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A FREE-FILING CHECKLIST

Electronically filing your taxes is quicker and more accurate and the fastest route to a refund. And now, with the launch of the IRS's new "Free File" program, 60% of American taxpayers may be able to file their returns electronically at no cost. Before you begin, here are:

Ten tips to consider before Free Filing your federal tax return

  1. Understand how the Free File program works.

    The Free File alliance is a public-private partnership between the IRS and the tax software industry. Eligible taxpayers can link to commercial tax preparation software through the IRS website, http://www.irs.gov, and use it to prepare and file their federal income tax returns.

    The IRS stresses that it does not provide free electronic filing or tax return preparation services, which is why it formed this public-private alliance. The government hopes the Free File program will boost the number of electronic returns it receives and move it closer to its goal of 80% e-filed returns by the year 2008.

  2. Determine if the Free File program is a good fit for you.

    Taxpayers who prepare their own taxes and up to this year have filed paper returns are going to benefit the most from Free File. Electronic filing will allow these taxpayers to quickly transmit their tax return to the IRS, receive confirmation of receipt within days, and, receive a refund within two to three weeks, if one is expected. But be aware. Not everyone will qualify.

  3. Read the fine print BEFORE you start work on your tax return.

    There is no single way to determine who qualifies for Free File so you will need to do some homework. In order to qualify, you also must meet one or more eligibility conditions, including:

    • Filing Form 1040 EZ;
    • Claiming the Earned Income Tax Credit; or
    • Qualifying as a low income taxpayer.

    Still, the process can be confusing. Seventeen companies are participating in the Free File alliance, and each has its own criteria for determining who can e-file for free. For example, one company offers free e-filing for those with an adjusted gross income of $30,000 or less. Another offers the service to someone with an adjusted gross income of $100,000 or above. Still other companies offer free services to anyone 50 or older, taxpayers on active military duty, or residents of specific states.

    Before you start to work on your return, browse through the complete listing of alliance members and their criteria, or use a questionnaire application, the Free File Wizard, to identify those free services for which they may qualify.

    Should you go to the site and discover that you are not qualified for any of the free filing options offered, you may still use one of the Free File alliance companies - but you will be charged a fee.

  4. Watch out for any "hidden fees" in preparing your return.

    While you may qualify to have your federal return electronically filed for free, other services offered by the commercial filers may not be free. Hidden costs are everywhere, so be alert and aware. Some companies participating in Free File may offer to "professionally review" your tax return after you file it, or they may offer an online interactive feature to answer your questions, all for a price.

    Check to make sure what, if any, costs would be charged if you have questions about your tax return once it is filed. Make sure to understand if the company will charge to help you fix any problems you might later have with your tax return, if they even offer this service. Free Assistance my also be available. Call the Taxpayer Advocate's office at 877-777-4778.

  5. Beware of pitches for costly refund anticipation loans.

    If you Free File and arrange for direct deposit of your refund into a bank account, the IRS says you should have your money generally within ten days. The IRS does not charge any fees to do this and you receive your FULL refund amount. Nevertheless, participating companies in the Free File program offer refund anticipation loans (RALs). If you agree to an RAL, you will receive the dollar amount due you by the IRS as soon as you file your tax return. You should understand that RALs are NOT REFUNDS. RALs are loans with interest. RALs always include interest, usually very high, and many times an additional fee will be added. An RAL reduces the amount of your REFUND by the amount of the fees and interest charges. The longer it takes you to pay back your RAL the more it will cost you. Think carefully before you agree to an RAL. You are liable for the RAL (loan) even if your refund from the IRS is disallowed in whole or in part. This is because an RAL is a separate loan from a lender. It is not your refund.

    The IRS does not encourage or endorse the use of RALs offered by commercial providers.

  6. If you owe taxes, be prepared to pay up when you e-file.

    Electronically filing your taxes does not eliminate your obligation to pay any taxes you owe on your return. Your payment options include a direct debit from your checking or savings account, payment by credit card, or mailing a check or money order made out to the United States Treasury using Form 1040V - Payment Voucher. Remember, your refund can be taken and applied to other debts you may owe, including past taxes, student loans and child support.

  7. Don't let lack of access to a computer stop you.

    Most public libraries have computers that are free for your use. If you are a first-time computer user, however, you will need assistance to enter data, and in some cases, you may have to make more than one visit to complete your return.

    Also, the IRS has free programs to help taxpayers file, including walk-in sites at IRS offices. Low-income taxpayers can receive tax preparation assistance from VITA (Volunteer Income Tax Assistance) programs at public libraries and other locations, and TCE (Tax Counseling for the Elderly) sites administered by the American Association of Retired Persons (AARP.) To find the location of the VITA and/or TCE site in your community, call toll-free (800) TAX-1040, or contact the IRS Taxpayer Education Coordinator at your local IRS office. You also can call the AARP at 1-888-227-7669 to find the nearest TCE/Tax-Aide office, or visit their website at http://www.aarp.org/taxaide

  8. Keep your paperwork.

    Electronic filing may be paperless, but that does not mean you should rely on your computers hard drive to store data. Make sure to print out your return and keep a copy for your records.

  9. Don't procrastinate.

    Free Filing is available only during the primary filing season-- January 16, 2003 to April 15, 2003. Although some alliance companies may extend the deadline to accommodate extensions, if you want to take advantage of Free File, the safest course is to file your tax return before April 15.

  10. Understand your rights and responsibilities

    Make sure you enter all information in a true and accurate way. Remember that you are ultimately responsible for information contained in your tax return. If your return is successfully challenged by the IRS, you will have to pay the additional taxes due, plus interest and possibly penalties, regardless of how your return is prepared and filed. And, if you knowingly provide false information, you could be subject as well to criminal penalties (including jail).

You have important rights as a taxpayer. If you are uncertain of your rights, contact: