Given the state of the economy, the biggest news in tax preparation software this year is something many people believe is long overdue: the ability to prepare and file your federal tax forms electronically, completely free of charge -- regardless of how much or how little you make.
If you prefer a more user-friendly tax preparation and filing experience, the usual suspects are back, led by Intuit's market-leading TurboTax and its archrival, H&R Block's TaxCut, both with renewed emphasis on the Web versions, which last year attracted more customers than their desktop software counterparts (watch for our forthcoming reviews of the top five tax prep sites).
For the freebies, thank the IRS and the Free File Alliance (the tax software industry group working with the IRS to reach government goals on electronic filing) -- but be aware of their limitations. If your adjusted gross income exceeds $56,000, you won't be getting the kind of tax prep software you've known -- so, no interview or context-sensitive help. And while the tax services that participate in the Free File program offer state tax preparation and filing, they don't do it for free.
Still, for the first time, anyone can fill out and electronically file (e-file) federal tax forms -- electronic versions of the same government paperwork you can pick up at the post office, complete with IRS instructions -- for free. The forms have been available online for some time, but previously you had to print them out and mail them in. It's the ability to e-file them that's new.
If your adjusted gross income is $56,000 or less (which, according David R. Williams, director of electronic tax administration for the IRS, applies to 90 million people, or 70 percent of taxpayers), then you can simply go to the
IRS Free File page for help in choosing from 20-odd tax prep packages available free to those who meet the means and other tests. As usual, each tax software vendor gets to identify eligible segments of the population -- some will limit their offers to college kids, seniors or service members, for example -- so no single program is available to more than 50 percent of the population. That's to ensure that no single tax software company gets stuck with handling all Free File users.
Also, all participating programs must now offer, as a minimum, a core collection of 24 key tax forms. In the past, Williams explains, some would-be Free Filers dropped out because the program they'd chosen lacked a certain form. The 24 forms all programs must have should cover the vast majority of tax scenarios, Williams says.
