++Biden needs to decide if he likes the climate more than he hates China. +
++You can’t buy the Seagull in the US. But I bet you wish you could. +
++A small hatchback around the size of a Mini Cooper, the Seagull is a fast-charging electric car and claims a range of up to 250 miles (at least according to its home country’s generous tests); BYD, its Chinese manufacturer, claims it can go from 30 percent to 80 percent charged in a half-hour using a DC plug. It’s hardly a luxury car but it’s well-equipped, with a power driver’s seat and cruise control. “If I were looking for an inexpensive commuter car … this would be perfect,” veteran car journalist John McElroy said after taking a drive. +
++The best part? Its base model costs about $10,700 in China. That’s about a third of the cost of the cheapest EV you can buy in the US. In South America, it’s a little pricier, but still fairly affordable, at under $24,000 for a top-trim version. Even in Europe, you can get an entry-level BYD for under €30,000. +
++These are absolutely screaming deals — exactly the kind of products that could turbocharge our transition away from gas and toward electric vehicles. +
++And it’s just one of many BYD electric cars on offer, from the compact e2/e3 hatchback and sedan (think a Honda Civic or Toyota Corolla) to the full-size, luxe Han EV, a more expensive option nonetheless selling for under $33,000 in China (it costs more than double that in Europe). Many of the options have an aquatic themed name: the Seal, the Dolphin, the Sea Lion. +
++The problem for Americans? The Biden administration is hell-bent on preventing you from buying BYD’s product, and if Donald Trump returns to office, he is likely to fight it as well. +
++That’s because the BYD cars are made in China, and both Biden and Trump are committed to an ultranationalist trade policy meant to keep BYD’s products out. They’ve seen what’s happened in other global markets that Chinese EV companies have entered. Shipments to Europe have increased astronomically; Chinese companies sold 0.5 percent of EVs in Europe in 2019 but they’re already over 9 percent as of last year. Companies like BYD make cheap, reasonably good-quality cars people are eager to buy. +
++In 2018, Trump imposed, and Biden has since continued, a special 25 percent tax on Chinese-made autos, on top of the ordinary 2.5 percent tax on foreign-made cars. +
++That has so far prevented BYD and its Chinese peers from trying to enter the US market. US customer tastes are different enough that Chinese manufacturers would probably prefer to make cars tailored to them — but US policy has been so hostile toward cheap Chinese EVs that so far, the companies haven’t wanted to bother. +
++So, the result is that we’re left out of the bounty of cheap EV options created by BYD and others. “If you’re a consumer right now, the best place to be right now is China, because you have the best choice of EVs,” Ilaria Mazzocco, senior fellow at the Center for Strategic and International Studies and an expert on Chinese EVs, says. +
++Still, China’s price advantage is big enough that even the extreme Trump-Biden import tax might not be enough to deter companies like BYD from entering the US market. Even with the tariffs, Chinese cars might be cheaper than their rivals. “Subsidies most likely won’t be enough; Mr. Biden will need to impose [more] trade restrictions,” climate journalist Robinson Meyer predicted recently. The Biden administration is already making noise about imposing even more draconian taxes or trade restrictions against these vehicles. Commerce Secretary Gina Raimondo has described Chinese-made cars as a national security threat, and recently announced an investigation into the vehicles’ data collection abilities and the possibility they could send movement data to Beijing. +
++On the one hand, Biden is offering Americans up to $7,500 per vehicle to buy EVs (provided they meet certain made-in-North America rules). On the other hand, he’s imposing massive taxes to keep Americans from buying EVs. It’s a bizarre policy that makes no sense from a climate perspective. That’s what makes it so fascinating. +
++The Chinese EV case is a good demonstration that however motivated the Biden administration might be by climate concerns, it is much more motivated by a desire to help American automakers, to win Michigan’s electoral votes this November, and to escalate a brewing cold war against China. +
++It has proven shockingly willing to sabotage its own climate policy if it gets to stick it to the Chinese in the process. +
++“There’s almost an across-the-board apprehension about Chinese EVs, even though they would make an important contribution to [lower] CO2 emissions,” Gary Clyde Hufbauer, a veteran trade expert at the Peterson Institute for International Economics, says. +
++The climate case for Chinese electric cars +
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John Keeble/Getty Images
++The basic environmental argument for electric cars is simple: Burning petroleum in internal combustion engines produces CO2 emissions. Both because some electricity is generated through clean sources like wind, solar, and nuclear, and because electric motors are vastly more efficient than petroleum engines, electric cars emit less per mile traveled. +
