New Sales Tax Calculator, Free File Debut On IRS.gov

HARTFORD — The Internal Revenue Service is providing a new online tool to help individual taxpayers determine whether they might benefit by electing to deduct their state and local general sales taxes.

“The Sales Tax Calculator is another interactive tool on the IRS.gov website designed to help make it easier for taxpayers to figure their taxes,” said IRS Commissioner Mark W. Everson.

“Connecticut taxpayers who itemize deductions on Schedule A of the Form 1040 for 2006 have the option of deducting the amount of state and local sales taxes paid instead of deducting their state and local income taxes paid,” said Dianne Besunder, IRS spokeswoman for Connecticut. “Taxpayers cannot take a deduction for both sales and income taxes,” she said.

The IRS received nearly 1.7 million individual income tax returns from Connecticut taxpayers in 2004, which included 737,000 claiming itemized deductions. Nearly 84,000 claimed the sales tax deduction.

New tax law enacted in late December reinstated the optional deduction for state and local sales taxes. Because of this late enactment date, the IRS previously announced that it would not begin processing returns claiming the sales tax deduction until February 3.

To use the Sales Tax Calculator, taxpayers input their adjusted gross income, number of exemptions, and zip code. The IRS estimates most taxpayers will get an answer in less than five minutes using the new tool.

The calculator is anonymous. Taxpayers do not need to enter their name, Social Security number, or any other identifying information. The calculator is another in a series of steps the IRS is taking to reduce taxpayer burden.

As an alternate to the online sales tax calculator, taxpayers can use the worksheet in Publication 600, State and Local General Sales Tax, posted on IRS.gov and mailed in early January to about six million individuals who received the Form 1040 tax package.

To calculate what their sales tax deduction would be, taxpayers can use either the actual amounts paid or use sales tax tables that allow them to factor in the exact sales taxes paid on certain specified items, such as a car, boat, or material to build a house.

 To find this tool, enter Sales Tax Calculator into the search box at IRS.gov.

Free File Is Back!

In other news, the Internal Revenue Service and its private-sector partners recently announced the opening of the Free File program with a series of improvements and changes to help taxpayers. The free tax preparation and free electronic filing initiative begins its fifth year with more consumer-friendly features and expanded services for Spanish-speaking taxpayers.

Seventy percent of the nation’s taxpayers — 95 million Americans — qualify for Free File. This year, up to 20 Free File Alliance companies will participate in the program run by the IRS and the Free File Alliance, a consortium of tax preparation software companies.

The program is available only through IRS.gov.

“The Free File program has significant changes this year that make it an even better deal for taxpayers,” said IRS Commissioner Everson. “A huge part of the taxpayer public can use these free services. Taxpayers should review the Free File offerings and see which one works best for them.”

A new agreement reached last month between the IRS and the Free File Alliance means enhanced services for taxpayers this year. Among the changes and features of this year’s program:

*Seventy percent of the nation’s taxpayers — those with an adjusted gross income of $52,000 or less — are eligible for Free File. Each company sets its own criteria for who can use the service.

*Taxpayers will be able to use Free File to request the Telephone Excise Tax Refund. Taxpayers can either request the standard amount, which ranges from $30 to $60, or the actual amount. Some alliance members will provide free access to Form 1040EZ-T for those people who have no legal obligation to file a tax return, but who can request the one-time telephone excise tax refund. Some alliance members also will offer free access to Form 8913 to request the actual amount.

*Two companies will offer Free File in Spanish.

*Participants will no longer offer refund anticipation loans (RALs) and other ancillary products.

*Some Alliance members are offering the state return for free. All Alliance members’ websites display whether state online tax preparation and filing services are available and the associated fees, if any.

*Taxpayers can use Free File to file a Form 4868, Application for Automatic Extension of Time to File.

The Free File Alliance selects its own membership, and all members must meet the IRS’s high standards for security and privacy. The IRS does not endorse any Free File Alliance company. While the IRS manages the content of the Free File pages accessible on IRS.gov, it does not retain any taxpayer information entered on the Free File site.

Taxpayers consistently give high marks to Free File in satisfaction surveys. According to Russell Research, a market research firm contracted by the IRS, 94 percent said they intend to use Free File again this year, 96 percent said they found Free File very easy or somewhat easy to use and 97 percent said they would recommend Free File to others.

Convenience, not the free cost, was the most appealing factor of Free File.