What Are the Dangers of Free File Income Tax?

While Free File is a great no-cost tax prep option, it's not perfect.
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Free File is a tax preparation and electronic filing service provided by the Internal Revenue Service and The Free File Alliance, a group of private companies, such as Intuit and H&R Block, who sell tax preparation software. With Free File, individuals can prepare and file their federal tax returns online at no cost. Those with an adjusted gross income (AGI) of more than $57,000 can use Free File Fillable Forms, electronic versions of the IRS’ traditional paper forms. And those with an AGI of $57,000 or less can use a Free File Alliance member’s software, such Turbo Tax, Tax Cut, or one of 18 others. Although Free File is an attractive, beneficial and relatively painless tax preparation option, it does come with risks.

Human Error

Although Free File Alliance software and Free File Fillable Forms will take care of cumbersome tax calculations, the programs won’t give you tax advice or prevent you from entering misinformation. As with most data-driven software, successful output depends on error-free input. If you neglect a number or transpose digits, Free File may not alert you the mistake and you could end up paying an inflated amount or receiving a reduced refund.

Tax-saving Opportunities

The software’s ease of use may lead users to rush through the program and neglect important refunds or places to save. When using any tax preparation software, observe the same level of care you would observe if you were completing a hard copy filing. And don’t fall victim to a false sense of confidence. Be as diligent and as cautious you would expect a tax professional to be.

Federal Filings Only

If you use Free File Fillable Forms to file your federal return, you will have to use another program, or tax professional, to file your state taxes. If your AGI is less than $57,000, and you have access to a Free File Alliance member’s software, you may be able to file your state return online for free, or a small fee.

Basic Math

If you have a complex tax return, you may want to consider a Free File alternative. The Free File programs and Free File Fillable Forms cannot perform elaborate mathematics. If you’re uncomfortable with tax preparation, or have a complicated return, it may be in your best interest to seek tax assistance elsewhere.

Not Created Equal

Although the IRS has vetted the software offered by The Free File Alliance, each respective Free File program has its own set of pros and cons. Some programs lack a seamless user interface and others have been reported to miss mistakes. And while some programs offer free state filing, others require a fee between $9.95 and $19.95. Before choosing a Free File software, do your homework and find the program that best suits your needs.

Security Risks

When you buy tax preparation software and download it to your home computer, you are the sole custodian of your tax application from start to finish. When you use Free File Fillable Forms or Free File Alliance online software, your information is stored on the vendor’s computer server for the length of time it takes you to complete your filing, and perhaps after. While the IRS guarantees all of the information transmitted through Free File is protected by the latest encryption technology, the risk of data corruption always exists when sending sensitive information over the Internet, however slim.

Also, be wary of online companies offering free tax services under the pretense of being members of The Free Tax Alliance. IRS.gov is the only legitimate way to access the Free File software and forms. Other companies that promise Free File through an unknown URL should not be trusted.

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