It’s getting easier to file and pay your taxes. Gathering the data and understanding the rules are still a chore, but more people than ever are filing their returns electronically. Seventy-three million tax returns were e-filed in 2006.
What’s so great about e-filing? If you’re receiving a refund, it could be deposited directly into your bank account less than two weeks after e-filing. You might wait four weeks or more for your refund if you file on paper. Three out of four individual filers get refunds, so this is an important reason for many.
Other reasons to e-file:
• Accuracy: Since the return goes directly from your CPA’s computer (or your home computer) to the IRS’ system, there is no second “input” at the IRS office, and subsequently, no chance of input errors.
• Security: With the direct transmission of your return to the IRS, you bypass any problems associated with physical mail. In fact, you get electronic proof from the IRS that your return has been received and accepted.
• If you owe money, you have lots of payment options, including scheduling a date for the IRS to directly draw it from your bank account, sending in a paper check or charging it to your credit card.
• It saves paper (Think of all those trees!).
What’s new with e-filing?
• “FreeFile”: The IRS has partnered with a group of private-sector tax software companies to provide free federal tax preparation and electronic filing for eligible taxpayers. If your adjusted gross income (AGI) is $52,000 or less in 2006, you may take advantage of this free service.
• Form 4868: Extension applications may be e-filed! If you aren’t quite ready to file by April 17 (this year’s due date), you can e-file the extension and e-pay or mail a check for the estimated balance due.
• Form 1040-ES: Estimated payments may now be paid using the e-filing system. You can schedule up to four estimated tax payments to be directly drawn from your bank account.
• Businesses can e-file too. Partnerships, corporations, estates and trusts can all e-file their tax returns.
• Make sure the Social Security numbers and names on your return match the information on your Social Security cards. Otherwise, the return may be rejected.
• If your children file their own tax returns, be sure to check your dependency exemptions. If they file first and claim themselves, and you attempt to claim them as a dependent on your return as well, your return will be rejected.
• Print a paper copy of your return for your own records, or better yet, print it to a computer file or disk.
• If you use a professional tax preparer, don’t forget to sign and return the authorization (Form 8879 or 8453) after reviewing your return — the preparer needs to have that before submitting your return to the IRS.
For more information, visit the IRS Web site at www.irs.ustreas.gov or ask your tax preparer about e-filing.
Mary Decker is a CPA, Certified Financial Planner and a principal of Hascal Sjoholm &Co., a full-service CPA firm in Everett. She specializes in tax and estate planning. She can be reached online at www.hascal.com or at 425-252-3173.