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Online Tax Preparation
If you've haven’t considered doing your taxes online, maybe it's time you did.
While not for everyone, online tax preparation services have several distinct
advantages over their desktop counterparts, especially for new users. Online tax software is rapidly gaining in popularity.
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Intuit, whose TurboTax is the
best-selling shrink-wrapped and online tax preparation software, says that 3.6
million returns were filed via TurboTax online last year, up from 1.4 million
just three years earlier. Other online tax preparation vendors include H&R
Block and TaxAct (both of which also have shrink-wrapped versions), and the
online-only CompleteTax and TaxBrain.
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Online Advantages
Perhaps the biggest appeal of online-based tax
software is that it tends to cost less than boxed software, and doesn't involve
you in the irritating rebate structure that commonly afflicts desktop software.
H&R Block offers a new online-only deal under which an H&R Block tax pro
will review your return before you e-file and sign off as your tax preparer,
accompanying you to an IRS audit if need be--all for $80. (The same support
would cost you $130, on average, at an H&R Block office.)
If you are
out of town you can still work on your tax return. All you need is Internet
access. Most tax preparation sites don't charge anything until you're ready to
file, so you can try out the service before you buy. In addition, software
changes are immediately posted online, so you don't have to download and install
updates. Online-based tax preparation software is also a good way to go if you
don't use Windows and therefore have few or no commercial shrink-wrapped
alternatives.
Desktop Advantages
But desktop tax software has
its advantages, too. All of the major commercial packages let you import the
previous year's tax file; in contrast, only H&R Block allows you to upload
TurboTax or TaxCut data files to its online software. If you prepared last
year's return on your PC and now want to switch to the online version, you may
have to retype lots of information from that return--a time-consuming job if
your return is complex. (However, you can import data from a previous year's
return if it was prepared on the same Web site.) Online tax preparation software
resembles its desktop counterpart, except that navigation options tend to be
more limited: People who revisit forms find that moving around within a return
is faster with desktop software.
Security Issues
Online-based
tax preparation software programs generally follow good practices such as
limiting FTP access to their servers (leaving one less opening for intruders),
displaying current security certificates in the company's name, and encrypting
cookie file data such as passwords. Web servers are professionally managed, and
security problems are relatively rare. You can find reviews of online and boxed
tax preparation programs on CNET.com, PC Magazine and Smart Computing. A Web
site focused on supporting home business owners, HomeOfficeReports.com, offers
an in-depth review of the major tax preparation packages, along with a detailed
comparison chart.
IRS Free File
A new twist this year is the
partnership between the IRS and online tax preparation and filing services,
called Free File. To fulfill a new congressional mandate to expand electronic
filing, fifteen of the nation's tax processors are offering free online federal
tax filing. Each Web site has different qualification specifications; most
require that your adjusted gross income is less than $30,000. However, several
Web sites, including TurboTax.com and TaxAct.com offer free federal filing to
everyone, with no income restrictions. There are a few catches to the IRS.gov
Free File program. First, you must link to the partner Web site Through
IRS.gov—if you don't, your online return will most likely not be free. Secondly,
the offer is only good for federal tax filing. That means you'll still have to
pay to prepare and file your state return using the same Web site. Cost for
state preparation and filing runs about $10 for most Web sites. Lastly, you are
restricted to preparing your taxes online and filing electronically. There's no
option for a filing a paper return, and you won't receive a hard copy of the
software. You'll need to be online to work on your taxes, so you'll need a
reliable Internet connection.
All three major tax-software players offer
free federal tax filing through www.IRS.com. H&R Block's TaxCut has an
adjusted gross income (AGI) filing ceiling of $34,000. Preparing and filing a
state return costs $20. Intuit's TurboTax offers free federal filing through
IRS.com with no income restrictions at all—everyone is eligible. State taxes
cost $10 if you use federal form 1040EZ and $20 for all others. In addition,
residents in nineteen states may qualify for free filing of their state returns
with TurboTax.
Each state has its own restrictions. TaxAct also
participates in the IRS program, offering free federal online preparation and
filing, with no income restrictions. TaxAct charges $8 for state returns, less
than most other Web sites. If you are comfortable completing your taxes online,
the IRS.gov program is a terrific option. You'll be using proven software on
secure Web sites, and the whole process may cost you only about $10 for federal
and state online preparation, along with e-filing. You'll be able to print
copies for your records.
Tax Preparation
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| ©2010 Michael Johnston, CPA. All Rights Reserved. |
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