If the Internal Revenue Service had its druthers, all the taxpayers and preparers who still mail in returns would get on their PCs and file over the Internet.
The advantages of filing taxes electronically using stand-alone or Internet-based software are numerous, the agency says.
With electronic returns, IRS employees don’t have to type information into the agency’s computer system, as they do with paper returns, and that reduces costs. The agency says taxpayers who file electronically will get electronic confirmations that the returns were received and will get their refunds in about half the time (usually within 7 to 10 days), compared with the usual time required for a return that was mailed in.
In addition, returns that are prepared and sent electronically tend to be more accurate, said Robert E. Barr, the assistant commissioner for electronic tax administration at the agency.
“Returns prepared with a pencil and calculator have about a 20 percent error rate, compared to a 5 percent error rate for those prepared by software,” Barr said. “And the electronic gateway on our end is more reliable than the keypunchers who transfer the data from paper to our system.”
The IRS has recently been publicizing its goal of having at least 80 percent of all individual tax returns filed electronically by 2007. Currently, about 25 percent of total returns are filed electronically, either over the Web or through the telefile program, where filing is done by pushing buttons on the phone.
Of course, many Americans still sit at the dining-room table or at their desks with calculators and fill out their tax forms by hand, or they take their W-2’s and other papers to an accountant to have their taxes prepared and mailed.
But the convenience of electronic filing is catching on. Through Feb. 11, 1.2 million taxpayers had done their own tax returns electronically, says the IRS. That’s already half the 1999 total and a 98 percent increase over the same period last year. Counting professional tax preparers and simple returns filed by telephone, the IRS received 14.7 million tax returns electronically through Feb. 11, up 10.2 percent from 13.3 million during the same span a year ago.
Those who choose to file their returns electronically this year will face a range of choices. Virtually every computer-based tax preparation option–whether it involves software that is bought at a store, downloaded from the Web or run directly over the Web from an on-line tax preparer’s server–allows the user to transmit a federal return electronically.
And because more paid tax preparers are applying for agency approval to file electronically, they are becoming increasingly able to file their clients’ returns on-line. Among the 29 million returns received from hired preparers in 1999, 21 million were received electronically, Barr said.
Quicken TurboTax Deluxe, a popular program offered by Intuit on CD-ROM, is available in stores and on-line at the Intuit Web site (www.intuit.com) this year for $49.95; the state tax version can be downloaded free when the federal software is bought on-line.
Kiplinger TaxCut Deluxe, sold by H&R Block, is available in stores and on-line (www.hrblock.com) for $39.95 and includes free state tax software.
The deluxe versions of tax-preparation programs generally tack on tax-planning and tax-saving guides. The standard versions of Quicken TurboTax (downloadable or on CD-ROM, $29.95) and Kiplinger TaxCut (downloadable or on CD-ROM, $14.95) do not include state forms. All the tax software mentioned here is available for both Windows PCs and Macs.
For those who want to avoid downloading or installing the tax software programs, both Intuit and H&R Block offer Web counterparts to their software programs. Each of these programs offers the same features and forms as the software versions, but the information you type in during the interview process is stored on the company’s servers instead of on your computer.
TurboTax for the Web for Tax Year 1999 costs $9.95 for the federal version, $4.95 for the state version. The charge for the Web version for TaxCut is $9.95 for each form filed.
Both Intuit’s and H&R Block’s Internet tax preparation programs are free to those who qualify for filing 1040EZ forms. In addition, Intuit’s Tax Freedom Program is available on-line to anyone with a 1999 adjusted gross income of less than $20,000, regardless of how complicated the return is. The state return is also free.
This year, Microsoft has entered the tax preparation software market with the release of TaxSaver Federal Deluxe on CD-ROM, which sells for $44.95 (before a $20 rebate). A lighter version of TaxSaver can be downloaded at taxsaver.msn.com for $19.95. Neither of these programs includes state returns.
Once you submit a software-prepared return on-line to the software manufacturer, it is encrypted and batched with other returns and sent electronically to the IRS. “Our system is designed to receive 50 to 500 forms at a time,” Barr said. “We don’t have a system in place to receive onesies directly from individual filers.”
Two newcomers to the on-line tax preparation business, H.D. Vest (www.hdvestonline.com) and Taxes 4 Less (www.taxes4less.com), in Calabasas, Calif., are offering services this year.
H.D. Vest Online is offering free federal and state return form preparation, regardless of income level or the return’s degree of complication, with the hopes of attracting potential new customers to other financial services offered by the company, which is based in Irving, Texas. Customers answer a series of questions on-line to complete a return. Once it is completed, H.D. Vest sends the filer an e-mail message with suggestions for financial planning, tips on reducing next year’s tax bill and the location of a local H.D. Vest affiliate.
Unlike the rest of the services mentioned here, Taxes4Less’ tax preparation site is not fully automated. Instead, taxpayers fill out a questionnaire on-line, pay a fee of about $100 and transmit the information to a living, breathing tax analyst, commissioned by the company, who prepares the return.
Returns are sent back to the filer within 48 hours by regular mail or e-mail, said Greg Yulish, president and co-founder of Taxes4Less.
The company offers a $3 incentive to encourage people to file their federal taxes electronically once they are completed.
Lest you think that any of the software or Internet-based tax preparation solutions are completely paperless, be aware that you still have to sign and mail an 8453 form (stating that you understand and agree with your return) to the IRS after you file electronically. The forms are available for printing at all the sites once the returns are completed.
Last year the IRS sent out on postcards 11 million E-file Customer Numbers, which taxpayers can enter on their electronic returns in lieu of sending in the 8453 form. The postcards were sent to taxpayers who had filed electronically the previous year, Barr said.
Taxpayers who owe money can make their payments with checks, have them debited directly from their bank accounts or charge them to their American Express, Discover or MasterCard accounts. The credit card companies may charge convenience fees, which will be noted on the cardholder’s statement. Those who want to pay by direct debit or by credit card must call 888-2PAY-TAX.
For those who want to fill out paper forms and file by mail, a computer can still be useful. All federal forms and publications are available for downloading at the IRS site, which is reached at www.irs.gov.