++EVs are slightly more carbon-intensive to manufacture in the first place, but most estimates suggest the lower per-mile emissions of EVs quickly make up for the extra emissions involved in their creation. One recent study calculated the “breakeven” point at a little under 17,000 miles driven; another study put the number at 21,300 miles. Given that the average American drives 13,500 miles a year, EVs should break even within a couple years of use. +
++But is this still true for Chinese EVs? China still gets more than 60 percent of its electricity from coal, compared to less than 20 percent in the US. The US instead relies more on gas and renewables, leading to a cleaner grid overall. That means producing EVs and EV batteries in China should, on average, produce more carbon emissions than making them in the US or Europe. +
++So, does this mean that BYD’s cheap EVs are bad for the environment, or at least no better for it than typical gas vehicles? Hardly. “It’s just sort of a ruse,” Anand Gopal, a clean energy and transportation expert and executive director of policy research at the firm Energy Innovation, says. “Close to 90 percent of the emissions of a fossil fuel vehicle [are] from the combustion of the fuel. Even if you have slight variations in the manufacturing emissions based on the region, an EV is just going to be massively better.” +
++John Helveston, a professor of engineering at George Washington University who studies the development of electric vehicles, notes that the complex supply chain of even US-made electric cars makes the difference in carbon output of cars produced in different countries pretty minimal. +
++“The biggest factor for China is that they control all the upstream material supply chain” for lithium batteries, Helveston says. Even if your EV’s battery is built by, say, Panasonic in a plant in the US, “the raw materials for that are being processed and refined in China first. It’s the same starting point everywhere.” +
++Where exactly in China the EVs are built also matters a lot. “We think of China as a really polluting country but it’s also a very big country,” Mazzocco explains. “The energy mix really depends on where you are.” In western China, for instance, hydropower is very prominent, and aluminum manufacturers have taken advantage. Just because an EV is made in China doesn’t mean it’s made with coal power. +
++EVs of whatever origin are getting cleaner over time as the electrical grid gets cleaner. This is happening more slowly in China — but even there, electricity is getting cleaner. More and more of the energy running your EV will be coming from solar, wind, and other renewables, and less and less will come from coal or natural gas. That means EV adoption will do even more for the environment as the years go on. +
++If Chinese and American EVs are roughly similar in their environmental impact, they are not roughly similar in price. +
++Realistically, Helveston argues, BYD might not sell something like the Seagull in the US because it’s smaller than most cars Americans buy. They’d probably build plants in the US instead, or its free-trade zone partners Canada and Mexico, to build vehicles tailored for Americans. “If you’re going to really enter a market, you have to make it locally,” Helveston explains. “US automakers like GM sell and make millions of cars in China to sell in China.” BYD would do the same. Indeed, it’s already reportedly scouting sites for factories in Mexico. +
++If they ever were to set up shop in North America, BYD and other Chinese car companies would still have a major price advantage versus American EVs. They have years more experience and a much more successful track record of building batteries and EVs at low cost. +
++“Part of why they’re so successful is they’ve been thinking outside the box on cost reduction for a long time,” Mazzocco says. They took the “opposite of the Tesla approach”: starting not with luxury vehicles but ultra-cheap cars fit for taxi fleets and not much else, and constantly improving their early inexpensive prototypes. The result is that Chinese firms have gotten extremely good at making inexpensive EVs, at a time when Ford, by contrast, lost $28,000 for every EV it sold in 2023. +
++Short of outright selling cars made by Chinese companies, you could imagine partnerships between experienced battery manufacturers like BYD and American EV makers. “I’d love to see GM and Ford make an affordable EV that has a Chinese battery,” Helveston says. “I’d rather have that than GM and Ford sell cars for $10,000 more than they need to.” +
++“If you have more affordable EVs in the United States, no matter where you come from,” Gopal says, “that’s better for the climate.” +
++Still, the Biden administration reportedly wants to restrict Chinese car companies’ access to the US even if they do set up shop in North America. Bloomberg reported earlier this month that the Biden administration is formulating rules that would limit US sales of Chinese-made parts, even if they’re in vehicles ultimately assembled in the US or Mexico. +
++You could make a reasonable case that the tariff against Chinese cars is not itself the main factor holding back Chinese EVs from the US, because Americans will want bigger and more luxurious cars than companies like BYD now make. But blocking Chinese companies from building US-targeted cars in Mexico would prevent them from doing that kind of targeting, and cut Americans off from cheap EVs in a lasting way. +
++The nationalist case against Chinese electric cars +
