# Free online tax filing ... How do they make any money? **URL:** \ **Category:** Factual Questions\ **Created:** [February 7, 2019, 11:16am UTC](https://boards.straightdope.com/t/free-online-tax-filing-how-do-they-make-any-money/829110 "2019-02-07T11:16:20Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![ElvisL1ves](https://avatars.discourse-cdn.com/v4/letter/e/5daacb/32.png) [@ElvisL1ves](https://boards.straightdope.com/u/ElvisL1ves)\ **Post date:** [February 7, 2019, 5:22pm UTC](https://boards.straightdope.com/t/free-online-tax-filing-how-do-they-make-any-money/829110/21 "2019-02-07T17:22:08Z")
> [@Thudlow\_Boink](#): > > In the US, we have free filing if your income is below $66,000, offered by private companies in partnership with the IRS. Anyone can also file free with “Free Fillable Forms”, on the same page at [irs.gov](http://irs.gov). It’s a bit user-hostile, but fine if your situation isn’t complicated. And paper is still accepted too. Really, most of the work is in just keeping and compiling the documentation throughout the year. The actual form-filling is the easy part - but that’s what the preparers charge for. ---
**Author:** ![RealityChuck](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/realitychuck/32/195_2.png) [@RealityChuck](https://boards.straightdope.com/u/RealityChuck)\ **Post date:** [February 7, 2019, 5:31pm UTC](https://boards.straightdope.com/t/free-online-tax-filing-how-do-they-make-any-money/829110/22 "2019-02-07T17:31:23Z")
Most of the online tax forms are only free for basic returns. They charge for anything more complicated. I find it especially galling: I have a small amount of Schedule C income this year – maybe about $20 – and I have to pay $40 extra to use the form. [OLT.com](http://OLT.com) is free for all forms. There is a $7.95 fee for some extra features, and a $9.95 fee for your state return ($7.95 if you pay for the deluxe version). ---
**Author:** ![Alley\_Dweller](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/alley_dweller/32/430_2.png) [@Alley\_Dweller](https://boards.straightdope.com/u/Alley_Dweller)\ **Post date:** [February 7, 2019, 5:57pm UTC](https://boards.straightdope.com/t/free-online-tax-filing-how-do-they-make-any-money/829110/23 "2019-02-07T17:57:52Z")
> [@Folacin](#): > > First - the IRS generated form won’t handle everyone, granted. But it should be most. But to some of your specific points: > > They know how many kids you had last year, their ages, and student status. If it changes, you would have to file an amendment to what they send you. [Form 1040](https://www.irs.gov/pub/irs-prior/f1040--2017.pdf)does not ask you to list kids’ ages, student status, or pregnancies. But maybe there could be an annual form you could submit with this information. > [@](#): > > The state knows about your estimated payments. That seems an easy feed into the system, although I know if would face resistance. Yes, another unfunded mandate, but it could work. > [@](#): > > Charitable deductions - you are already telling the IRS who you are donating to, but I can see an issue if you felt a need to be anonymous. I guess you could actually do an anonymous donation, or tell the receiving organization to not report it (and you forego the deduction). An unfunded mandate on charities. But, no you don’t list the charities you donate cash to [on your tax return](https://www.irs.gov/pub/irs-pdf/f1040sa.pdf). You could be asked for this information during an audit. You propose imposing a mandate on charities to disclose their complete donor list regardless of whether the donors claim itemized deductions or standard deductions or to put an extra burden on charities of determining whether donors want their donations disclosed. > [@](#): > > Gig economy - Uber is reporting that income (or they should be). It might be 1099 instead of W2, but Uncle knows about it. Only if you make above a certain minimum. But I hope no Uber driver is paying taxes on the gross amount that Uber pays them. There are a lot of expenses in driving your car all over the place that are (rightfully, in my opinion) deductible. In fact, after paying for gas, wear and tear, maintenance, tolls, etc many Uber drivers hardly have anything left for their efforts. And while businesses like Uber file 1099s, I’m sure you would be pretty ticked off if you had to file a 1099 when you paid the neighborhood handyman. > [@](#): > > Sales tax is a good point - I guess that would need to be an amended return, but I think that is a small proportion of filers. > > I’m not certain what the question on taxability of your state refund is, but I’m guessing that it isn’t a hard calculation for the IRS to figure out. The common belief is that you receive a 1099-G from the state reporting your tax refund and you itemized the previous year, you just report the amount on the 1099-G. But you are only supposed to report the amount of the “net tax benefit” you claimed the previous year. So many people overpay. So let’s say you could either claim $1000 in state income tax or $900 in