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TIP OF THE WEEK: PAY YOUR TAXES ONLINE
Shopping for dog food in our local discount warehouse this week, a huge display-pile of Quicken's TurboTax software stopped us in our tracks. Oh no!
Is that time again? Reluctantly, we threw a box of the TurboTax Deluxe version into our shopping cart. The price: $33.99 less a $10.00 mail-in rebate.
Ah, yes. The yearly privilege of paying Uncle Sam!
To tell the truth, you don't have to buy tax software. We did because, well, we're old-fashioned and like to keep a paper copy of our returns. And we like to slave for days figuring out how to give Uncle Sam as little as possible.
Last year, we used Turbo Tax software to file online for the first time, and, uh, to tell the truth, it was almost painless. Well, almost.
If your taxes are fairly simple, you can do it ALL online. If your taxes are complicated, you can now get lots of help online.
This stands in contrast to the early '90s, when it was cool to do your taxes using the newest software package. Now, you can find everything you need on a Web site. That means no more paper returns, and no more software to install.
There are some exceptions, such as TaxCut Online (http://www.taxcut.com) and H&R Block (http://www.hrblock.com), which share the same TaxCut software package. With their system, you still have to fill out tax forms on your computer and then transfer the data to a Web site.
The idea of reporting taxes online has become popular. In 2000, taxpayers filed nearly two million returns online, 50% more than expected. The IRS (Internal Revenue Service) estimated that as of November 2001, about 6,833,200 returns had been filed through the Web.
Why the growing popularity of "e-filing?"
Overall, e-filing is faster and more accurate than mailing in a paper return covered with coffee stains and little hand-written insults to the IRS. You are likely to get your refund more quickly, too. If you choose to have your refund deposited directly in your bank you could get it in as little as two weeks.
Average Americans are becoming more comfortable with online technology, from bill payments to account transfers. Less paper to lose or pile up in dusty stacks appeals to the IRS, so the agency is making online filing easier.
Easy-to-use tax sites are also attracting a lot of new users. More companies offer electronic versions of W2 forms. Employees can insert W2 information into returns with little typing. Although it used to be that you could only file the simplest returns online, more advanced forms are being added every year.
TaxBrain.com (http://www.taxbrain.com/) is a colorful, amiable tax site that (almost) takes the drudgery out of tax time. It's also easy to see why new users enjoy innovative offers, such as H&R Block's approach to e-filing.
This company lets users prepare their own returns, which saves money, but offers the services of tax professionals to verify its customers' techniques and decisions.
Remember you'll still need all your income statements, including W2s, 1099 forms, and so forth. You'll also want deductible expense information, mortgage interest, and medical expenses, as well as your previous year's tax return. If you have a complex tax situation, such as filings for previous years, income from more than one state, or if you use a foreign address, you might not be able to file using a Web site.
Top Tax Sites
The Web's most colossal number cruncher is, not surprisingly, Quicken's TurboTax Web site (http://www.turbotax.com). Forrester Research says that in the tax year 2000 Intuit (Quicken's parent company) earned a 70% market share.
TurboTax for the Web lets you complete a 1040EZ state return for free, and the federal 1040EZ costs $9.95. If your taxes require you to use more comprehensive forms, such as the 1040, they cost $9.95 (for states) and $19.95 (federal). As an added bonus, TurboTax is one of the sites that supports automated W2 forms. If your employer is one of the few that offers those incredibly handy electronic W2 forms, you may be able to file your entire return in minutes.
Though TurboTax is king of the hill, other sites are worth noting.
TaxACT Online (http://www.taxactonline.com) has survived by offering low prices. It charges only $7.95 each for both federal and state returns.
Another popular site is TaxBrain.com (http://www.taxbrain.com). This site does federal and state returns for $14.95 and $9.95, respectively, and charges e-filing fees of $4.95 and $2.95.
FileSafe (http://www.filesafe.com) lets you prepare your tax return for free, but it'll cost you $9.95 to actually file the return. On the other hand, the company won't charge you until the IRS accepts your return. (A practice followed by most other companies as well.) At FileSafe, print copies of e-filed returns cost $5. For most folks, your total will be $19.95, which will file your federal return and give you prints of both your federal and state returns.
Speedy Returns
After you complete a return at a site, your data zips off to the IRS. In most cases, the IRS will e-mail you within 48 hours to say whether it accepted or rejected your return. If it is disallowed, simply correct your mistakes and resubmit the form. If you made a mistake on the return and the IRS has accepted it, you can't revise it electronically. Instead, you'll have to use Form 1040X (an amended return form) and snail-mail it in.
After the IRS accepts your return, you'll owe fees for the site's services. Paying off your debt is fairly painless. For example, FileSafe makes it easy to pay service fees; if you like, the company will take its fees straight out of your return, although this convenience costs an extra $10. You may instead find it worth your time to charge the fee to your credit card.
If fees don't bother you and really need that refund money like, NOW, you get it in as few as three days through a loan.
FileSafe's version is the Refund Anticipation Loan. However, if you're approved, the fees for a refund advance aren't small change. With FileSafe, if your refund is $500, you'll pay $29 just to get the loan.
TaxBrain.com offers QuickAcce$$ loans that let you get your refund in three to five days. A loan against your return of $2,000 to $5,000 costs a $99 bank fee.
Is It Safe?
Major IRS-approved tax return sites use an SSL (Secure Sockets Layer) protocol to protect your data transmissions from tampering.
TurboTax for the Web, for instance, will work only if you're using browser software that supports SSL. SSL is secure because it involves three levels of security. It uses a technique that authenticates both the server and the client; SSL also encrypts any data that moves between the server and client.
When you send your information to Quicken, the company retains your return on secure servers that are under strict company control. Intuit uses private and secure lines to transfer your return directly to the IRS.
Intuit's Quicken.com and other sites adhere to stringent privacy standards. Intuit has a lengthy page at its site that explains how it adheres to a strict policy of confidentiality where your data is concerned. But such guarantees don't protect hackers who attempt to defraud either Intuit or the federal government. In accordance with federal law, Intuit is required to record the IP (Internet Protocol) address of every user who files a return.
Federal law requires all tax-return sites to tell the IRS whether they obtain e-mail addresses from their users.
Another issue is accuracy. What kinds of policies protect you from the consequences of miscalculated returns and threats of penalties from the IRS?
Most companies guarantee accurate submission of your returns (not counting, of course, the errors YOU make) and promise to pay any penalties, plus any interest, that you incur because of their errors.
This brings up another issue to keep in mind as you choose a tax Web site: longevity. The IRS requires you to hold onto your records for several years after you file, so you're better off with a company that will be around to back up its guarantees.
As you well know, Uncle Sam is not going anywhere. As the saying goes, "the only certain thing in life is death and taxes."
Note: these links were good as of January 26, 2002, but they may change over time.
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