You've heard the commercials; one of the national chains will prepare your taxes for free-if you can use the 1040EZ. They're targeting young adults who might be tempted to do it themselves online or with tax preparation software. Is it a good deal? It depends on if you qualify to use the form and what other charges might you get stuck with?
Who can use the 1040EZ? First, your filing status must be single or married filing jointly and you can't claim any dependents. You also can't be 65 or older. (If you or your spouse were born on or before January 1, 1948, you can't use the 1040EZ.) And you can't have filed Chapter 11 bankruptcy since October16, 2005.
Next, your taxable income must be less than $100,000. And that income is limited to wages, salaries, tips, taxable scholarship or fellowship grants, unemployment compensation, Alaska Permanent Fund dividends, and taxable interest which can’t be over $1,500. A note about tips, if you have to report your tips on Form 4137 or you have allocated tips reported in box 8 on your W-2, you can't use the EZ form.
Deductions on a 1040EZ are limited to the standard deduction. Besides not being able to use morgage interest, charitable contributions and state and local taxes to itemize deductions, that means no IRA, student loan, teacher expense, alimony paid or other "adjustment" that reduces income. And only one credit is allowed, the Earned Income Credit.
Now if you can use the 1040EZ, and only about16% of taxpayers can, is this a good deal? Well, the chain is very clear that you will have to pay for any state return you need to file. And there are the special "options" they will try to sell you like audit insurance or a refund program. So it's possible, if you live in a state with no income tax and are good at saying no, to get your return prepared for free. But do double check to see what guarantees come with the free return.
But what if you find out once they start your return that it's going to cost more than you planned on paying? As long as the return has not been filed, electronically or given to you to mail, you can stop the process. They have to give you your W-2s and other informational returns back. And they can't charge you. They don't have to give you anything they prepared just what you came in with.
Free can be good as long as you're getting the same quality return as the customer who are paying for their return. And you aren't paying more in taxes because you skipped a credit or deduction to stay on the 1040EZ form.