Turbo Tax Free Edition Tax Refund Software: 1040EZ Specific

Turbo Tax Free Edition is not software, it is an on-line service. You must fill in the forms online, then print them or have them e-filed for you by Turbo Tax. It is easy to use, and asks the right questions, but this so-called "free" software is just the bait to sell you Turbo Tax's on-line state tax computing service for $25.95 and other tax-related services for $9.95 or more, sometimes much more. This will not be a free tax service unless you live in one of the few states that does not have a personal income tax, and unless you also qualify to use the IRS form 1040-EZ.

Privacy concerns: Although e-filing is convenient, and Turbo Tax includes it in the cost of their services, do you want to trust Turbo Tax with your financial information? In April of 2007, an un-named Nebraska woman found that the Turbo Tax website allowed her to see information for other Turbo Tax Customers with the same last name. According to the story at NBC's Money, "she found everything needed for electronic filing from bank account to routing digits and Social Security numbers." She said, "For a bad guy to get this information would mean they could retire rich and happy."

Turbo Tax says the problem is fixed, but that is no guarantee that a similar problem doesn't exist on their web site.

System requirements: If you use Linux, the Turbo Tax site won't let you go farther than the system requirements page. It only works on Windows 98/Me through Vista (XP and Vista for 32-bit only) or for Mac OS X 10.2 through 10.5. This baffles me, because it's all browser-based.

Turbo Tax's Sneaky Marketing Strategy: Instead of making sure you are qualified to use the 1040EZ, Turbo Tax lets you invest a lot of time filling in the tax information before they tell you that you have to agree to pay for an upgrade to continue. The choices are pay up, or quit and lose all the information that you entered. If you want to use itemized deductions it will cost $29.95 for the federal taxes. The upgrade to allow you to declare income from stocks, bonds or rental property is $49.95. If you have a home business or are self-employed, you'll pay $74.95 for federal taxes, and at least $100 if you also use their state tax service. (I do not know if they charge more than $25.95 for complicated state returns.)

The first time, I pretended to be a $12,000 a year, burger flipping, single adult from Arizona. The federal service would have been free, but they charge $25.95 to calculate and file Arizona state taxes. If I had purchased their offered "On Demand Tax Guidance", the "Audit Protection" and the state filing, the Turbo Tax Free Edition would have cost me $45.85 to finish a 1-page 1040EZ form and the equivalent 1-page Arizona state form. It's no bargain.

On my second try, I deliberately entered income from sources that cannot be submitted on a 1040EZ form. Unlike the paper IRS form, which clearly states who can or cannot use the form, Turbo Tax let me invest a lot of time in entering information, then gave me the choice of upgrading or quitting. Oddly, even though I gave the source of the income as capital gains from stocks sales, they did not immediately ask for $49.95; they only asked for the $14.95 basic upgrade. I imagine the price would slowly escalate as I invested more time in the process and had more to lose by quitting.

Other free tax services: If you made less than $54,000 last year, you can use the IRS's Free File service beginning in mid-January. The service will provide links to various companies that provide free filing services for taxpayers who meet the company's criteria. If you see Turbo Tax on the list, remember that they are only free for few people.

About half of the states are cooperating with the IRS or offer online tax returns of their own. (See their page http://www.irs.gov/efile/article/0,,id=97915,00.html for more information)

My recommendation: If you can't free-file at the IRS, buy the Turbo Tax federal and state combo software at a discount from an office supply store and print and mail your own returns. You can have the convenience of computer guidance at a lower cost, and your financial data will be shared only with the IRS and your state tax agency.

A look at the up-grade and additional services Turbo Tax is pushing: This was as annoying as a used car salesman in plaid polyester pants, or one of those late-night TV infomercials. The "do you want to pay us now or later" messages just kept coming and coming.

I clicked on a "more info" link and got this dialog box: Get unlimited access to helpful links like Explain This, Learn More, Guide Me, and more, with On Demand Tax Guidance. Get Unlimited Access: Only $9.95. I had the choice of paying now or pay when I file.

Later on: "Upgrade to TurboTax Online Basic and you'll get all this and more for only $14.95"

And still later, selling something called "audit protection" to profit from the usual consumer fear of an IRS audit: Add Audit Protection to your return for only $9.95