Why "Free" Tax Filing May Be Costing You Money

With the 2016 tax deadline fast approaching, millions of people are hacking their way through jungles of numbers, burning the midnight oil trying to find receipts and bank statements and attempting to DIY their tax returns. For those filing a 1040-EZ, this isn't so bad. The small business owner or the homeowner with multiple income streams, a spouse and kids have a lot more to take into account, and potentially a lot more to lose.

Given all this, it makes sense to look at the cheapest tax preparation available, right?
Not necessarily.

Many people notice their "free" or "flat-rate" tax software gives them what they ask for...until it's time to check out. With upsold services and add-ons for just about everything, when the time comes to enter the credit card information, sticker shock is an everyday occurrence. Even worse, the software holds the return data that the user has spent hours or even days entering hanging in the Blue Nowhere until the user pays up. Most sites and tax preparation software have disclaimers that stipulate that final fees may be subject to change, but how many people actually read those things? It's a pretty safe bet that you don't.

According to Robbie Edwards, co-founder of OnePriceTaxes, it all comes down to H&R Block and TurboTax, or "the giants," as they call them, spend a fortune putting out their names. They have to recoup those costs somehow but keep the quoted rate low enough to make it palatable for college students and people on a budget. Thus, anything that's more complicated than a 1040-EZ is treated as an add-on.

He adds that "the giants" can justify this to a point because every tax situation is a little different. For example, a sole proprietorship has to meet different filing criteria than a household living off rental income in a state that has no income tax, which is different than someone whose classed as a regular W-2 but has to pay state income tax. The giants perceived an opportunity here, because if a user doesn't like it, they can shrug and say, "That's just the price of filing your taxes."

This as a problem, because they recognized that sticker shock doesn't equate to a stable business model in the long term. Instead, they implemented a model where filers only pay $34.95 for the software regardless of how simple or complex their taxes are. Someone who worked a W-2 position but had 1099 income and lives in a state that charges income tax can quickly find themselves paying upwards of $100 to file, and kids and houses cost even more.

A word of caution about the dangers of procrastination on getting their tax returns in this year. The IRS is offering an extended deadline of April 18th to file for 2015, instead of the traditional April 15th. However, it's still a good idea to get your taxes in as soon as possible, because people who procrastinate not only risk missing deductions that could make a big difference in their return or how much they owe but the turnaround time to get their returns may run six weeks or longer. What's even worse is, by waiting until the last minute to file, it could cause mistakes and irregularities in the return that trigger an audit. Nobody wants to have to have that conversation with Uncle Sam, so the faster it's done, the less worry and stress taxpayers will have.

Another ongoing concern is the risk of identity theft and tax fraud, which is rampant during tax season. The partners caution all filers to be sure to delete their returns from their hard drives after saving it to a password-protected thumb drive or some other trusted storage medium. Paper documents should always be shredded and disposed of, to help reduce the risk of people rifling through trash bags to find social security numbers, dates of birth and other information fraudsters need. If using physical storage media, it's a good idea to put it in a safety deposit box or personal safe, if one is available. These simple precautions can help safeguard filers and thwart fraud. Also, they can make sure you get the return you deserve with fewer delays or worries about identity theft.

Online tax preparation can help make tax time easier and less frustrating while saving filers money and making sure they receive all the credits and deductions they're entitled to. Remember, the sooner you file, the fewer worries you'll have about whether your tax filings will get where they need to go by April 18th and the faster you'll receive your return!