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Sjoerd van der Wal/Getty Images
++Why isn’t the Biden administration salivating at the thought of BYD electric cars flooding the market? They’re making green vehicles ultra-affordable and doing so at the cost of China’s taxpayers — not America’s. Isn’t that what we want? +
++The pushback isn’t about climate at all. It’s political. +
++Over 166,000 people work in car or car-part manufacturing in the state of Michigan, per the most recent data we have; that’s more than the margin by which Biden won the state in 2020. Michigan also has a competitive Senate race in 2024, as does Ohio, another car manufacturing hub. If allowing entry to Chinese cars alienates the US auto sector, the political consequences for Biden could be catastrophic. +
++Using taxes on imports to win elections is a long, proud presidential tradition. George W. Bush slapped tariffs on steel in 2002, in what was widely viewed as a bid for votes in Pennsylvania, Ohio, and West Virginia. To this very day, foreign-built pickup trucks and heavy trucks are unavailable in the US because of a 25 percent tariff Lyndon B. Johnson imposed in 1963, in retaliation for German and French tariffs on US chicken exports. The “chicken tax” has meant that even foreign companies like Toyota and Honda build trucks intended for the US market in the US. Compared to the chicken tax, the Biden administration’s approach feels positively logical. +
++But the Biden administration’s objections to Chinese EVs are also ideological. The Biden administration represents the victory of a protectionist, trade-skeptical wing of the Democratic party that was relegated to the sidelines during the Clinton and Obama years. +
++As Frank Foer detailed in his book The Last Politician, this faction was brought into the Biden coalition partly through his now-National Security Adviser Jake Sullivan. During the Trump years, Sullivan forged an alliance with the trade-skeptics and “broke bread with Elizabeth Warren disciples, labor union officials, and intellectuals from left-leaning think tanks.” Sullivan is also, notably, a major China hawk — Foer describes him as agreeing with Donald Trump that China is “eating our lunch” — leading to a hostility to trade with the country that meshed easily with that of trade skeptics who have for decades opposed exposing US manufacturing workers to foreign competition. +
++Sullivan has described this policy as a “foreign policy for the middle class.” While it’s possible to defend tariffs against Chinese cars in these terms, and United Auto Workers certainly support higher tariffs, the idea that this policy helps the American middle class overall is laughable. Less than one percent of Americans work in auto or auto-parts manufacturing. But over 90 percent of American households have a car, and surging car prices were a huge contributor to the 2021–2023 rise in inflation. +
++Barriers to importing cheap cars make inflation worse and reduce the real incomes of the middle class. +
++Not only are the administration and other left-leaning institutions opposed to Chinese EVs, but hardline conservatives at places like the Heritage Foundation are calling for outright bans on Chinese EVs as well. Their rationale is security, another theme the Biden administration evokes often. On Thursday, the Commerce Department announced it was beginning a process to “investigate the national security risks of … PRC-manufactured technology in [internet-connected] vehicles.” +
++Helveston was skeptical of the idea that data collected by Chinese-made vehicles amounts to much in a world where Americans freely tell TikTok all of their interests and desires. “Of all the things a Chinese firm could do to collect data on you, your vehicles are probably my least concern,” he says. “They have a lot of other avenues to learn about you through social media and other techniques.” “I think it’s good that they’re doing an investigation,” Mazzocco adds, but the dangers are “not just China.” +
++Besides, the US could always craft more tailored rules regarding data collection in vehicles that could prevent the data from getting back to BYD headquarters in Shenzhen that fall far short of a draconian ban on even Mexico-made BYD cars, or short of the current 25 percent tariff. Banning an entire car company because of data worries is, to quote Frank Zappa, a bit like treating dandruff with decapitation. +
++Biden needs to decide if he likes beating climate change more than he wants to beat China +
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Lars Penning/picture alliance via Getty Images
++There are a number of powerful forces pushing the Biden administration to crack down on Chinese-made EVs. They want votes in Michigan. They want to build a US-based supply chain for EVs, and are rightly worried that more experienced Chinese manufacturers are going to clean US manufacturers’ clock. Their policies seem to suggest they care more about cultivating the auto workers union than about ensuring cars are inexpensive. +
++But given the clear climate advantage of EVs over gasoline cars, and the clear advantages China has in making affordable EVs compared to American companies, it’s worth rethinking that set of priorities. +
++The US unemployment is 3.7 percent, which is about as low as it’s been since the early 1950s. We are not in a position where we desperately need to create new jobs. We are in a situation where we desperately need to transition away from fossil fuels. It’s an ideal situation, in other words, for cheap foreign-made electric cars. +
