| BUSINESSWEEK ONLINE : FEBRUARY 1, 1999 ISSUE | ||||||||
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| PERSONAL BUSINESS
File Your Taxes--and Save a Tree For the past few years, taxpayers have been tinkering with electronic filing. Last tax season, about 900,000 folks did their own returns on a personal computer and sent them directly to the Internal Revenue Service electronically. But that was less than 1% of the 100 million-plus individual returns the feds received. This tax year, the IRS has begun a full-blown push aimed at eventually getting nearly everyone to file paperless returns. If the system works as advertised, the advantages are obvious: no botched arithmetic, no scrambling to find that one missing form, no wild ride to the post office at 11:59 on Apr. 15, none of those nasty IRS missives raising a fuss about that $5,000 deduction that somehow became $50,000. Choking on paper, the agency desperately wants you to file your return electronically. Behind the IRS efficiency push is Congress, which wants 80% of all returns filed that way by 2007. FIRST TEST. To that end, the coming tax season will be the first test of a truly paperless system. You will, for the first time, be able to file most state and federal returns completely electronically, have your refund credited to your bank account, and pay what you owe by credit card. IRS officials estimate that they will get 30 million paperless returns this year--about one-third of all individual returns. The 39 states offering E-filing expect a boom as well. It sounds great. And paperless filing will be easier than ever for the vast majority of taxpayers--those who can use 1040 EZ forms or have simple 1040s. But if you have a complex return, roadblocks remain. The IRS can't accept certain forms electronically, and many tax professionals and many of their clients still feel more comfortable filing the old-fashioned way. What's more, you'll have to pay a premium to put your tax tab on a credit card. If you have a simple return, filing electronically is a breeze. Indeed, the IRS estimates that 95% of households could file that way this year if they wanted to. It expects nearly 7 million taxpayers to file by phone, using its TeleFile program (800 829-5166). To use this option, your income must be principally from wages and you must take the standard deduction. If you have access to a computer, the IRS gives you even more options, such as downloading a 1040 and other forms from its Web site (www.irs.gov). But you'll still have to fill them out by hand and return them to the agency by regular mail. To E-file, you need a commercial product--the IRS has no plans to let you download a 1040 from its Web site, fill it out, and E-mail it back. ''The private sector can do it more efficiently than I can,'' says Robert Barr, assistant commissioner for electronic tax administration. To get their returns to the IRS, E-filers will need to buy software programs such as Intuit's TurboTax (www.turbotax. com) or Block Financial's Kiplinger TaxCut www.taxcut. com). If your return is at all complicated, you'll need deluxe versions of the programs, which have the added benefit of offering federal E-filing for no extra charge. Both are available in stores for around $30. Turbo- Tax can also be downloaded from its Web site for $44.95, while TaxCut can be purchased only in a shrink-wrapped version. 2nd Story Software's TaxACT.com (www.taxact.com) lets you download basic software for free. You'll have to shell out $9.95 for the deluxe version that offers planning and advice. TurboTax and TaxACT charge extra for state returns; TaxCut lets you download them for free if you purchase its deluxe federal product. If you'd rather do your return online, TurboTax offers a Web product that looks pretty much like the CD-ROM version for $19.95. But if you earn less than $20,000, you can prepare and file your return on the TurboTax Web site for free. A smaller outfit that offers a pretty good Web product is SecureTax (www.securetax.com). Most Web products use the same now-familiar interview format as their shrink-wrapped cousins. GET PINNED. In general, online services are cheaper, avoid the occasional aggravation of downloading, and enable you to work on your return from any computer. Software has compensating advantages, though: no nagging Internet backups and more detailed advice. The software approach may also feel more comfortable to taxpayers who fear getting hacked while online. I would stick with software for now, but the Internet products are getting better. As commercial products improve, the IRS is taking steps to make life easier for E-filers. In the past, you had to send in a form with your written signature even if everything else was digital. This season, the IRS has mailed 12 million taxpayers who filed electronically last year a five-character ID number. Just punch it into your electronic return and off you go. Some preparers, including about 350 company-owned offices of H&R Block, are participating in a separate test that will allow its customers to select their own PIN number for E-filing. ''It's a toe in the water,'' says Eddie Feinstein, Block's director for electronic commerce. For many taxpayers with complicated returns, however, paper is still the only choice. If you file an amended return, request an extension, or deduct employee business expenses, you still have to use snail mail. The IRS is also limited in the number of capital-gains transactions it can handle electronically. It won't matter to most folks, but if you are a heavy trader and have more than 97 sales or mutual-fund distributions, forget about E-filing. Until now, most E-filers have been expecting a refund. That's because the IRS will turn their checks around in a week or two, rather than in a couple of months for paper filers. Now, in an effort to attract those who owe Uncle Sam, the IRS is offering new payment options, including credit cards. If you use TurboTax and hold a Discover card, you can authorize a credit-card payment right on the return. The fee: 1.5% of the balance due, plus 25 cents. E-filers will also be able to pay with most major credit cards, but it will take an extra phone call (800 2-PAYTAX). The fee is steeper, too--an average of 2.5%, depending on the size of the bill. So why bother? It's an easy 30-day loan. In addition, you'll get your frequent-flier miles or whatever other premium your card offers. If you still want to pay by check, the IRS will even allow you to file now and designate a future date for an electronic funds transfer of your balance due. As a result, you can send your return in February with authorization to transfer the funds from your checking account to the IRS on Apr. 15. Just don't forget to have the cash in your account when the IRS comes calling. Are there other incentives to E-file if you owe Uncle Sam? If you are already doing your return on a computer, absolutely. E-filing will sharply cut down on mistakes, both yours and the IRS's. Agency officials estimate that their error rate on paper returns is a staggering 20%, compared with 0.5% for electronic returns. The IRS will also send you an E-mail confirming that it got your return. If you get in a real jam, that will be much more helpful than a certified mail receipt, which only proves the IRS received an envelope. The agency still has a big marketing job ahead with individuals and tax professionals. But as the tax code gets ever more complex, E-filing is one small way the IRS can make everybody's unpleasant task easier. To read a correction/clarification about this story, click here, and here. By Howard Gleckman EDITED BY AMY DUNKIN _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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