Every year, more than 100 million Americans organize their documents, file their taxes, and pay what they owe or receive a refund. Given the sheer number of people doing this, it’s only natural that a whole industry has popped up around filing taxes for people and helping them avoid an audit. For this unfortunate service, Americans paid over $11 billion in 2022 alone — on top of whatever taxes they may have owed. If Americans are paying so much money to prepare their taxes, then surely it must be a difficult process, right? In reality, there are a number of free options that many people can use to save money. As always, there are positive and negative sides to consider about these choices.
The Free Options
It’s always worth considering what’s available to you when it’s time to do your taxes. In most cases, you need to file two different sets of taxes: federal and state. While all American taxpayers share the same federal regulations, state taxes vary depending on where you live and work. The simplest setup is to have lived and worked only in one state, but it can get more complicated if you’ve moved or you cross state lines to get to work.
Even though the software may not be glamorous, there are several options that let you file taxes for free from your home.
- Pen and Paper — This old-fashioned method has certainly fallen a bit out of favor in the past few decades. Nevertheless, whether you pay for a service or not, all you’re really doing when filing your taxes is filling out the forms that the IRS requires you to submit. The forms themselves are somewhat complicated, but if you’re willing to take the time — and the risk — to fill it out yourself, you will pay no more than what you owe in taxes. Bear in mind that you will also have to fill out the tax forms required by any states where you lived or worked during the tax year.
- IRS Free File — The IRS has partnered with a number of different tax preparation companies to provide free online options to file your taxes. These online options are generally comprehensive but vary depending on how user-friendly they are. Additionally, these companies will offer the basic services for free but may not necessarily give you everything you need to feel comfortable with the process. The IRS provides links to various companies, but there are some restrictions related to the state you live in and how much money you make. The website generally lists these restrictions, but double-check to ensure that you’re selecting a service that is free for people from your state who make as much money as you do.
Benefits of Self-Filing
The act of filing your own taxes is known as “self-filing.” There are several legitimate advantages, which explains why millions of Americans choose this method each year. After all, since you’re paying a significant amount of money from your paycheck, you may want to consider saving money by not buying expensive tax preparation software or services. Consider several ways that choosing a free filing method can help you.
- Avoid any payments to software companies and accounting firms.
- Know exactly what information is being submitted to the IRS.
- Control exactly when your documents are submitted.
- File your taxes easily if you have a single stream of income.
- Process your taxes at any time of day or night.
- File your taxes from the comfort of your home.
These benefits are the primary reasons why Americans choose self-filing methods instead of tax preparers.
Disadvantages of Self-Filing
Very few things in life are objectively better in every way than the alternatives. Usually, you have to decide between competing goods and determine which is the best overall for you and your needs. Tax preparation is one of those things. Although you have to pay for assisted filing services, it can help you mitigate the disadvantages of self-filing.
- You increase your risk of making an error, exposing yourself to fees, re-filing, interest, or even an audit.
- You are on your own if you get audited, whereas many paid services offer audit protection guarantees.
- The more sources of income you have, the more forms you’ll have to fill out and cross-reference.
- You may miss common and obscure deductions or tax credits that could save you thousands of dollars.
- You won’t receive advice on better managing your money in the following years to reduce your tax burden.
The impact of these disadvantages can be significant, especially for those who make money as freelancers, run a business, or rent properties. If you make a mistake when self-filing, it can cost you a lot of money and productive time to resolve. Given that the IRS received a greater than $45 billion boost to its enforcement budget, now may be a good time to carefully weigh the positives and negatives of free filing. Free filing may be a safe bet if your taxes consist of a single W-2. On the other hand, if your revenue comes across several streams and it’s hard to keep track of the moving parts, you may want to invest a few hundred dollars into a licensed tax professional or purchase software that comes with an audit protection guarantee. No matter what you choose, make sure to file your taxes by the middle of April!