++Including when to do them yourself, when to seek out help, and helpful strategies for keeping track of it all. +
++Caitlynn Eldridge, an Omaha-based certified public accountant with 14 years of experience including two years at Deloitte Tax Services, has done a lot of tax prep. She’s also worked with many different demographics, from business owners to billionaires to single parents trying to make ends meet. After having her first child and then twins, Eldridge opened her own company with the goal of improving her work-life balance. Today, she’s a mom of five with a thriving small business that focuses on bookkeeping, tax planning, tax prep, and advising. That’s why we thought she would be the perfect source for our CPA Q&A — and why we hope you can benefit from her advice. +
++Our conversation has been lightly edited for clarity. +
++When should people seek out a CPA versus doing their taxes themselves or using a tax software program? What kinds of services can a CPA provide in addition to tax prep? +
++Many people can do their own taxes! If you have one or two W-2s [the wage and tax statement you receive from your employer] and one or two 1099-Bs [the proceeds statement you receive from your investment brokerage], you should be able to self-file with software. +
++If you start getting into K-1 territory [a form that allows you to report gains, losses, etc. in a business partnership], you’ll want a CPA. +
++CPAs can help with adjustments of withholdings, recommendations on tax savings opportunities, amending any returns. CPAs are also really good for state-specific items, such as special state credits or if you are having income tax issues in multiple states — if you live in one place and work in another, for example. +
++How early do you start preparing for tax season, and how early do you suggest your clients start preparing? +
++Five years ago, I would have said that I started preparing in December. Gathering everything, making my lists — but ever since Congress started doing this thing where they pass legislation in January, February, or even March and then apply it retroactively to the previous year, I go into January with a very open mind. +
++Most forms don’t come out until January. People with investments don’t get those forms until mid-February. If you’re gathering your documents by the end of February, you’re doing great. If you’re self-preparing, that gives you all of March and half of April to put things together. If you’re working with a professional, I know a lot of us have upped our deadlines for clients [to turn in their tax information] which is hard for them, but end of February is still a great time for you to gather everything. Then Congress will sort out what they’re going to retroactively pass, and the softwares will be updated and ready for you. +
++A lot of people plan at least some of their major expenses — buying a house, closing down a business — with the potential tax implications in mind. Since we no longer know for sure which rules will apply to the current tax year, is gaming out your refund still a smart strategy? +
++At this point, I would do my best to eliminate the refund and have the money throughout the year for myself. You just don’t know what the tax year is going to look like — and with high-yield savings accounts, it’s easy to get 4 or 5 percent interest. I would prefer to keep my money rather than let the IRS hold on to it for me. +
++Honestly, from the corporation down to the individual, the laws just aren’t incentivizing anymore because they’re retroactive. +
++What kind of changes are we seeing this year? I know that last year the charitable deduction rules changed, for example. Is there something about the 2023 tax year that’s changed in the last few months? +
++We don’t have an official change yet, but what we’re sitting on is the child tax credit becoming refundable at lower income levels. I’ve been telling my clients that we have to wait and see what happens, since we had heard that we might find out in January but we still haven’t seen anything finalized about this change. +
++Now people are starting to file, and the IRS has said, “We’ll just true it up if we have to,” which could take months, but I’d rather get some money into the hands of clients than nothing. +
++That’s a big one for the individual, and there’s also a bonus that’s caught in that for the business side. +
++In your role as a CPA and tax preparer, is your goal to give your client a stress-free experience? If it’s not about maximizing the refund, since you’re trying to help people keep more of their money throughout the tax year, what do you hope to achieve with your clients during the tax prep process? +
++I have some clients who, no matter how much I tell them that a big refund isn’t worth it, still want the refund. So that’s how we plan the year. We make sure they overpay throughout the year, so they know the cash is coming and they can expect it. For other clients, it’s the reverse. We plan for the lowest refund possible. The whole point is to make the year as predictable and planned as possible, so come January, February, March, we have no surprises. +