state sales tax. You choose the former and next year you receive a $200 refund. You should only pay tax on $100 of that refund because at this point you would have been better off claiming the sales tax. There are also tax benefit considerations when you are paying AMT or on the border of using the standard deduction. > [@](#): > > I get lots of tax forms from my kids colleges, so that is (mostly) sorted, I think. My point was that the portion of grants that go for room and board and living expenses are taxable. > [@](#): > > And finally, it would be a golden opportunity to remove a lot of credits and implement a simplified system (income is income, as many tax brackets as needed). But a lot of the credits you mention are either on your W2 or reported by the companies on separate forms already. From your mouth to Congress’s ear. Yes, it would be wonderful. But just try to get Congress to eliminate the child tax credit or the mortgage interest credit. > [@](#): > > The HR Block tax software I use mostly just requires me to enter data from forms already reported to the IRS. I think the only major ones not there are property tax (which should be easy to get to the IRS) and charitable (somewhat covered above). Just a technical note: Your W-2 form goes from your employer to the SSA, not to the IRS. Then later in the year, the SSA sends it to the IRS. This year the deadline for filing W-2 forms with the SSA have been shortened, so I don’t know when the IRS will get them. Yes, we could introduce efficiencies (but not with Congress cutting the IRS budget each year) and change deadlines and filing procedures to get around that, but voters would be squealing like stuck pigs if you delayed tax refunds till June each year. ---
**Author:** ![thelurkinghorror](https://avatars.discourse-cdn.com/v4/letter/t/7c8e57/32.png) [@thelurkinghorror](https://boards.straightdope.com/u/thelurkinghorror)\ **Post date:** [February 7, 2019, 6:14pm UTC](https://boards.straightdope.com/t/free-online-tax-filing-how-do-they-make-any-money/829110/24 "2019-02-07T18:14:35Z")
I pay $0, as should people in 6-8 other states. Everyone else has to do a state return, and that costs at the free file sites. Granted, you could file federal with them but do the state return using forms later, but most people are happy to pay for the convenience. For every customer who doesn’t give them money, there are enough who pay to make it worthwhile. I use H&R Block free file, and they’re pretty innocuous in trying to sell upgrades. I think there’s a quick nag, but nothing too bad. > [@HoneyBadgerDC](#): > > I always pay the $19.00 just because I figure they earned it. Filed mine last night Turbo Tax. 😕 “They”? Intuit earned it? > [@Alley\_Dweller](#): > > An unfunded mandate on charities. But, no you don’t list the charities you donate cash to [on your tax return](https://www.irs.gov/pub/irs-pdf/f1040sa.pdf). Some people do. [If you have non-cash donations more than $500, you need to list the recipients](https://www.irs.gov/forms-pubs/about-form-8283). ---
**Author:** ![Alley\_Dweller](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/alley_dweller/32/430_2.png) [@Alley\_Dweller](https://boards.straightdope.com/u/Alley_Dweller)\ **Post date:** [February 7, 2019, 6:30pm UTC](https://boards.straightdope.com/t/free-online-tax-filing-how-do-they-make-any-money/829110/25 "2019-02-07T18:30:22Z")
> [@thelurkinghorror](#): > > Some people do. [If you have non-cash donations more than $500, you need to list the recipients](https://www.irs.gov/forms-pubs/about-form-8283). That’s why I explicitly said “donate cash.” ---
**Author:** ![iamthewalrus\_3](https://avatars.discourse-cdn.com/v4/letter/i/258eb7/32.png) [@iamthewalrus\_3](https://boards.straightdope.com/u/iamthewalrus_3)\ **Post date:** [February 7, 2019, 6:35pm UTC](https://boards.straightdope.com/t/free-online-tax-filing-how-do-they-make-any-money/829110/26 "2019-02-07T18:35:50Z")
> [@OldGuy](#): > > That would work if you took the standard deduction. But the IRS doesn’t know what you paid in state taxes, what your mortgage payments are, how much you contributed to charity, etc. So many people would overpay their taxes that way. I’m not sure how other countries handle that. Maybe they don’t have such deductions. The vast majority of filers do actually take the standard deduction, though. Especially now that it’s even bigger. I’ve used FreeTaxUSA to file my taxes for the last few years. Federal is free, and the state return is like $15. Worth it to me to not enter the info twice. They also have an upsell to premium service if your return is particularly complicated, but I’ve never used it. ---
