Filing Tax Returns Online

Did you know that returns prepared and filed online contain fewer mistakes than handwritten ones? And if you file online, you can receive your refund in as little as ten days?

Those are just two of the reasons financial advisor Ray Martin ecourages everyone to fine online.

On day two of The Early Show tax series, he tells us how it's done.

In order to get your refund that quickly, you must file online and have your refund direct deposited into your bank account. It can take as long as six weeks to receive refunds via traditional mail.

Martin also notes, it's actually more secure to file your personal financial information on the IRS secured Web site than to drop it into snail-mail.

And when you file online, you receive an electronic notice that the IRS got your return, which means no more waiting in line at the post office to ask for a return receipt.

The IRS is also encouraging taxpayers to file online, because it's much cheaper to process electronic returns. As a matter of fact, by 2007, the agency hopes 80 percent of returns will be filed online. In an effort to push taxpayers toward the Internet, the IRS has spent a lot of time promoting "e-file."

And people seem to be responding to the push. Already, there are indications of a big jump in the number of people filing online, compared to last year. The IRS predicts about half of all returns will be filed online this season.

If you want to file online, you have three options:

1. Tax Preparer: If you typically have someone else do your taxes for you, just ask them to file the return online. Many tax preparers do this already. It should not cost extra.

2. Personal Computer: If you prepare your taxes yourself, Martin suggests investing in computer software that will lead you through the process. Simply download the program onto your computer, and it will lead you step-by-step through the process, asking you questions and automatically putting your information in the appropriate forms. Many services and products are also available on individual companies' Web sites. Martin finds these programs particularly valuable because they will point out tax deductions that you may not have realized applied to you, thus saving your money. You can choose from a range of packages; prices run from $8 to $30.

   Using this software is truly not difficult. Martin helped a couple file their joint return using tax prep software for the first time. He said it was very straightforward.

3. IRS Free File Program: If you've heard on the news or from friends that you can file your taxes for free online for the first time, this is what everyone has been talking about.

   There are currently 20 companies that have partnered with the IRS to offer their products for free. You log onto the IRS site, choose one of the companies, and through them you fill out your tax forms and submit them electronically, free of charge. Free File has been around for three years. In the past, there were restrictions on who could file taxes through the program. Some companies offered their free services to low-income tax payers, others offered services only to the elderly or the young. What's new and newsworthy this year is that about half of the companies have removed those restrictions, and anyone can use them to file for free.

   Unfortunately, this deal isn't quite as good as it sounds. Many of the companies offer only their most basic service for free; if you want help identifying potential deductions, etc., you can't do so through Free File. So if you have a complicated return, you may want to invest in a better product. However, Martin still recommends Free File for many people. If you do decide to use Free File, you must access the partner companies through the IRS Web site. If you go directly to an individual company's Web site, you will not be able to file for free.

   Also, if you decide to use Free File, be aware that you can only file your federal return free of charge. You'll have to pay to file your state return.

• Head to IRS.gov and, on the homepage, you'll see, "Where's My Refund?" Click on the phrase and you will be directed to another page.
• Here you'll need to enter your social security number, your filing status and the amount of your expected refund.
• After just a few seconds, you'll receive a response such as "being processed" or "mailed February 17th."

Everything discussed up to this point only applies to federal tax returns. State returns are a separate issue. When it comes to online filing, states fall into one of three categories.

1. Everyone can file online, for free. (You file directly through the state's Web site)
2. Everyone can file online, but only certain groups (primarily the low income, elderly, and military personal) can file for free (facilitated by the state, but services actually provided by outside companies)
3. No one can file online.

The important thing to know about filing your state return for free is that you must go to your state government page in order to do it. Kansas, for example, offers free filing for all residents. However, if you go to an individual company's page, they will charge you around $8 to file a Kansas return.