If you are one of the many people who will be filing federal taxes for the first time this year, IRS Free File may be the perfect match, especially if you are looking to save money on tax preparation.
Most Free File users are under the age of 30 with modest incomes. The Free File adjusted gross income limit for 2020 is $69,000. If you want to do your own taxes, Free File means free tax preparation, free electronic filing and free direct deposit, which is the fastest way to get a refund.
Free File features 10 brand-name tax software providers who are in a partnership with the IRS to offer their online products for free. Each provider sets additional eligibility requirements, generally based on age, state residency and income.
Taxpayers using Free File software for the first time will need a few things before starting. You will need:
•Your Social Security number.
•Your wage and income information. This is usually found on forms from your employer such as Form W-2 and Form 1099.
•Make sure your parents are not claiming you as a dependent. If your parents are claiming you as a dependent you may still file a separate tax return, but make sure you indicate you are a dependent on another person’s return.
•Documentation for all tax credits and deductions. You should remember that the standard deduction has been greatly increased so that itemizing deductions may not be necessary
•Prior-year adjusted gross income. This is required for all electronic tax returns as part of the user’s electronic signature. First-time filers over the age of 16 can simply enter “0” as your prior-year income for signature purposes. If you have filed before, your prior-year tax return will show your adjusted gross income.
•Your bank account and routing number. Most people receive a tax refund. This is the fastest way to get your money; through direct deposit to a financial account.
The tax filing season is upon us, and if you will be looking for someone to help you file a tax return you should choose your tax return preparer wisely.
This is because it’s ultimately you who is responsible for all the information on your income tax return. It’s important for you to remember that this is true no matter who prepares the return.
Here are some tips to remember when selecting a preparer:
Check the Preparer’s Qualifications. You can use the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. This tool helps you find a tax return preparer with specific qualifications. The directory is a searchable and sortable listing of preparers.
Check the Preparer’s History. You can ask the local Better Business Bureau about the preparer. You should check for disciplinary actions and the license status for credentialed preparers. There are some additional organizations with information about specific types of preparers:
•Enrolled Agents: Go to the verify enrolled agent status page on IRS.gov.
•Certified Public Accountants: Check with the State Board of Accountancy.
•Attorneys: Check with the State Bar Association.
Ask about Service Fees. You should avoid preparers who base fees on a percentage of the refund or who boast bigger refunds than their competition.
Ask to e-file. The quickest way for you to get your refund is to electronically file your federal tax return and choose direct deposit.
Make Sure the Preparer is Available. You may want to contact your preparer after this year’s April 15 due date. You should avoid “fly-by-night” preparers.
Provide Records and Receipts. Good preparers will ask to see your records and receipts. They’ll ask questions to figure things like the total income, tax deductions and credits.
Never Sign a Blank Return. You should not use a tax preparer who asks you to sign a blank tax form.
Review Before Signing. Before signing a tax return, you should review it. You should ask questions if something is not clear. You should feel comfortable with the accuracy of your return before you sign it. Once you sign the return, you are accepting responsibility for the information on it.
Review details about any refund. You should make sure that your refund goes directly to you – not to the preparer’s bank account. You should review the routing and bank account number on the completed return.
Ensure the Preparer Signs and Includes their PTIN. All paid tax preparers must have a Preparer Tax Identification Number. By law, paid preparers must sign returns and include their PTIN.
Report Abusive Tax Preparers to the IRS. Most tax return preparers are honest and provide great service to their clients. However, some preparers are dishonest. You can report abusive tax preparers and suspected tax fraud to the IRS. Use Form 14157, Complaint: Tax Return Preparer.
While many people are required to file a tax return, it’s a good idea for everyone to determine if they should file. Some people with low income are not required to file, but will need to do so if they can get a tax refund.
Here are five tips for taxpayers who are deciding whether to file a tax return:
Tip 1: Find out the general reasons to file
In most cases, income, filing status and age determine if a taxpayer must file a tax return. Other rules may apply if the taxpayer is self-employed or can be claimed as a dependent of someone else. There are other reasons when a taxpayer must file. The Interactive Tax Assistant can help someone determine if they the need to file a return.
Tip 2: Look at tax withheld or paid
Here are a few questions for you to ask yourself:
- Did your employer withhold federal income tax from your pay?
- Did you make estimated tax payments?
- Did you overpay last year and have it applied to this year’s tax?
If the answer is “yes” to any of these questions, you could be due a refund. You must file a tax return to get your money.
Tip 3: Look into whether you can claim the earned income tax credit (EITC)
A working taxpayer who earned less than $55,592 in 2019 could receive the EITC as a tax refund. You must qualify and may do so with or without a qualifying child. You can check eligibility by using the 2019 EITC Assistant on IRS.gov. Taxpayers need to file a tax return to claim the EITC.
Tip 4: Child tax credit or credit for other dependents
Taxpayers can claim the child tax credit if you have a qualifying child under the age of 17 and meet other qualifications. Other taxpayers may be eligible for the credit for other dependents. This includes people who have:
- Dependent children who are age 17 or older at the end of 2019
- Parents or other qualifying individuals they support
The Child-Related Tax Benefits tool can help people determine if they qualify for these two credits.
Tip 5: Education credits
There are two higher education credits that reduce the amount of tax someone owes on their tax return. One is the American opportunity tax credit and the other is the lifetime learning credit. The taxpayer, their spouse or their dependent must have been a student enrolled at least half time for one academic period to qualify. The taxpayer may qualify for one of these credits even if they don’t owe any taxes. Form 8863, Education Credits is used to claim the credit when filing the tax return.
Taxpayers with dependents may qualify to claim a few different tax credits. One of these is the child tax credit. The child tax credit benefits people whose dependent meets a series of tests. If the dependent doesn’t meet those qualifications, the taxpayer may be able to claim the credit for other dependents.
Here’s some info about the credit for other dependents. These details can help you find out if you can claim it when you file your taxes this year.
- You cannot claim the credit for other dependents for a child who qualifies for the child tax credit or the additional child tax credit.
- A qualifying individual could be your older child, parent or cousin. It could even be someone who is not related to you. To qualify, the unrelated person must have lived with you for the entire tax year.
- The maximum amount of the credit is $500 per qualifying dependent.
- The dependent must be a U.S. citizen, a U.S. national, or a U.S. resident alien.
- Taxpayers who are eligible to claim this credit must list the name and Social Security number or individual taxpayer identification number for each dependent you claim on your tax return.
- The credit begins to phase out at $200,000 of modified adjusted gross income. This amount is $400,000 for married couples filing jointly.
- You can use the worksheet on page 6 of Publication 972, Child Tax Credit, to determine if you can claim this credit.