**Author:** ![Chronos](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/chronos/32/134_2.png) [@Chronos](https://boards.straightdope.com/u/Chronos)\ **Post date:** [February 7, 2019, 6:40pm UTC](https://boards.straightdope.com/t/free-online-tax-filing-how-do-they-make-any-money/829110/27 "2019-02-07T18:40:33Z")
When I started using these services, the model was that federal was free, and then once you’ve entered all of your info anyway, you could spend a few bucks and a couple more clicks to have them do your state, too. As of last year, though, most of them seemed to do the state for free, too. Though, also as of last year, most of them also wanted me to enter in a form that I never had, and there was no way to tell them that the form didn’t exist. So from now on I’ll be using the local human-run free filing service (funded by some nonprofit or another). ---
**Author:** ![wolfpup](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/wolfpup/32/10618_2.png) [@wolfpup](https://boards.straightdope.com/u/wolfpup)\ **Post date:** [February 7, 2019, 7:00pm UTC](https://boards.straightdope.com/t/free-online-tax-filing-how-do-they-make-any-money/829110/28 "2019-02-07T19:00:02Z")
The tax software I use for preparing Canadian federal tax returns is provided absolutely free by a commercial tax consulting company, with no restrictions that would affect an ordinary tax filer, and IIRC it even lets you prepare something like 20 different filings for different people with that one free license. I’ve been using it for more than a decade, and most of the time the assessment comes back agreeing with my numbers to the penny. Why they do this for free is beyond me\*, and there have never been any ads or come-ons for paid versions. From what I can tell they seem to make a lot of money doing tax things for businesses and I guess that’s good enough for them, and they regard the freebies as a public service. They do accept voluntary donations, though. I think these guys deserve major kudos for their excellent free software and their generous no-strings-attached policy. This is their website (only for Canadian tax filings): [https://www.studiotax.com/en/?page=1](https://www.studiotax.com/en/?page=1) – - This is what they say on their website: \*"Our business model is similar to that of a street performer. You can use and enjoy our software and later decide if the experience was worth it and you can afford a donation. “However, based on many users’ feedback, you should be wary of recent free offerings from big commercial organizations. To use our previous analogy, they are big circuses that send their clowns out to the street to attract unsuspecting customers to their tents and pressure them in paying for their overpriced shows.”\* ---
**Author:** ![ElvisL1ves](https://avatars.discourse-cdn.com/v4/letter/e/5daacb/32.png) [@ElvisL1ves](https://boards.straightdope.com/u/ElvisL1ves)\ **Post date:** [February 7, 2019, 7:06pm UTC](https://boards.straightdope.com/t/free-online-tax-filing-how-do-they-make-any-money/829110/29 "2019-02-07T19:06:42Z")
There are no separate provincial tax returns to file, right? ---
**Author:** ![bob\_2](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/bob_2/32/3341_2.png) [@bob\_2](https://boards.straightdope.com/u/bob_2)\ **Post date:** [February 7, 2019, 7:23pm UTC](https://boards.straightdope.com/t/free-online-tax-filing-how-do-they-make-any-money/829110/30 "2019-02-07T19:23:27Z")
> [@OldGuy](#): > > That would work if you took the standard deduction. But the IRS doesn’t know what you paid in state taxes, what your mortgage payments are, how much you contributed to charity, etc. So many people would overpay their taxes that way. I’m not sure how other countries handle that. Maybe they don’t have such deductions. There are loads of possible deductions for people who are self-employed, but not so many for the majority on PAYE. Pension contributions are deducted before tax is calculated so that effectively adds 20% to your contribution. Most individuals get no tax benefit from charitable payments but the charities can claim it instead. ---
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [February 7, 2019, 8:42pm UTC](https://boards.straightdope.com/t/free-online-tax-filing-how-do-they-make-any-money/829110/31 "2019-02-07T20:42:33Z")
> [@Quercus](#): > > Again, that’s not the IRS’s fault. I’m sure that career employees at the IRS would be ecstatic to offer easy, simple on-line IRS-does-the-calculations-for-you filing, just like Britain and most European countries do. > > Ask your Congresspeople why this isn’t happening (and maybe then ask them how much TurboTax, etc have contributed to their campaigns). It’s not Turbotax. It’s all the deductions, and then of course issues with crap like taxing capital gains differently that other income. ---
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [February 7, 2019, 9:00pm UTC](https://boards.straightdope.com/t/free-online-tax-filing-how-do-they-make-any-money/829110/32 "2019-02-07T21:00:30Z")
> [@Folacin](#): > > e. > > Charitable deductions - you are already telling the IRS who you are donating to, but I can see an issue if you felt a need to be anonymous. I guess you could actually do an anonymous donation, or tell the receiving organization to not report it (and you forego the deduction). No, you are not. Only over a certain amount, usually $250. So that $100 contribution to The world Wildlife fund is not there. It’s just lumped in. And cash out of pocket wouldnt be recorded, and the IRS allows for about $100-$200 per Tax payer for that. ---
