Don't Mess With Taxes

Ready to file your 2014 tax return? Have adjusted gross income of $60,000 or less? Then check out Free File tomorrow.

That's right. The Internal Revenue Service's free online tax preparation and e-filing option opens for business Friday, Jan. 16. That's four days before the IRS starts accepting and processing all other 2014 returns, be they e-filed with commercial tax software or submitted on paper.

The free online filing partnership between the IRS and the Free File Alliance is back for its 13^th tax-filing service. It was started in 2003 as a way to get more people to e-file. It seems to be working. Since its inception, 43 million taxpayers have use the free online tax preparation and e-filing option.

Something free for almost everyone: This year, 14 tax software manufacturers are participating. The IRS is being a bit of tease and isn't announcing which companies are involved this year. I guess it wants to save something for tomorrow's opening day.

But it's a safe bet that you'll see the usual tax software suspects in the list.

The general Free File eligibility requirement of $60,000 (up from last year's $58,000 AGI threshold) means more folks should qualify for the free file option.

That earnings limit applies regardless of a taxpayer's filing status. So a family of four with AGI of 60 grand can file alongside a single taxpayer making the same amount.

And if things work essentially the same way they have for years, then some companies will cater to specific groups of filers, such as members of the military. Others software companies may limit usage of their programs to folks in certain parts of the country. And other Free File companies might allow eligible users to file their state tax returns at no cost.

As with any type of shopping, carefully examine the Free File offerings when they are available on Jan. 16. It's nice to get free tax preparation help and e-filing, but you want to make sure the software you choose is the right one for you.

Don't automatically assume that a package you used in previous tax years applies to your 2014 tax return needs. That's a hard lesson some TurboTax buyers learned the hard way, as I noted this last week at my other tax blog. So make your Free File choice wisely.

What you need to Free File: Regardless of which Free File software works for you, you're going to need some basic things to finish the job.

First, dig out your copy of last year's filing. Also round up the Personal Identification Number you used back then or your 2013 adjusted gross income amount; either can serve as your e-signature.

Free File also suggests you have these tax documents and information, if applicable to your tax situation, handy to make the process easier:

• Valid Social Security Numbers for yourself; your spouse, if you're married; and all your dependents
• W-2 forms from all of your employers
• 1099-INT forms showing interest paid to you last year
• 1099-G form showing any refund, credit or offset of state and local taxes
• Forms 1099-DIV (dividend payments) and Forms 1099-R (pensions and other retirement account distributions)
• All receipts pertaining to your small business
• Income receipts from rental, real estate, royalties, partnerships, S corporation, and trusts  
• Documents or forms detailing unemployment compensation, Social Security benefits, and other income

Obamacare filing questions, complications: New this filing season are tax questions on returns about your health care coverage.

Most taxpayers -- more than three-quarters of filers, according to the IRS -- will simply need to check a box to verify they have qualifying health insurance coverage as mandated by the Affordable Care Act. The remainder of filers, however, will need to be on the lookout for a few more tax statements to help them fill out a few more tax return forms.

Depending on how you met the required medical insurance policy rule, you could need Form 1095A, the Health Insurance Marketplace Statement; Form 8962, the Premium Tax Credit claim form; or Form 8965, Health Coverage Exemption form and Exemption Certificate Number (ECN) to show that you didn't have to buy a policy.

These Obamacare additions are one reason that both the IRS commissioner and National Taxpayer Advocate are warning taxpayers that this filing season could be bumpy.

As I also noted this week over at Bankrate Taxes Blog, the biggest concern for filers is a possible delay by the IRS in processing their returns and subsequent refunds. Almost as infuriating will be the lack of help the IRS will be able to offer taxpayers, thanks in large part reduced staffing because of Congressional budget cuts.

Let's hope that IRS Commissioner John Koskinen's cautionary pre-tax-season email to IRS employees (leaked, perhaps intentionally?, to the public) is a bit overly grim. If, however, the head IRS honcho is right, be prepared to be a bit more patient this tax filing season.

And if you use Free File, at least you can get a head start on your waiting.

You also might find these items of interest:

• The blankety-blank IRS
• Are you ready to e-file your federal return? Here's how
• The IRS wants to help you find a qualified tax preparer