++That’s a big part of what we do. I don’t want any news I deliver at this time of the year to be a surprise. I try to leverage technology to make the process as effortless and stress-free as possible, but at this point, they’re just turning in documents. We’ve been talking about this all year, and now all we have to do is finalize everything. +
++I’m sure you’re familiar with the idea that some people prefer the refund because it’s the only time they ever get a lump sum. In some cases it’s a socioeconomic thing — this is one of the only times people at certain income levels get that much money at once, for example. Is that what’s motivating some of your clients? +
++I’ve seen that kind of thing, but it isn’t always socioeconomic. For some people, owing any money to the IRS — even a hundred dollars — is scary. These clients might be making six figures, but they don’t want to owe any money. +
++The real difference is whether the client is a spender or a saver. If they’re a spender, they would rather have the IRS hang on to the money. That goes across all economic levels, and it often has less to do with income than it does with personality. +
++Is it still possible to make mistakes on your taxes? Since most people are working with either a software program or a tax professional, are mistakes still getting through? +
++I think the biggest mistake I saw in the last year was someone who just miskeyed and didn’t catch it. They accidentally said they made $300,000, but they were retired and on Social Security, and then the IRS went and pulled a bunch of money. So check your work because the software won’t catch that for us! +
++The other big mistake I see has to do with forgetfulness. Something we do in March and April, for example, we’re likely to forget it by the next March or April. Did you pay for summer camps for kids under 13, when you and your spouse were both working? That’s a deduction, but at the time we think of summer camps as something we’re doing for fun, and we forget that it’s a child care deduction. Pulling those receipts and asking for that information, either in the moment or a year later, is a big one. +
++We’re not in a huge itemizing time right now because of the increased standard deduction, but when more people used to itemize they would often forget about their charitable contributions. They’d donate $50 here and there and they wouldn’t keep track. +
++On the flip side, I still see people trying to deduct things that aren’t deductible, like GoFundMe contributions. Giving has changed. People still want to give to charitable organizations, but they also want to give to the single mom on GoFundMe. If people are self-preparing, they might try to deduct that gift, and if they get audited, we have to explain all of that. +
++What about forms and statements? Are there documents people forget to look for? +
++The 5498/1099-SA [a form that reports distributions from a health savings account (HSA) or medical savings account (MSA)] and the 1099-INT/DIV/B for investments — those come out mid-February and sometimes people forget! You should also collect a statement from your child care provider even if they didn’t issue one to you. Make sure to ask for a statement that includes their EIN/SSN. If you own a rental house and have a property manager, you’ll want a statement for the year showing all income/expenses. +
++There’s always someone who asks, every year, why the government can’t just do our taxes for us. They could collect all of the information and calculate what we owe, and that way nobody would miscategorize, nobody would miskey. Why aren’t we doing that, do you think? +
++I have many theories. One of my theories is that the AICPA — that’s the American Institute of CPAs — likes to keep it complicated because it keeps us employed! +
++There’s money in taxes. That’s what it really comes down to. The lobbyists have the money, and they have the ears of the politicians, and the more complicated it can be to carve out this one deduction for themselves, the better. +
++Other countries have this figured out a little better than we do. We’re a capitalist society that really encourages people to pick up side hustles, and we keep changing the rules on how to track all of that. If everyone was employed in a W-2 job, we could track everything a little more easily — but we tell everyone to take their hobby and turn it into income, and that income needs to be reported. +
++What fears and anxieties do people have about their taxes that you feel are unnecessary? +
++I see a lot of people who have this fear of missing out. “The rich have all these deductions, and they’re not paying any taxes, and I’m paying too many taxes, and that’s not fair.” There’s a lot of that. I try to explain that while the super-wealthy do get out of paying certain taxes, they still pay a lot in taxes. The wealthy are also less focused on how to minimize their taxes in any given year and more focused on a generational tax planning strategy. They’re thinking decades from now: “How do I get my money from this generation to the next with the least amount of taxes?” +
++I also see a lot of people who are afraid of doing something wrong. “If I try to take any deductions, if I do anything besides put my W-2 into the form, the IRS is going to show up at my door and arrest me.” I try to explain that, first of all, there will be a lot of letters before anyone ever shows up at your door, and we can answer those letters, and we can talk to the IRS [and figure out if there was a legitimate mistake]. Also, you have the legal right to take these deductions. It’s okay to take them. +
