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IRS Joins Electronic Age

Tax issues can be complicated, but as it has done in so many other aspects of our lives, technology has made the chore easier.

Today there are more electronic tax-preparing and tax-paying options than ever before, making the dreaded chore not only easier but also less expensive.

In the last of his three-part "Tax Watch" series, Ray Martin, financial contributor for The Early Show, reviews and rates some of these options.

If you have the right software or access to the Internet, filing taxes can be made much easier; very few professionals prepare their returns by hand.

These programs virtually eliminate math errors. Surveys from the tax software industry indicate a 26 percent error rate for hand-prepared returns vs. 1 percent for program-prepared returns.

The most popular software programs are Quicken's Turbo Tax and Kiplinger's Tax Cut by Block Financial.

Both are built for the average person, not the professional, and are easy to use by those who are computer literate.

You can go right into the program and input your personal information and questions on a worksheet, and up pops a W-2 form. It looks just like the one your employer sent you, and the computer spits out your income on the right places.

Many software companies are putting the programs on their Web sites. They allow you to use the program for free but will charge you for filing your taxes electronically. One site, H.D. Vest, lets you prepare and file for free in the hopes that you'll use the company's other financial products or services.

One benefit to online preparation is that Web sites are automatically updated with the latest tax rules, so you don't have to keep downloading updates.

Electronic filing - sending your return to the IRS with a few clicks of the mouse - is fast, inexpensive and cuts in half the time you will have to wait for your refund.

Your return is transmitted over the Internet to the IRS computers, and within 48 hours the IRS will send an electronic confirmation notice. Print and keep this message; it's proof that you filed your return and that the IRS received it.

The security of online filing shouldn't be an issue. Is mailing a paper return or giving it to somebody to deliver any more secure?

In addition, the IRS hires an army of clerks to transfer figures from paper returns into its computer system - another security worry and one of the reasons for the high error rate on hand-prepared returns.

If you use the 1040EZ form, you can file your return by touch-tone phone. Eligible taxpayers receive a package from the IRS with a phone card and a worksheet to fill out before making the call. The process is free, and the call takes 12 to 20 minutes. Last year, 5.7 million taxpayers filed this way.

Electronic filers receive their returns in about three weeks, compared with the three-month wait for paper filers. If you choose direct deposit, you could see your refund in 1days. To do this, you need to supply an account and routing number.

The IRS won't dip into your account to cover back taxes you owe, but it will take these moneys from your return, as it does with paper filers.

You can pay your taxes with a direct account debit, too, and specify a payment date up until and including April 17. It's wise to check first with your bank to make sure such electronic fund transfers are allowed.

If you're paying by check, make it out to the U.S. Treasury, not the IRS. That's what the government asks for, and it's more difficult for a crook to alter.

The IRS does accept credit-card payments but taxpayers should beware. Since the IRS is prohibited by law from paying a merchant's fee, the credit-card company will assess that fee from you: $68 for $2,500, and $699 for $25,000.

If you don't pay the bill in full, you're likely to pay a higher interest than the IRS rate of 0.25 percent a month for installment payments.

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