Tax Software and Electronic Filing
The IRS has been encouraging taxpayers to file electronically for several years and that effort is growing. Over 81 million individual returnsindividual returnTax return filed by a nonbusiness entity to report income tax; can be filed by a one person or a couple (e.g., married). were electronically filed for tax year 2007. The IRS also reported a large increase in electronically filed tax returns by last-minute filers who typically file paper returns.
Taxpayers can now prepare and file electronically from their home computers. In the early years of electronic filing, only paid tax preparers could submit the returns.
Taxpayers now have several choices once they decide to prepare and file electronically; they can:
Purchase commercially available software from a retailer and load it onto a computer,
Download software from an internet site and then prepare a return offline, or
Prepare and file a return online.
Free online software is available through contracts that IRS has with a large number of tax software firms. The requirements a taxpayer must meet for free service can vary from year to year but usually include an income restriction. To find the software and the requirements, refer to the IRS Web page then follow the links for “e-file.” Taxpayers who do not meet the requirements can still use most of the software listed on the IRS page and opt to pay a fee for filing (usually at a cost much less than buying software).
Most software programs also have an option to prepare and file state income tax returns. Taxpayers should also check with their state because it may, like California, have a totally free option to prepare and file tax returns directly into the state system.
Some of the advantages to electronic preparation and filing include fewer math errors, faster preparation without needing to understand the various forms, refunds are received sooner, and most software programs have built-in the multitude of rules and regulations. A major disadvantage is that a taxpayer can still miss potential deductions or make mistakes because of a lack of understanding of even the basic rules.
Note that in 2008, IRS began a new “signature” system for electronic filing. Taxpayers will no longer be required to mail in a form with a signature. Instead, a PIN (personal identification number) will be selected and used to verify a taxpayer’s signature for electronic filing.
Go to Publication 17, Chapter 1 and read the section: Does My Return Have to Be on Paper?
