The main reason I began to use tax preparation software a
number of years ago was "comfort" - I still did my own
taxes but wanted to be sure I wasn't missing out on any
potential deductions or savings. Using electronic tax
preparation gave me this comfort level and assurance
by "holding my hand" through the process, giving
me "alerts" that can guide me through the process and let
me take advantage of any and all new changes that may help
me.
Obviously many people are becoming more comfortable as
electronic tax preparation and filing has been growing
rapidly. Both the number of people "e-filing" and the
services available (sometimes for free) to file your taxes
directly online are growing. This year the IRS has
estimated it will receive approximately one third of its
individual returns electronically (45 million).
In this report I will explore some of the basic advantages
to filing online, the leading software packages and
internet filing systems available, some ratings/rankings
and more links should you wish to get more information.
Benefits
The advantages of using tax software for your return and
filing online are numerous:
Fast Refunds - Most refunds are issued within days of
acknowledgment
Direct Electronic Deposit or Payment - Electronic deposit
or payment is available
Acknowledgment of Returns- Receipt of returns are
confirmed using an electronic acknowledgment system.
Fewer errors - Electronically filed tax returns are
received virtually error-free, and this is welcome news
considering all of the complex changes from year to year.
(Statistics (US) show 12% of all paper returns have some
sort of error.) You also have to consider that when you
send a "paper" return, your information also has to be
keyed in by the government which increases the chance for
error through a "key-in" mistake.
Easy to use - tax software and web sites let you prepare
and file electronically are getting better and easier to
use all the time. They "hold your hand" through the
process, giving you "alerts" that can guide you through the
process and let you take advantage of any new changes that
may help you.
Convenience- The federal/State Program is a "one stop
shop" tax filing. E-file allows taxpayers to file both
their federal and state tax returns in one transmission.
How To:
You can either use a software package or a web site to
prepare your return and submit it online. The third option
is to use a tax preparer that will prepare your taxes and
file them electronically for you. Below are leading
software packages and more information links for both US
and Canada.
United States of America
The cost of preparing your taxes and filing electronically
varies dramatically according to the complexity of the
programs you choose. For example there are free internet
programs available, or products that range from between $15
to $80. This link identifies a list of partnership
companies with the IRS that include free internet filing
opportunities
http://www.irs.gov./efile/display/0,,i1%3D51%26genericId%
3D15025,00.html
When it is time to pay your Federal taxes they can now be
paid through a new Electronic Federal Tax Payment System
web site. www.officialpayments.com
Visit the IRS web site http://www.irs.gov for helpful
information on e-filing. The IRS also allows you to search
for the official e-file preparer near you by zip code.
Packages Available:
Some of the most popular products available are listed
below. These companies also have a tax web site that you
can access, and in most cases are also selling more
complex "deluxe" versions.
Intuit's TurboTax http://www.turbotax.com
H&R Block's TaxCut http://www.hrblock.com
2nd Story Software's TaxAct http://www.completetax.com
Once you have prepared your return, you can either print it
out and send it in by mail, or you can send it online to
the IRS. Most state returns can also be submitted online
although some have not put in place the technology to
receive electronic returns yet (Florida, New Hampshire,
Tennessee). One other point to consider when deciding
whether you should you use an internet service or a tax
software system on your hard drive is storage of your
return. Myself personally, I prefer more control and want
to save my return stored on my hard drive and not by a
third party online.
TurboTax is available at the Yahoo tax center http:/ axes.yahoo.com
where a wealth of tax information lets you obtain relevant tax
forms as well as prepare and file tax returns online.
The Tax Center site combines content, calculators, forms,
preparation and filing services. The site says "Try it for
free and pay only when you print or file." A federal return
costs $29,95; state returns are $12.95. TurboTax for the Web
asks you to answer a series of easy-to-understand questions
and then automatically completes required IRS tax forms and
double checks for errors and missed deductions.
