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IRS Continues To Expand Its E-File Options

When the first Form 1040 was printed by the Internal Revenue Service nearly 100 years ago, it consisted of four pages, including instructions. As anyone who has ever filed a tax return can testify, things have changed.

For the 2009 tax season, just the instructions for Form 1040 are 104 pages long. The form itself is only two pages but there are dozens of schedules and attachments that can quickly bulk up even the simplest of tax returns.

It’s no wonder that 20 years after electronic filing was introduced by the IRS, more than 90.6 million returns were processed electronically last tax season. That record beat the previous year’s mark by 5.9 percent. This year, the IRS continues to push hard for taxpayers to leave paper forms and instructions behind. Free File online tax preparation programs make it possible for even more Americans to go digital.

The IRS expects to handle about 140 million individual tax returns in 2010, in both electronic and paper form, with e-file returns topping last year’s record high mark.

The E-File Advantage

It is now possible to file an individual income tax return without printing or sending a single scrap of paper to the IRS. Every imaginable form, instructions and a wealth of other information that was once printed and distributed through IRS offices, libraries and banks, is now available in electronic format at www.irs.gov. The site had 190.9 million visitors in 2008 – 09.

For most business and individual taxpayers, the IRS offers a variety of virtually paperless options that result in a number of benefits.

Faster refunds. Taxpayers get refunds in half the time it takes to file a paper return and receive a paper check. E-filers who choose direct deposit can receive their refund in as few as 10 days.

Paperless filing. Taxpayers eliminate paperwork by creating a personal identification number (PIN) and filing a paperless return using off-the-shelf tax preparation software or a tax professional. There is nothing to mail, if direct deposit or electronic payment is chosen.

Direct deposit. In 2009, about 73 million refunds were directly deposited into taxpayer accounts. It’s faster, and a refund that is directly deposited in a savings or checking account cannot be stolen or lost in the mail.

More accurate. In addition to the error checks built into return preparation software, additional checks are performed during the transmission of software-enabled e-file returns. These checks reduce the error rate to 1 percent, compared to nearly 20 percent for paper forms.

File now and pay later. Taxpayers can file early and pay later by scheduling an electronic funds withdrawal any time through April 15, 2010. E-filers can also pay by credit or debit card.

Electronic confirmation. E-filers are notified within 48 hours that their returns have been received. Paper returns are not acknowledged.

Convenient federal and state e-filing. Taxpayers in 37 states and the District of Columbia can e-file their federal and state tax returns in one transmission to the IRS. The IRS forwards the state data to the appropriate state tax agency.

E-File Options for Individuals

According to the IRS, the majority of taxpayers and tax preparers this year will use IRS e-file option to file their federal tax returns or get extensions. Here are a few of the options:

Free File Fillable Forms. Free File Fillable Forms open the Free File option to virtually everyone, with no income limitations. Free File Fillable Forms allow taxpayers to fill out and file their tax forms electronically, just as they would on paper. This option does not include an “interview” process like the other Free File offerings, but it does allow taxpayers to enter their tax data, perform basic math calculations, sign electronically, print their returns for recordkeeping and e-file their returns. It may be appropriate for those who are comfortable with the tax law, know what forms to use, and don’t need assistance to complete their returns.

Free File. The long-standing IRS Free File program was developed through a partnership between the service and a group of private-sector tax preparation companies. The program allows eligible taxpayers (adjusted gross income of $57,000 or less) to use commercial tax software for free. New and returning taxpayers must access Free File through the IRS Web site (www.irs.gov). If they don’t, the e-file provider may charge a fee.

Personal Computer. Taxpayers can easily prepare and e-file their own tax returns with a computer, Internet access and IRS-approved tax preparation software. Approved software is available for online use or to download, and in retail stores for offline use. Some off-the-shelf software allows taxpayers to prepare and submit their federal returns free.

Most paid tax preparers who are set up to e-file can offer most of the services described above.

Electronic Federal Tax Payment System

Taxpayers can pay all their business and individual federal taxes by enrolling in the Electronic Federal Tax Payment System (EFTPS). EFTPS is a separate service offered by the U.S. Department of Treasury, that allows taxpayers to make payments 24 hours a day, seven days a week, from anywhere there is a telephone or Internet connection. Since launching in 1996, EFTPS has processed more than 900 million electronic payments, totaling more than $20 trillion in revenue.

Like newspapers and books, paper tax forms and materials are not likely to be totally replaced any time soon. But clearly, the trend is toward e-filing and the speed, accuracy and convenience it offers.

You can learn more about personal and business e-file options on www.irs.gov, or by contacting your local Clifton Gunderson office, calling
1-888-CPA-FIRM or visiting www.cliftoncpa.com.

Paper Versus Electronic Tax Filing