++Do you have a strategy or system to help people track their taxable expenses and potential tax deductions throughout the year? +
++I heavily encourage an inbox folder because most of our receipts these days are electronic. Make a folder and put the tax year on it, and use it to file everything you get. That way, when you start prepping your taxes, everything will be in one place. Take a second, as soon as anything tax-related arrives in your inbox, to transfer it into that folder. Don’t let it get buried in the rest of your email. +
++If you have something more complex, like a rental house, I recommend creating a Google Sheet — and every month, just taking 10 minutes to track income and expenses. Then you can close the sheet and not worry about it until the next month. +
++That’s what I do! I have the email subfolders labeled by tax year, and once a month I tally up all my freelance income and expenses onto a spreadsheet! So I can prove it works, at least for me. +
++It’s a great system. I like numbers. I work with numbers, but I don’t like them to take up any more of my life than they have to! +
++Yes, doing your taxes is hard. No, you don’t need to shell out hundreds of dollars to file them. +
++Every American has the option to file their taxes for free, but very few actually do. This is according to Beverly Moran, an emerita professor of law and sociology at Vanderbilt University, who focuses on tax law, and who adds that 70 percent of tax filers have the option to file their federal taxes for free online. Just 2 percent of those eligible for Free File, the IRS’s free online guided tax software program, used it in 2022. +
++First introduced in 2003, Free File offers Americans with adjusted gross incomes (AGI) under a specific threshold — for the 2023 tax season, that number is $79,000 — to file their federal and state taxes online for free. (Some Free File software programs will charge you for your state returns, but some offer it for free.) Even if your adjusted gross income is over $79,000, you can fill in the same forms used in the Free File program, just without any guidance or calculation. +
++New for 2024 is a pilot program called Direct File, another free option to file your federal tax return online. This is most suited for people who have simple tax returns. Those who earned more than $200,000 (or $160,200 if you have more than one employer) are not eligible for Direct File. Because Direct File is still in a pilot phase, only people who live in certain states are eligible. +
++While tax filing has always been free, many Americans didn’t need to worry about submitting a tax return when income taxes were first established over a century ago, Moran says. Over time, that changed. These days, in addition to Free File and Direct File, there are still more ways for Americans to file their taxes without paying a cent. +
++Why is doing my taxes so complicated? +
++Filing taxes wasn’t always so convoluted. Prior to 1913, the federal government mainly collected revenue from taxes on goods and alcohol. The ratification of the 16th Amendment in 1913 allowed for the federal government to collect income taxes, which mostly impacted the rich. About 2 percent of US households filed federal income tax returns in 1913, “and they were all wealthy people,” Moran says. +
++“The modern income tax was much fairer in 1924 than it is in 2024,” Moran says, “if you define fairness as ‘the more money you make, the more tax you pay.’” +
++Over time, tax filing got increasingly more complicated. By World War II, the number of people who were required to pay income taxes grew from 5 percent of American workers to 75 percent. Around this time, employers began withholding taxes from workers’ paychecks, and the standard deduction was implemented, as well as the addition of retirement income credit, credit for dividends, credit for partially tax-exempt interest, and changes to itemized deductions. In the ensuing decades, more deductions, credits, and special rules for different forms of income and investments were added to the tax code. +
++Filing taxes has always been free, but as the tax code grew to include anti-poverty programs and other benefits, a market emerged for paid tax preparation, targeting people who were overwhelmed by the process or who did not have the time to dedicate to filling out the requisite forms. By the 1960s and ’70s, H&R Block had expanded into “this franchise system where, rather than having Joe Smith’s Tax Preparation on this block and Mary Lou’s tax preparation on another block,” Moran says, “everybody knew in their town there was an H&R Block.” +
++With expansions of the earned income tax credit and the child tax credit in the 1990s, “individual taxes started getting a little bit more complicated,” says Ariel Jurow Kleiman, a professor of law at Loyola Law School who focuses on tax law and policy. “People didn’t want to miss out on these credits. Maybe then it was more likely that people needed some help.” +
++As the IRS began promoting online tax filing, the agency created the Free File program, offering an online tax filing option for low-income taxpayers. Rather than create a government-run tax filing software, the IRS originally partnered with 17 tax software companies to offer free online filing. However, companies like Intuit TurboTax pushed taxpayers into paying, despite promoting the product as free. +
