Filing Taxes Electronically
With tax day less than a month away, Americans have to start thinking about that dreaded process of filing a tax return.
While millions turn to a professional for help, not everyone can afford that option. The tax rules seem to change constantly, leaving the rest frustrated and confused. But, there are many computer programs designed to help ease the burden and give the consumer the option of filing online.
Vera Gibbons, of Kiplinger's Personal Finance magazine, visited The Early Show to help sort out with co-anchor Harry Smith what programs are best.
About 79 million people are expected to hire a professional this year according to the IRS, and a growing number of people - about 27 million this year - are expected to use some form of tax preparation software, either desktop or online.
Gibbons says the nice thing about going online is you don't have to worry about installing or updating software and you can work from any computer. The other advantage of using online tax programs is being able to try before buying, which means you can use the site for free and pay only when you print or efile your return.
Also, working online assures users that they're using the most up to date software, including all the latest tax rules. But, Gibbons warns if your return is complicated and you feel you may need a little hand holding, go with the boxed software. Some of the online offerings skimp on the extras such as specialized tax advice or video help.
Some online tax Web sites are:
Turbotax.com
Taxcut Online
Taxact.com
Taxbrain.com
Completetax.com
Gibbons says all the online tax Web sites tout their security, but if you're the type who wouldn't dream of transmitting your financial data over the web, then the web-based tax prep sites probably aren't for you. With a boxed software program, everything lives on your hard drive.
The desktop software programs are traditional software products that you install on your hard drive. There are a variety of ways you can get the program that suits you best. You can buy it on CD-ROM at your local computer store or download it off a company's Web site. Gibbons says Turbotax is probably the most popular program.
Turbotax asks you simple questions then places your answers on the right income tax forms. With this program, you can download salary, interest, and investment data from 60 companies. It also has a deduction analyzer that helps with deductions you might have overlooked. And, unlike last year, you can use this year's version on multiple computers.
Gibbons says H&R Block's Taxcut is very easy to understand. They provide you with instructional videos to help understand the process such as new tax law changes. You can also quantify the tax savings of each of the deductions you've taken -- mortgage interest deduction, contributions to a tax-deferred IRA and more. There's even some tax planning advice from the editors of Kiplinger's on it.
Taxact is a no frills, inexpensive program that's good for people with relatively simple returns, Gibbons says.
The programs offer different versions (basic, standard, deluxe, premier) and the prices depend on their capability and the complexity of your tax return.
Those with relatively simple returns can use standard/basic program versions. But, if you were going to buy Turbotax, for example, Gibbons says it is probably best to get the deluxe version. He explains for just $10 more, you get the extra advice and guidance, which includes on-screen IRS publications, help with retirement planning and advice on the best IRA for your situation.
Gibbons says if you're an investor and you make a lot of trades, or if you own rental properties, then go with the premier. Go to the companies' Web sites before buying a program. They have charts that detail the differences among the different versions and will help you decide what version is best for you.
The boxed software programs actually guarantee satisfaction. If you're not satisfied with the program, they will give you your money back.
Gibbons says using the programs should save a lot of time. The IRS estimates that it takes the average taxpayer 13 hours and 29 minutes to complete a basic 1040 form. With a software program, it could take you as little as a couple of hours, Gibbons estimates.
Kiplinger's Personal Finance says the support offered from the boxed software tends to be a bit better. For example, Taxcut sends an instructional video along with the program. As a result, the boxed software tends to cost more. The online programs usually offer a chat-style support, you type in a question and wait for someone to respond. And, there's usually a phone number you can call for help. But, that can sometimes cost more money.
The tax programs give you the option to file electronically. IRS e-file is a fast and accurate way to file a tax return, but you may have to pay for the services to prepare your tax form. Some taxpayers may qualify for the Free File service accessed through IRS.gov. For example, you may be eligible for Free File if you are in an average or low-income bracket, older than 65, or in the military.
Check the IRS Web site at IRS.gov to see if you qualify.