This Year, Taxpayers Will Find More E-Filing Freebies

It seems the way to make it in today's Web world is to offer products and services for free. Now, add electronic tax return filing to the list of Web freebies.

The 1999 tax filing season presents taxpayers with a few new options to prepare and file their tax returns online -- all for free.

Last year, the freebies were reserved mostly for the Form 1040EZ filers. But for 1999, there are some new options for regular ol' 1040 filers.

And regardless of the corporate motives behind giving things away, it's all helping the Internal Revenue Service meet its goal of getting 33.6 million taxpayers to e-file this year, up from 29.3 million last year. So these freebies can't hurt.

The odds are good that taxpayers who take care of their finances online have at least one account with Fidelity, Vanguard or E*Trade(EGRP).

Thanks to recent alliances with Intuit (INTU), taxpayers with an online account at any of those companies can prepare and electronically file their 1999 tax returns for free using TurboTax. Fidelity has 3.3 million online users who qualify to use the product, while Vanguard has 14 million accounts and E*Trade has 1.5 million.

For taxpayers who don't have an account with any of those three, there's another option.

Starting in late January, H.D. Vest Financial Services (HDVS) is offering free tax preparation and e-filing. Regardless of income level or tax return difficulty, taxpayers can prepare their returns online and either print-and-mail or e-file for free through H.D. Vest's site.

The Irving, Texas, company, with branch offices nationwide, provides financial planning. "We believe the tax return is the road map to financial independence," says Chairman and CEO Herb Vest. So the company is using it as bait to bring in new eyeballs. While users are preparing their returns on H.D. Vest's site, they will have access to a list of local representatives that they can contact in case they need assistance. Big note: That part is not free. That's their bread and butter.

But how do taxpayers know they can trust their tax returns with these folks?

For one thing, H.D. Vest has hired a CPA firm to make sure the site meets industry standards. The American Institute of Certified Public Accountants' electronic commerce taskforce has established a set of standards to assure a site's privacy, transaction integrity and security practices. If the site passes, it gets the CPA WebTrust seal of assurance.

"We're really hitting the site hard," says Chris Leach, head of the team that's testing the H.D. Vest site. "We're anticipating issuing a WebTrust seal no later than Monday, Jan. 17."

H.D. Vest is expecting that more than 1 million people will take advantage of its freebie.

But competitors like TurboTax and Kiplinger's TaxCut aren't threatened. They believe that consumers will go with the tried-and-true in the end, their spokespeople say, especially since their prices aren't all that high. TaxCut costs $9.95 for a federal return and $4.95 for a state return. TurboTax on the Web costs $9.95 for federal returns, plus $9.95 for each state return. All prices include electronic filing. So the companies think taxpayers will consider that a small price to pay for peace of mind.

EZ Still for Free

EZ filers can use TaxCut at hrblock.com or taxcut.com to prepare and e-file their returns for free. Both sites say the service will be available in early February.

Taxpayers can qualify for the 1040EZ if total taxable income from wages, salaries, tips, taxable refunds of state and local income taxes, scholarship or fellowship grants, and unemployment compensation doesn't exceed $50,000. In addition, taxable interest cannot exceed $400, and any dividend income is an EZ disqualifier.

Through the 1999 Quicken Tax Freedom Project, taxpayers with an adjusted gross income of less than $20,000, in addition to EZ filers, can do everything for free using TurboTax. TurboTax has targeted a major portion of the market: Of the 122 million individual tax returns filed in 1997, roughly 52 million were filed by taxpayers with AGI under $20,000, according to the IRS. The site will kick off the tax season on Saturday.

So Where's the IRS List of Approved E-filing Sites?

It's coming. The list of approved online sites will be up Friday morning, according to the IRS. Friday is the first day the IRS is accepting electronically filed tax returns for this tax season.

Compiling the list is taking a bit longer than anticipated because many sites are still going through suitability testing by the IRS, which checks each company's technical capabilities. Thanks to constant changes in the tax law, each site must go through this analysis every year. The IRS also verifies the company's integrity, so the testing even includes background checks on the people who run these companies.

But remember, this suitability testing just assures taxpayers that the companies are on the up and up. It doesn't test the software for ease of use or costs to e-file.

That's where TSC comes in. We'll weigh in on the IRS' list of sites and give you the pros and cons, just like we did last year. So stay tuned.

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