Comparisons
Most of the online sites allow you varying levels of use so
that you can actually key in your return information to see
how you like the program. With turbotax.com and
hrblock.com, you only have to pay when you print out your
return or e-file it. 2nd Story Software lets you prepare
and print out your federal return for free but can only let
you file state returns in 24 states.
For analysis of the best tax software available, here are
links to two excellent articles prepared on the subject.
One by ZDNet says the ZDNet Reviews pick is H&R Block's
TaxCut Deluxe 2001, which snagged the Editors' Choice
award. The other article is by MSNMoney:
http://www.zdnet.com/anchordesk/stories/story/0,10738,2841716,00.html
http://moneycentral.msn.com/articles ax/basics/8806.asp
If you are interested in more comparison shopping,
http://www.epinions.com also provides ratings of tax
preparation systems by individuals.
And another good article comparing tax software packages can
be found at http://www.usatoday.com/money/perfi axes/2002/02-22-tax-
prep-software.htm
CANADA
In Canada, there are two electronic methods that
individuals can use to send their personal income tax and
benefit returns. With EFILE, you use the services of any
registered EFILE service provider. With NETFILE, you send
your return directly to the government over the Internet.
Last year, more than 1.4 million tax returns were received
through the NETFILE service.
EFILE is an automated system that lets registered
electronic filing service providers send individual income
tax return information electronically. Using software and a
computer, individuals can prepare and save their return on
a disc and take it and their documents to an EFILE service
provider for transmission. Also, clients can take their
documents to a tax preparation service provider who can
prepare their electronic return and send it using EFILE.
Netfile http://www.netfile.gc.ca lets Canadians file their
personal income tax and benefit return directly using the
Internet. Income tax returns must be prepared using
software that has been certified for NETFILE use.
>From the "former About Guides", here is a listing of tax
software available for Canadians
http://www.formeraboutguides.com/investingcanada axsoftware.htm
Ensure prior to using these products that you see a
confirmation on their site that they have received official
certification from the Canada Customs and Revenue Agency
(CCRA).
For a list of currently certified software, visit CCRA at
http://www.ccra-adrc.gc.ca/eservices ax/business/efile/menu-
e.html#efilesoftware
They do note that additional providers will be added to
this list as they are approved.
Two of the major players in Canada are QuickTax
www.quickenstore.ca and Taxwiz http://www.taxwiz.ca
Here is a link to an excellent Globe and Mail article
detailing the cost comparisons between these two dominant
tax software competitors in Canada.
SITE PICKS
Tax Assistance from EY
Ernst and Young's site has excellent tax tools, tips and
calculators. http://www.ey.com
Use the pull down menu at http://www.ey.com to choose your
country or visit some of the links I've chosen from this
site below.
Canada - Tax Calculators
http://www.ey.com/GLOBAL/gcr.nsf/Canada/TaxwelcomeCalculators
http://www.hrblock.ca - H&R Block has over one thousand offices
across Canada, and now help is available online as this site
provides Canadians with calculator tools, news on tax changes,
tips and a section of FAQ.
US Tax Planning Tips
http://www.ey.com/global/gcr.nsf/US/TaxPlanningTips2002-
Ernst&YoungLLP
http://www.taxplanet.com - TaxPlanet.com bills itself as "All
Things Tax for Individuals" and can claim numerous awards
including Forbes Best of the Web, Yahoo Internet Life: 100 Best
Sites for 2002 (Best Tax Advice) and Money Magazine "Best Tax Site".
Tips, tools, new legislation, tax news and guides - it has
something for everyone.
And finally, here is an excellent article from USA Today with
a comparative price chart for tax software.
http://www.usatoday.com/money/perfi axes/2002/02-15-efiling.htm
About the Author
Jim Slobodzian, BComm (Hon) publishes the Enroute.ca
E-MONEY GUIDE providing weekly news and tips for consumers
using money online. http://www.enroute.ca or email
info@enroute.ca