Get Wired, Says IRS
by Ginita Wall, CPA, CFP

Wanted: Compatible computers for online communication.

Objective: electronic transfer of tax data and refunds.

That’s the lonely hearts message being sent by the IRS, which wants your computer to cuddle up to its computer for electronic filing. The IRS is gung-ho about encouraging taxpayers to file electronically, but some taxpayers aren’t sure, and so far only a small percentage of tax returns have been filed electronically.

Last year the IRS received over 29 million income tax returns that were filed electronically by taxpayers around the country. This year, the number is likely to be astronomically bigger, as consumers discover that the computer can help them prepare taxes as well as acquire holiday gifts.

Is electronic filing for you? Here are some of the reasons you might want to file electronically.

It’s cheaper for the IRS
It saves the IRS money if you file electronically, but why should that matter to you? After all, it’s not as though they are going to rebate part of your taxes to reflect that savings.

Your refund comes faster
If you are due a refund, you can get that money lickety-split. The IRS will notify you it’s received your return within two days after you file, and it will send your refund to your bank within the next couple of weeks. Compare that to the two months it might take to get your refund the old-fashioned way, and you’ll begin to see the advantage.

You can do your taxes without tears
Another advantage is that you can prepare your return easily by using one of the tax-software programs that are available. You’ll be able to prepare your tax return and submit it without ever touching pencil to paper. But you’ll still have to do one small piece of paperwork. You’ll have to submit Form 8453-OL to the IRS with your manual signature.

Your return will be more accurate
More that one-fifth of all returns that are prepared manually have math errors on them. The math errors that crop up when you do your own figuring will be non-existent with electronic processing.

No more stumbling through IRS forms
The tax preparation software lets you enter data in a logical, question and answer format. You fill in the blanks in each category, and the software puts it on the right forms in the right places. (If you have the heart and sour of an accountant, most programs will allow you to type directly onto the forms.) Of course, it’s still up to you to gather together the figures for your donations, interest and the like.

To file electronically, you’ll have to prepare your return on the computer. That means purchasing one of the tax preparation programs that are available. Each year you’ll have to buy new software, since the tax rates and rules are ever-changing.

And to send your return to the IRS electronically will cost another fee on top of the software cost. And with many of the programs, you have to prepare your own state return by hand, since the program doesn’t prepare it.

Here are some of the tax preparation programs that are available.

Quicken TurboTax
The old-timer of tax preparation programs is Quicken’s TurboTax, which has been the top-selling tax software for years. The deluxe program includes software for preparing your state return and a free copy of Quicken’s personal finance software. You can file electronically for free, and Quicken offers top-notch technical support.

Kiplinger TaxCut
This program is a few dollars more expensive that Quicken, but is it very highly rated and worth a look. Like Quicken, it calculates your state tax return as well as your federal taxes, and let’s you file electronically for free. It will also import tax information from a variety of checkbook software.

H&R Block
The granddaddy of tax preparation has finally gone electronic. You can download the tax preparation software from its site, but you’ll have to pay a fee to file electronically for all forms but the 1040 EZ.

Microsoft TaxSaver
This is the baby of the family, but like most Microsoft babies, it will grow into a behemoth rapidly. Microsoft’s products are generally of high quality, so you may want to give this new program a whirl. But more cautious taxpayers may want to wait a year or so to give the program a chance to work out the kinks.

On-line preparation
Both Quicken (www.turbotax.com) and Kiplinger (www.taxcut.com) offer on-line preparation, so you don’t have to purchase disks or download software to your own computer. But if your return is complex, the on-line version is likely to become overloaded, so install the software on your computer rather than working on-line.