E-Filing Made Quick And Painless

For most Americans this year's tax deadline is midnight on Monday. You get a couple of extra days because April 15th fell on a Saturday.

Procrastinators who live in Maine, Maryland, Massachusetts, New Hampshire, New York, Vermont or the District of Columbia have until Tuesday midnight to file their taxes because forms go to a processing center in Massachusetts where it's a state holiday.

With the deadline fast approaching, a lot of people are in panic mode. But the good news is that there are websites that can take at least some of the pain out filling out your federal and state tax returns. For some tax payers – with relatively simple returns, the process can be very fast and the federal return can be free.

What's more, thanks to electronic ("e-file") filing, you no longer have to make late night runs to the post office. However, given the uncertainties of Internet connections and server congestion, I highly recommend that you not wait until a few minutes before midnight to filing electronically.

I admit that I use a CPA (who happens to be my brother) to fill out my return, but I helped my 19 year old son and 21 year old daughter fill out their "free" returns using the online versions of TurboTax, TaxAct and TaxCut, all with the blessing and support of the Internal Revenue Service. Even their accounts are far from simple. Both had jobs in 2005, both have their college funds invested in taxable accounts that pay dividends and capitol gains and my son, who is a musician as well as a student, has business income and expenses.

Many tax payers qualify for free electronic preparation of their federal returns.

Right at the top of the IRS web site there is a link to "Check Out Free File" and the note that "seventy percent of the nation's taxpayers are eligible for free tax preparation software and free electronic filing." The link takes you to a list of 19 private companies that participate in the program. Although eligibility guidelines vary by company, most will provide free tax preparation for people who are under 50 and who's adjusted gross income in less than $50,000.

Before I get into details about the services, let me say a word about security. All of these sites use a secure server and all the sites recommended by the IRS are known to be legitimate. However, if your machine is insecure, all bets are off. Before entering any confidential information at a computer –especially if you're connected to the Internet – be sure that you have up-to-date anti-virus software, firewall (anti-hacker) software and are free of spyware and other malicious software. Also, be sure to safeguard your passwords and not use passwords that are easy for others to guess. For more on security, visit the National Cyber Security Alliance and GetNetWise.

While the federal return may be free, there are some "gotchas." Most of these services will try to up-sell you with deluxe or premium tax preparation options and they will also charge you if you wish to file your state return.

Even if you don't qualify for a free federal return, doing your taxes online is not particularly expensive. The leading service, TurboTax, for example, charges $9.95 for a 1040 EZ and $39.95 for a standard federal return plus another $29.95 for a state return. The 1040EZ is the simplified form for tax payers like my kids with no dependents, no adjustments to income and (according to the IRS) "only wages, salaries, tips, taxable scholarship or fellowship grants, unemployment compensation."

H&R Block's TaxCut is also $9.95 for the 1040EZ and charges $29.95 for a standard federal return. State returns are $29.95 for standard 1040 or $14.95 if you qualify for the 1040EZ.

One of the best bargains in online tax preparation comes from TaxAct Online. They will let anyone file their federal return for free and offer a deluxe package for $15.95 that lets you file your state and federal return with tax advice from J.K. Lasser.

As an experiment, I completed my son's return using TurboTax Online, H&R Block's TaxCut and TaxAct. While TaxAct was cheaper, TurboTax was a bit easier in his case because it is able to automatically enter information from brokerage houses that have online access. It took just seconds to download my son's information from Fidelity while it took me nearly an hour to enter it manually in TaxAct and TaxCut. Even some employers put their data online, making it easier to enter W2 information in TurboTax.

All of the services I tested will let you fill out the information before you provide them with a credit card for any charges. Be sure, however, to look on the site to figure out what the charges are before you go to the trouble of filling out the forms.

Another option is to use tax software. Even if you don't have time to run out and buy a program at a store, you can download tax software from many of the same sites. The main difference between the software and the online tax preparation is that with the software you can work on your computer even while you're not connected to the Internet. Also, by working offline you have a bit extra security though if you followed my advice earlier you are probably OK in either situation.

Finally, with or without this software there is always the option of applying for an automatic extension. You still have to pay the taxes you owe (or face interest and penalties) but you don't have to fill out your return just yet. Some of these services will allow you to file an extension for free or you can and fill out form 4868 at IRS.gov, print it out and mail it in along with any payment due.