**Author:** ![glowacks](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/glowacks/32/5548_2.png) [@glowacks](https://boards.straightdope.com/u/glowacks)\ **Post date:** [February 7, 2019, 10:38pm UTC](https://boards.straightdope.com/t/free-online-tax-filing-how-do-they-make-any-money/829110/33 "2019-02-07T22:38:51Z")
You don’t have to report who you gave cash to for charity. You only need evidence to support the deduction in case you are audited, and for large enough gifts that evidence must be a somewhat contemporary (usually issued next January) statement indicating that you gave whatever and received no economic benefit in exchange. For non-cash gift it’s a lot stricter since it’s much more subjective as to the value, so they make you report any significant non-cash contribution as much as you have the information for, and for large enough gifts you even have to have them appraised. On the other hand, charities are issuing those giving statements to people in January, so the question is what extra burden would it be on them to have to report that information to the IRS? Well, they’d have to know your SSN for it to be meaningful reporting. Do you want to give your SSN out to every charity? Do you want your name and SSN associated in the database of every charity? Do these charities want to devote the extra security needed to these databases when it becomes known that they have names and associated SSNs? ---
**Author:** ![Hari\_Seldon](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hari_seldon/32/5173_2.png) [@Hari\_Seldon](https://boards.straightdope.com/u/Hari_Seldon)\ **Post date:** [February 7, 2019, 11:02pm UTC](https://boards.straightdope.com/t/free-online-tax-filing-how-do-they-make-any-money/829110/34 "2019-02-07T23:02:14Z")
> [@ElvisL1ves](#): > > There are no separate provincial tax returns to file, right? Unless you live in Quebec, oh joy! But Studiotax does Quebec taxes too and takes most of the data from the federal return. I gather they sell their stuff to commercial tax preparers and make some money. But after I have filed 4 returns (2 for me and 2 for my wife–no joint returns) successfully, I usually send them $25 in gratitude. I don’t know much they get that way. But it is remarkable that they provide this service and it takes care of fairly complicated returns. I will see how well it works this year when I have become a landlord (temporarily until the tenant leaves and we move in). What is really remarkable is that it optimizes the pension income splitting. There is a special provision in the tax code that allows me to transfer up to 50% of my employer pension to my spouse, but it is always better to transfer only about 40% lest my wife’s income be too large. But there is an optimize button that calculates the best percentage. And then does it for the provincial taxes too where the optimal percentage is always different (because my employer’s contribution to complementary health insurance is exempt from federal tax, but not provincial). ---
**Author:** ![N9IWP](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/n9iwp/32/3154_2.png) [@N9IWP](https://boards.straightdope.com/u/N9IWP)\ **Post date:** [February 7, 2019, 11:11pm UTC](https://boards.straightdope.com/t/free-online-tax-filing-how-do-they-make-any-money/829110/35 "2019-02-07T23:11:02Z")
I work in one state but live in another (WI/MN), so I get to file two state returns so I get to pay extra filing fees. There uses to be reciprocity and there has been talk about renewing but I am not hopefull. I also have some wierd stuff (ex: dividends / tax paid in another country) so I bite the bullet and pay. Brian ---
**Author:** ![Yllaria](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/yllaria/32/3452_2.png) [@Yllaria](https://boards.straightdope.com/u/Yllaria)\ **Post date:** [February 7, 2019, 11:43pm UTC](https://boards.straightdope.com/t/free-online-tax-filing-how-do-they-make-any-money/829110/36 "2019-02-07T23:43:24Z")
> [@aktep](#): > > . . . 2. The big one, I suspect, is that all of these services offer some sort of “instant refund” option, where you can get your “refund” immediately when filing, but with a hefty fee taken out. I’m sure more than enough suckers take this option. I know someone who used to temp during tax prep season. The fee where she worked was 10% and she was amazed at the number of people who really, really, really wanted that refund NOW. She’d explain that the refund could come in as little as two weeks and they still wanted it now. ---
