You also may have seen or heard of some financial services firms and even retail businesses offering to do tax preparation for free or for a very nominal sum. How can they do that, since they obviously lose money on the tax returns?

They have to make money somewhere. Some retailers expect you to spend your tax refund with them. Financial services firms may hope to make money on other products and services they plan to sell to you. Read the privacy policies carefully, as they will indicate if the company doing your tax preparation plans to share your personal financial information with “affiliates” or “subsidiaries” or “non-affiliated third parties.” Some firms use free or cheap tax return preparation as a “loss leader” to generate prospects for their other financial products. Guard your financial privacy carefully.

One last thought — if a firm is doing your taxes for nothing, how much time do you think will be spent carefully looking for deductions and analyzing your future tax planning. Also, how motivated do you think the person (if there IS a human at all) preparing your free return will be?