Cyberfiling easy, free for many this year

• Activation greets Turbo Tax fans
• Tax filing online new for many

By Sandra Block
USA Today

More than a dozen tax software companies will offer free Internet tax preparation and electronic filing to eligible taxpayers. Most taxpayers will qualify for free e-filing under the program, the Internal Revenue Service said. The initiative is designed to encourage more taxpayers to e-file, which saves the IRS time and money.

Participating providers include the two largest tax-preparation companies, H&R Block (www.taxcut.com) and TurboTax (www.turbotax.com). H&R Block is offering free services to taxpayers with adjusted gross income of $28,000 or less. TurboTax is offering free online preparation to taxpayers with income of $27,000 or less, or individuals who claim the Earned Income Tax Credit.

Eligibility criteria include:

• Income. Several companies offer online preparation and filing for individuals with adjusted gross income of $28,000 or less. TaxAct (www.taxact.com) offers free services to taxpayers with income of $100,000 or more.
• Age. TaxBrain (www.taxbrain.com) is providing free service to anyone 50 or older. OnLine Taxes (www.online-taxes.com) offers free service to taxpayers age 20 or younger.
• Service. TaxSlayer (www.taxslayer.com) offers free service to all active-duty military people.
• Residence. FileYourTaxes (www.fileyourtaxes.com) will provide free service to residents of Arizona, Georgia, Michigan and Wisconsin. The company chose those states in hopes of building business in those areas, Vice president Timur Taluy said. ESmart (www.etaxforms.com) is offering free service to residents of New York and Illinois.

A complete list of companies offering free services is available at www.irs.gov. The IRS site also features a questionnaire taxpayers can use to determine whether they qualify for free e-filing.

Last year, the IRS received nearly 85 million paper returns and nearly 47 million e-filed returns. The IRS expects 54 million to e-file this year.

Activation greets TurboTax fans

By Gary Deckelnick
Asbury Park (N.J.) Press

Activation is required so users can access all of TurboTax's features.

Competitor TaxCut does not require activation.

Similar to the often-criticized activation program introduced in Microsoft Windows XP, the TurboTax activation scheme limits the full use of the software to one machine.

Intuit, the company that makes TurboTax, says it introduced the system to protect its intellectual property.

Activation is a form of copy protection that limits the way a user can use a particular program. At first blush, it seems simple enough. When the program is installed, the user enters a CD key found in the package — the same as in Windows — and Intuit responds with a registration key of its own. That key is unique to a single computer, and calling Intuit is the only way to change the registration.

After activation, the software can be installed on other computers but it can't be used from those computers to print a tax return or file one electronically.

If the configuration of your computer changes — you install a new hard drive, for example — the software must be reactivated. That holds whether the hardware changes during this tax season or any time during the three years in which taxpayers may amend a return.

Microsoft was the first company to launch widespread activation with Windows XP and Office XP. It has people available 24 hours a day to handle reactivation requests. Intuit says it also provides 24-hour reactivation through a special 800 number.

TurboTax's prime competitor, TaxCut ($14.95 to $39.95 depending on the version, www.taxcut.com) from H&R Block, doesn't use activation. Another competitor TaxAct (www.taxact.com) comes in several flavors. One is even free, but it requires that its users look at ads. A deluxe version of TaxAct costs $9.95.

Tax filing online new for many

By Sandra Block
USA Today

We've all heard stories about people who won a free trip to the Bahamas, only to get there and discover the offer excluded food, towels and airfare home.

So it's not surprising that many taxpayers view the Internal Revenue Service's free electronic filing plan with skepticism. Here's a look at some top concerns and mechanisms in place to put your mind at ease:

Privacy

Your tax returns contain a mother lode of financial information about you. Will the tax preparation companies sell information about your mortgage to telemarketers who market aluminum siding?

Federal law prohibits tax preparation companies from using your tax information for any purpose "other than that authorized by the taxpayer," says Terry Lutes, director of electronic tax administration at the IRS.

Violating the law is a felony that could land offenders in jail, says Steve Ryan, general counsel for the Free File Alliance, which represents the participating companies.

Security

Hurtling your tax returns into cyberspace can be unnerving, particularly if you're not a regular Internet user. And the rapid growth of identify theft has caused many individuals to become even more protective of their financial information.

The IRS says it has processed more than 250 million e-filed returns without a security breach.

Discrimination

Will tax-preparation companies offer second-class service to free filers, saving the champagne and wide seats for the paying clients? No, the tax preparation companies say. Free filers will get the same program as paying customers who use the basic service, tax preparers say. Free filers are "using the same online program as our paid clients," says Tom Linafelt, spokesman for H&R Block.

Tips for filing electronically

The IRS features a tool on its Web site, www.irs.gov, to determine your eligibility for free tax preparation and e-filing.

Tour the Web sites until you find one you're comfortable with. Don't buy costly services you may not need. In particular, watch out for:

• Refund anticipation loans. These loans allow you to get your refund early, but at a hefty interest rate. Refund loans aren't just expensive, they're also unnecessary.
• State tax preparation. The free offers are limited to your federal tax returns. If you want the company to prepare and file your state tax returns, you'll pay a fee, but at least 20 states allow residents to e-file directly to their state tax departments for free.