++While TurboTax and H&R Block are no longer a part of Free File, they are two of many options Americans have for filing their taxes — some of which are free, and some not. Here are the free options available. +
++How to file your taxes for free +
++Free File +
++What is it? Free File is a partnership between the IRS and tax preparation software companies. Taxpayers can file their federal tax return with help from free guided tax preparation software. Some offer free state tax return filing as well. +
++Eight tax preparation software providers are a part of Free File: OnLine Taxes at OLT.com, 1040NOW.net, TaxAct, FileYourTaxes.com, TaxSlayer, FreeTaxUSA, ezTaxReturn.com, and 1040.com. +
++Who is eligible? Anyone whose adjusted gross income was $79,000 or less in 2023 is eligible to use the Free File guided preparation programs. Adjusted gross income, according to the IRS, is total income (such as tips, rents, interest, and stock dividends) minus deductions (like self-employed health insurance premiums or student loan interest paid). +
++Even if your adjusted gross income is above $79,000, you can still use the Free File program with Free File Fillable Forms. These are the same Free File electronic forms, just without any instruction or guidance; you’ll complete these to file your federal taxes. Just a note: This can be complicated, and you’ll need to prepare and file your state taxes separately. +
++How do I file? Choose from one of the eight Free File partner software programs. Make sure you are eligible for the provider, as each has specific requirements. For example, FreeTaxUSA is only available to taxpayers with adjusted gross income of $45,000 or less, but offers free state tax filing for all states. The IRS has a lookup tool that recommends a software partner based on your age, adjusted gross income, deductions, and other factors. Instead of going right to the company’s website, select your preparation partner via the IRS’s website. +
++You’ll then create an account for the respective software partner you chose (or log in with an existing account you used to file a previous year’s return). The program will then walk you through how to file your return. +
++According to the IRS, here is the information you’ll need to have on hand. (This applies to all the other free tax preparation options as well.) +
+-
+
- +Social Security numbers for yourself and, if you have them, your spouse and dependents + +
- +W-2s from all of your employers + +
- +Social Security benefits + +
- +Unemployment compensation + +
- +Receipts from your small business, if you have one + +
- +Income receipts from rental, real estate, royalties, partnerships, S corporation, and trusts + +
- +Form 1099-INT, showing interest paid to you throughout the year + +
- +Form 1099-G, showing any refund, credit, or offset of state and local taxes + +
- +Forms 1099-DIV and 1099-R, showing dividends and distributions from retirement and other plans paid to you during the year + +
- +If you get your health insurance through the Affordable Care Act, you’ll need Form 1095-A, Health Insurance Marketplace Statement and Form 8962, Premium Tax Credit + +
- +Your last year’s tax return to get your adjusted gross income. You’ll need your last year’s AGI to verify your identity. + +
+Tips to make the process easier: Again, double-check the requirements for the program you choose to use. You can try searching Reddit to get insight on others’ experiences with specific Free File platforms, Moran says. If you find you are being asked to pay despite using a platform initially marketed as free, do not pay. Find an online preparation service that is actually free, however frustrating it may be to restart the process. +
++Direct File +
++What is it? Direct File is a new pilot program built and run directly by the IRS, says Jurow Kleiman. It will launch in mid-March. Those eligible can file their federal taxes for free online with step-by-step guidance in English and Spanish. Taxpayers can also live-chat with customer service representatives as they work their way through the process. You can sign up to be notified when the pilot is open. +
++Who is eligible? Since Direct File is still in the pilot stage, only people with simple returns who live in certain states are eligible. If your wages exceed $200,000 or $160,200 if you had multiple employers, you are not eligible for Direct File. Other situations are ineligible, including if you’re filing jointly with your spouse and they earned $200,000 or more (or $160,200 if your spouse had more than one employer) or you and your spouse’s combined wages total more than $250,000. If you’re married but filing separately and your wages are more than $125,000, you are not eligible for Direct File. +
++Direct File is for those with simple tax needs, such as income from a W-2, Social Security income, unemployment compensation, and interest income of $1,500 or less; credits like earned income tax credit, child tax credit, or credit for other dependents; and whose deductions are limited to the standard deduction, student loan interest, and educator expenses. If you have income from gig work or a business, or if you itemize deductions or claim other credits like child and dependent care credit, saver’s credit, or the premium tax credit, you are not eligible. +
