Is there any way to file State and Federal taxes for free?

Is there any way to prepare and file State and Federal taxes for free?

Well yes, but like taxes the answer is a bit more complicated than that. Part of the yes is typically including various limitations that tend to exude many people from being able to file their state and Federal Taxes for free. The first limitation is typically how many supporting documents are you using besides a W-2.

The second major excluding box is often your income. Again that is somewhat unclear because your final income is often determined after you file your taxes.

Here is the thing, if you have a basic return, with just a W-2, insurance coverage information, and maybe a bank statement with your twelve cents of interest you can probably even do this on your own, or use a Turbo Tax software on your own.

Never unemployed until 2020? New form to find 1099-G

So you’ve never been unemployed prior to 2020? That’s great, and we feel for you that you got caught up in Pandemic Purgatory, however you will need to find in your respective state unemployment portal, or possibly in the mail your 1099-G. This form declares how much income you collected from unemployment insurance payments from the government. This is taxable income at the Federal level and in every state that collects income taxes.

If you did not set up tax withholding on your unemployment payments you may have a real surprise. So for those of you in say Washington who do not have an income tax, you could possibly owe money to the IRS instead of getting a refund you were expecting.

Worse still often and perversely the inclusion of a 1099-G form excludes free tax preparation services, this form is typically given for collecting unemployment insurance payments.

Did you play the stock market with a trading App like Robinhood, Cash App, or Webull?

Also generally excluded from free tax preparation services are if you have various new tax documents like a 1099 or 1099-DIV.

These documents come from capital gains or losses if you were playing the stock market using Robinhood, Cashapp, and Webull, while you were unemployed and looking for a job. If you only purchased shares, and did not sell anything, then you may not have anything to worry about. However if you bought shares in a stock say in March 2020 and sold the next week, for a profit, well you will be expected to pay short term capital gains tax on this transaction which is taxed at ordinary income tax levels. Say your tax rate is 20%, and you were really lucky and made $1,000 profit on a trade, and had no stock trades that resulted in losses. You will owe effectively $200 to the IRS, and possibly money to your state if they collect income taxes.

You will be getting 1099, and possibly 1099-DIV (which is for dividend income if you held a stock while it paid a dividend cash payment). If you picked an investment into a stock that is actually a publicly traded Limited Partnership, then we have even worse news for you, you will be waiting until Mid March for a Schedule K, partnership form to also submit with your IRS tax return.

When can I file my 2020 tax return anyway?

Another new development is that for the Federal Government tax return unlike in years prior, you can’t send in your return before February 15, 2021, which is two weeks later than normal. This will also delay your ability to get any eligible tax refund that might be owed to you.

Work From Home Expense

For 2020 there is basically no home office deduction if you were maybe unemployed, but also managed to work from home for some portion of your 2020.

One Free Method for Tax Preparation if you qualify

TurboTax really stole the tax market in the last twenty years or so for people looking to try to do their own taxes but with some help to get the best tax deductions. However it hides the free filing option which has three requirements listed below if you can answer yes to any of these three, you are probably on the path to free tax preparation.

Here is the catch, if you made say $2,500 in your job in 2020 before getting laid off, and collected normal unemployment and the Federal bonus of $600 a week You very likely do not qualify based on adjusted gross income requirements for free Turbo Tax help.

Regional Free Tax Preparation and Filing Assistance

The best advice out there is actually to check with your local community colleges and universities as typically they offer free of very discounted help to prepare and file your taxes. Often these upper income limit bands for exclusion are quite a bit higher than TurboTax which is trying to make money on you filing your taxes.

Detroit, Michigan Area Provider for free tax Preparation Services

For our Detroit area Michigan readers who have income under $57,000 the Accounting Aid Society, will be conducting FREE virtual tax preparations online and by “drop and go”.

You can start booking appointments now by:

Learn more about the Accounting Aid Society’s VITA ACE program here.

Do you know of any others in your local area? Add a comment, tweet us, or shoot us a tip at our email.