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Online tax-return filing: When it pays, when it doesn’t

by on
in Small Business Tax,Small Business Tax Deduction Strategies

Millions of taxpayers now file their tax returns via the Web, and the number is likely to grow. Should you join the crowd?

Our advice: Online filing may be fine for taxpayers with simpler returns, say just W-2 compensation and some investment income. But small business owners with more complicated returns need hands-on tax-planning advice from an experienced tax adviser. Good tax professionals find enough hidden tax breaks to more than pay for themselves.

No software needed

For years, software packages such as TurboTax have been popular. But you don't need them to file online. You can simply go on the Internet, enter your data at a Web site and transmit your returns electronically.

Logical place to begin: the IRS Web site, www.irs.gov. Click on the "e-file" icon and find a list of Web sites offering online tax prep for individual or business returns. As of January 2004, you can e-file corporate income tax returns for the first time. Private companies that have made e-filing agreements with the IRS operate those sites.

At the site, you key in data from your W-2, 1099 and other tax reports. Your return will be prepared automatically, and you can submit it at the end of the process.

Pros: portability and accuracy

Advocates of Web-based filing cite several advantages. You can start your return on one computer (say, from your office) and finish it at home. Your information is saved as you go, so you can access your passwordprotected return from wherever you log on.

Filing electronically assures that the return you submit to the IRS contains all the necessary information. If something is missing or incorrect, the return will be rejected immediately. You can correct the error right away and resubmit the return.

E-filing is especially appealing if you're due a refund. While refunds from paper returns take six to eight weeks to arrive, you'll receive an e-filed refund within two weeks, and it will be deposited directly into your account. If you owe money, you can pay from your bank account or by credit card.

Smaller tax-prep costs are another key. Most online services charge no more than $30 and you don't pay until the end of the process, when you're satisfied.

Cons: less advice, less privacy

One large concern of online tax filing is the perceived lack of privacy. While most sites are password-protected, you may not like the idea of your most intimate financial secrets floating in cyberspace.

Also, beware of rare-but-costly Web sites that quietly charge you added fees for various options. At one site, a taxpayer using some service options can wind up paying $200 for tax filing, not the $17.95 originally quoted.

But most importantly, you can't expect extensive tax advice if you file online. Some online tax prep Web sites will prompt you to see if you're entitled to various tax deductions or credits, but you won't get expert personalized tax planning.

Online resources:

Web sites to make tax season less taxing

• www.irs.gov

• www.unclefed.com

• http://taxes.yahoo.com

• www.taxsites.com

• www.fairmark.com

• www.taxhawk.com

• www.freeadvice.com

• www.taxmama.com

• www.taxadmin.org
(state tax links)

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