++Direct File is available in the following states: Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington state, and Wyoming. +
++If you’re still not sure whether you’re eligible, Direct File has a form that will let you know if you can participate. +
++How do I file? Create an account with ID.me, which helps prevent tax fraud. You’ll need an account to start the pilot. You must be at least 18 years old, prove your identity using state-issued identification or a passport, and take a video of your face. When Direct File launches in mid-March, you can head to the Direct File website to use your ID.me login to begin. +
++You will then be guided through the process, with simple instructions on how to report wages and taxes withheld based on information from your W-2 and other forms. After you submit your return, you will first receive an email confirmation from Direct File and another when the IRS accepts your return. +
++While Direct File doesn’t handle state returns, the program will point you to a state-supported tool to file your state taxes if you live in Arizona, California, Massachusetts, or New York. For those who live in Washington, Direct File will take you to a state site where you can apply for the working families tax credit. +
++Tips to make the process easier: Direct File won’t auto-populate your information, so make sure you have your W-2, 1099s, and student loan interest, if applicable, nearby so you can enter it into the program. Take advantage of the customer service chat option for any questions you may have. +
++Volunteer Income Tax Assistance and Tax Counseling for the Elderly +
++What is it? Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) are programs that offer free, in-person tax preparation by an IRS-certified tax professional. These services are available to those who make under a specific amount, who need assistance, or who are 60 years of age or older. VITA/TCE sites prepare returns for W-2 income, interest income, dividends received, state tax refunds, unemployment benefits, earned income tax credit, child tax credit, and more. They do not prepare Schedule C with loss, depreciation or business use of home, capital gains and losses, non-deductible IRA, and other more complicated returns. +
++Who is eligible? People who make $64,000 or less, people with disabilities, and those who speak limited English are eligible for VITA. Taxpayers over the age of 60 are able to receive free tax assistance through TCE. +
++How do I file? Find a VITA/TCE site near you by entering your zip code in the IRS’s lookup tool. Check whether the location offers appointments. Bring photo ID; Social Security cards for you, your spouse, and your dependents; a copy of last year’s return; your W-2 and 1099; Affordable Care Act statements, if applicable; information for other income, deductions, and credits; and the total amount you paid to a day care provider and their tax ID number. +
++Tips to make the process easier: Many sites require appointments and can get busy, so make one if you can — the earlier the better. +
++MilTax +
++What is it? Members of the military, veterans, eligible family members, and survivors of deceased active duty members can file their federal tax and state returns for free via an online platform called MilTax. The service includes tax preparation, electronic filing, and support from tax consultants and is designed with military life in mind, with guidance on deployments, combat and training pay, housing and rentals, and multi-state filings. There is no income limit. +
++Who is eligible? Active, retired, or discharged duty service members of the Army, Marine Corps, Navy, Air Force, and Space Force, and their immediate family members (spouses, children, and anyone who has legal responsibility for their children), are eligible. In addition, National Guard and reserve service members, regardless of their activation status, and their immediate families are eligible. Plus, immediate family, caregivers, and parents of wounded, ill, or injured service members; and surviving spouses of active-duty, National Guard, and reserve service members. +
++How do I file? First, verify your eligibility by using your DoD Identification Number (located on the back of your Common Access Card) or the last four digits of your Social Security number, date of birth, and last name. You’ll need requisite tax info (listed above under Free File information). The free preparation software will ask you about military-specific tax benefits and scenarios, such as extra pay for those serving in combat zones, special benefits for military members serving outside the United States, how to handle multiple moves within a year, and other deductions and allowances. +
++Tips to make the process easier: You can live-chat or schedule an appointment (call 800-342-9647) to speak with consultants trained in military tax considerations. Some VITA centers offer in-person MilTax preparation, but be sure to check ahead of time. +
++The more complicated your tax situation (for instance, if you have income from gig work, if you own a business, or if you earned money from stocks and bonds), the more difficult any of these free filing options will be. However, it’s worth taking a look at your family’s situation to see if there’s a no-cost tax filing option that works for you. A note of hope: Should the Direct File pilot be successful, it could expand, giving more taxpayers another free option in the future. +