Program helps you file taxes for free

Now that cheap is the new chic, why not cut back on how much you pay to do your federal income taxes, too?

Some taxpayers might be able to save from $40 on tax software to a couple hundred dollars for a tax preparer if they look into the Free File program through the Internal Revenue Service Web site at www.irs.gov. (A video demonstration of the program is available through this column online at www.freep.com/tompor.)

The catch: You must have an adjusted gross income of $56,000 or less in 2008 to tap into Free File. The IRS says that income limit covers about 99 million taxpayers, or 70 percent of all taxpayers, but only a tiny fraction use Free File.

So, fellow recessionistas, why save money by doing taxes online for free?

“I don’t know what’s not to like about it — if you qualify,” said Tom Ochsenschlager, vice president for taxation for the American Institute of Certified Public Accountants in Washington, D.C.

He has used Free File to help his children, who are in their 20s, file their tax returns.

“It’s a lot easier than sitting down with paper copies.”

The process is simple.

First, you must get your paperwork in order, no matter how you file. You need your 2007 federal income tax return, your Social Security number as well as the Social Security numbers for your spouse and children, your W-2 Forms, your 1099s, etc.

You need your 2007 adjusted gross income as a way to verify who you are, if you use a Free File tax preparer, said IRS spokesman Luis D. Garcia.

Go to www.irs.gov and click on the green and blue logo for Free File on the left. Or click on Free File is Now Available.

Do not worry; this is nothing like your grandfather’s paper 1040. You’re not going to need to ask: “What do they mean by other income on Line 21?” The free services eventually prompt you with questions about your finances and put the information on the correct forms. Still, if you have a very complex return, you’d want a professional’s help.

Then you’d need to pick a firm. The IRS site lists 20 online tax preparers. But each participating company sets its own eligibility requirements. Some preparers, for example, will offer Free File only if you’re a taxpayer who is 50 or younger. You can scroll for a service that applies to you. Or you can click on a button called “Help Me Find a Company.” You’d fill out information, including your age, state and income.

Another point: Some participants in Free File will prepare a return that includes Form 982 — the form for Mortgage Forgiveness Debt Relief — but others do not. If you need help in Spanish, some services provide it.

After you choose a preparer, you click on the company’s name, which sends you directly to the company’s Web site. Be sure to go through the IRS site, not a company’s Web site. Otherwise, you may be charged a fee.

Be aware of fees to prepare and e-file state returns, even if you go through the IRS site.

If you use Free File and choose the H&R Block option, for example, it would cost $29.95 to prepare a state income tax return. It would cost another $29.95 to e-file that state return.

TurboTax Freedom Edition at www.irs.gov offers free tax preparation and free e-file for state returns for 21 states. However, TurboTax Freedom applies to Free File only if your Adjusted Gross Income is $30,000 or less or if you are active military or you qualify for Earned Income Tax Credit. You are under no obligation to file your state return with a preparer participating in Free File. The IRS has prohibited participants from offering refund anticipation loans via Free File.

You will need to be careful. Make sure that you plug in the correct numbers and double-check what you have on the screen with what you have on your forms.

To get a refund faster, you want to get that return via direct deposit. You need your account number as well as a routing number. The refund may be available in less than 10 days with electronic filing and direct deposit.

XSusan Tompor is the personal finance columnist for the Detroit Free Press. She can be reached at stomporfreepress.com.