**Author:** ![thelurkinghorror](https://avatars.discourse-cdn.com/v4/letter/t/7c8e57/32.png) [@thelurkinghorror](https://boards.straightdope.com/u/thelurkinghorror)\ **Post date:** [February 8, 2019, 12:09am UTC](https://boards.straightdope.com/t/free-online-tax-filing-how-do-they-make-any-money/829110/37 "2019-02-08T00:09:42Z")
> [@Alley\_Dweller](#): > > That’s why I explicitly said “donate cash.” :smack: Of course you did. > [@Alley\_Dweller](#): > > That’s why I explicitly said “donate cash.” > [@Yllaria](#): > > I know someone who used to temp during tax prep season. The fee where she worked was 10% and she was amazed at the number of people who really, really, really wanted that refund NOW. She’d explain that the refund could come in as little as two weeks and they still wanted it now. H&R Block and their competitors caught flack around… 2006 or so for their refund anticipation loans. I briefly worked there before and at least at the individual office level we weren’t trying to be predatory, we tried and failed at trying to convince many clients to just do a direct deposit to get it quick. They wanted “their” money **now** and were willing to pay a convenience fee. ---
**Author:** ![nightshadea](https://avatars.discourse-cdn.com/v4/letter/n/7ba0ec/32.png) [@nightshadea](https://boards.straightdope.com/u/nightshadea)\ **Post date:** [February 8, 2019, 2:03am UTC](https://boards.straightdope.com/t/free-online-tax-filing-how-do-they-make-any-money/829110/38 "2019-02-08T02:03:56Z")
Why is IRS working in a partnership with private industry rather than providing its own software free to the public? Private industry, with established expertise and experience in electronic tax preparation, has a proven track record in providing the best technology and services available. I could speculate that one reason those private preparers are participating is that they wouldn’t want the competition if the IRS provided its own free service. I remember around the time that was announced a couple big online tax companies caught flack over donating sizeable amounts to opposition to the irs doing its own free tax thing … ---
**Author:** ![thelurkinghorror](https://avatars.discourse-cdn.com/v4/letter/t/7c8e57/32.png) [@thelurkinghorror](https://boards.straightdope.com/u/thelurkinghorror)\ **Post date:** [February 8, 2019, 2:42am UTC](https://boards.straightdope.com/t/free-online-tax-filing-how-do-they-make-any-money/829110/39 "2019-02-08T02:42:31Z")
> [@nightshadea](#): > > Why is IRS working in a partnership with private industry rather than providing its own software free to the public? > > Private industry, with established expertise and experience in electronic tax preparation, has a proven track record in providing the best technology and services available. > I could speculate that one reason those private preparers are participating is that they wouldn’t want the competition if the IRS provided its own free service. > > I remember around the time that was announced a couple big online tax companies caught flack over donating sizeable amounts to opposition to the irs doing its own free tax thing … They’re also banking on people starting the process and getting frustrated, but the first brand that comes to mind is the one they last did. And in Block’s and maybe some others’ case, IIRC the offices can import the partial return started online, making it less likely to go to a competitor and less work for the office. ---
**Author:** ![RaftPeople](https://avatars.discourse-cdn.com/v4/letter/r/6f9a4e/32.png) [@RaftPeople](https://boards.straightdope.com/u/RaftPeople)\ **Post date:** [February 8, 2019, 7:39pm UTC](https://boards.straightdope.com/t/free-online-tax-filing-how-do-they-make-any-money/829110/40 "2019-02-08T19:39:03Z")
> [@Thudlow\_Boink](#): > > In the US, we have free filing if your income is below $66,000, offered by private companies in partnership with the IRS. > > From the IRS’s page “[About the Free File Alliance](https://www.irs.gov/e-file-providers/about-the-free-file-alliance)”:I could speculate that one reason those private preparers are participating is that they wouldn’t want the competition if the IRS provided its own free service. While it’s true that the private companies probably don’t want the competition, I personally don’t want the IRS to continue to waste billions of dollars trying to manage software development projects unsuccessfully. Large bureaucracies are notoriously bad at the already extremely difficult task of successfully building complex software systems. When that bureaucracy is a govt entity, it seems the chance of failure rises to somewhere right around 99.999%. Intuit (and possibly others, I’ve only used Turbotax) jumped in and successfully created a system that simplifies the process for most. It’s a win-win, we get a system that is consumer friendly that works for a reasonable price and the IRS can focus on it’s internal systems. Without a private company, the masses would probably be waiting another 30 years (or never) before the IRS creates a working consumer based system (note: they have gone through 3 failed multi-billion dollar modernization projects since the 70’s). [Previous page](https://boards.straightdope.com/t/free-online-tax-filing-how-do-they-make-any-money/829110.md?page=1) [Next page](https://boards.straightdope.com/t/free-online-tax-filing-how-do-they-make-any-money/829110.md?page=3)