking government. And the tax preparation firms don’t want to go out of business. In 2010, a White House panel estimated that American taxpayers spend 7.6 billion hours and $140 billion a year to file their tax returns. With the new and even more complex Republican tax law enacted last year, that figure is likely to soar.

In 2013, to help crush any move toward IRS-prepared tax returns, 13 big tax software companies offered the government a deal: They would offer “free” tax returns for low-income taxpayers in exchange for allowing them to do business as usual. Known as The Free File Alliance, the non-profit group reserved the right to set the threshold for free filing, which this year is $66,000. The IRS agreed to this plan.

“Free” isn’t always free

But the old expression “there’s no such thing as a free lunch” certainly applies in this instance to many of the free-file programs and apps. The problem with many of these products is that they promise “free” but then—often halfway through your tax preparation—suddenly discover that your tax return is too complicated, and you’ll need to pay a fee to complete your return. Turbo Tax has been particularly notorious for charging extra to those who, for example, have a Health Savings Account (HSA) deduction, a benefit offered by many employers.

Others say the cutoff is $66,000, but then you learn that that figure applies only to certain individuals, such as members of the military or those who live in certain states or those who are a particular age. Then there are those who promise free filing, but you don’t find out until later that that means only for federal returns. In states that require an income tax return, often these programs will charge extra for that service. And when these surprise add-ons appear, most people are so exhausted with the process, they’ll shrug and agree to pay the extra money rather than start over with another company.

Finally, there is the hidden cost. A recent column in The Washington Post revealed that at least one of these firms lets you pay in data. That is, they’ll do your return for free, but then comb through your tax return to target you with financial advertising. Noting the Silicon Valley adage that, “If the product is free, that means you’re the product,” the paper reported that such firms as Credit Karma Tax make money by showing you tailored offers for credit cards and loans based on what it finds in your tax returns.

Credit Karma Tax, unlike the Free File Alliance members who try to “upsell” you while preparing your return, will actually prepare even complex tax returns for free, but you pay for that service in privacy (unless you opt out). And unlike the big data-mining companies such as Google, Credit Karma doesn’t sell your data or allow third-party access to your information.

What is actually free

It seems to add insult to injury that taxpayers often have to pay more money to a third party in order to pay their taxes every year. But there is a program available that is, in fact, free ... no strings attached. Run by United Way, the program is called Volunteer Income Tax Assistance Program (VITA), and is available to those making less than $66,000 a year, persons with disabilities, the elderly, and those who speak limited English. IRS-certified volunteers provide free filing for local, state, and federal income tax returns to qualified individuals, won’t charge a fee or try to market you based on your tax return information. To schedule an appointment, simply dial 211, or visit their website at 211.org.

Another thing that is actually free is sending your bills to Billshark to examine. We charge you nothing to review your bills to see whether we can save you money. If there are no savings, you pay nothing! So what have you got to lose? Sign up today and see how much we can save you.