Attention, filing procrastinators: The IRS is opening up free e-filing to all individual taxpayers on 2008 returns. (IRS News Release IR-2009-5) Should you do it?
Our advice: Weigh the pros and cons. While filing electronically certainly has advantages, there are drawbacks, too. It’s not for everyone.
Small business owners with complex returns may benefit from personalized advice from a tax pro. The tax savings are usually well worth the fee. And, in some cases, you’re not allowed to e-file (see below).
On the other hand, if you have the tax smarts to go it alone, e-filing may be the better approach.
How to do it: Go to the IRS web site at www.irs.gov for the latest available options. Click on the “freefile” icon in the left column to access this service.
For starters, the IRS has developed an alliance with private companies that provide the means for filing online. Some services offer free filing for certain income or age groups while others charge a fee.
Simply key in the appropriate information from your W-2s, 1099s and other tax reports. The software does the calculations for you. But make sure you submit the return.
The IRS also has expanded its freefile program to include all taxpayers without regard to income levels. This service doesn’t have all the bells and whistles, but you might use it if you’re comfortable with the tax law and know which forms you need.
Pros of e-filing
Convenience and portability: You can start the return on your office computer and finish it on your home PC—or vice versa. The program saves the information as you proceed, so you can access the password-protected return whenever and wherever you log on.
Accuracy: E-filing ensures that the return includes all the required forms and information. If you slip up, it flags the omission. You can correct the return without any hassle.
Speed: As opposed to a six-to-eight-week wait for paper filing, you can expect to receive refunds within 10 days. The IRS will even deposit the funds directly in an account of your choosing.
Confirmation: You will receive an official confirmation from the IRS. This is proof that the IRS has received your tax return and is processing it. Paper returns can get lost in the shuffle.
Cost: Even if you don’t use a free service, it’s relatively inexpensive to e-file.
Cons of e-filing
Lack of advice: Significantly, don’t expect to receive any extensive advice if you file online. Many services will prompt you to see whether you’re entitled to various deductions or credits, but you won’t get personalized tax insights from an expert.
Privacy issues: There’s a perceived lack of privacy. Although IRS-approved sites are generally secure, you still may be bothered that your intimate financial information is floating around in cyberspace.
Hidden costs: It’s not the norm, but you could end up paying some unexpected fees or a slighter higher amount than originally expected.
If you don’t e-file, you still can use tax software to prepare an accurate return and then print out a paper version.
Who can't E-file?
Filing electronically isn't quite universal. You must file on paper if you are:
- Married, filing a separate return and you live in a community property state
- Claiming a dependent who has already been claimed by someone else
- Submitting a tax form that cannot be filed electronically filed (e.g., a multiple support agreement)
- Filing a return after the Oct. 15 extension date
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