Paper tax forms may soon be relics of a bygone bureaucracy. More than 70 percent of Americans will file their income tax returns electronically this year, according to the IRS, up from 61% in 2008. And if your adjusted gross income is less than $58,000, the IRS’s Free File initiative will hook you up with software providers who’ll prepare your Federal return at no cost there’s usually a small fee to file state returns. Aside from the sheer number of trees saved—the IRS no longer mails paper forms to e-filers—it also reduces man-hours needed at the cash-strapped agency since far fewer paper returns will need to be transcribed by IRS data-entry clerks. Even better news for the 66 percent of taxpayers who get a refund, it takes just days (9 to 15) instead of weeks (2 to 4) to get your money if you e-file and elect direct deposit.
But perhaps the best part about filing online is that it cuts down on many of the math mistakes that can trigger an inquiry by the IRS. That’s because most tax-prep software automatically scours your return for missing or contradictory information. And since most tax software walks you through every line of your return using plain English (well, at least it’s plainer than the information sent out by the IRS), it can make it easier for taxpayers to figure out confusing issues like the Making Work Pay Credit or the Alternative Minimum Tax. The software also can help taxpayers learn about deductions they might otherwise have overlooked.
Of course, online filing isn’t for everybody. For people with complicated returns that may require extra forms, good old paper may still be the way to go. And using TurboTax or HRBlock.com doesn’t guarantee you won’t make any mistakes. Here are five ways e-filers can avoid fouling up.
- 1. Triple Check Your Work
Most online filing mistakes happen before line ten of a 1040, according to the IRS. Take the time to triple check that you’ve entered your social security number correctly – as well as the names and tax numbers of your spouse or kids. “People get their dependent’s social security number wrong or misspell their names all the time,” says Bob Meighan, a Certified Public Accountant and Vice President of TurboTax. If you make this kind of mistake, it’s not the end of the world. The IRS only needs about 24 hours to reject a return with a personal info or W2 error. Your return gets bounced back to your software provider, who will then forward a message to you. (Phishing alert: for security reasons the IRS will not contact you directly via email about your return.) In the majority of cases, users can make the fix and resend their return the same day. If you use the same software from one year to the next, your personal info will be transferred automatically, avoiding this problem altogether.
- 2. Get it Together
Tax-prep software typically cuts down on the amount of time it takes to finish your return but it also makes it easier to wait until the last minute. “People, as they get closer to the deadline, get rushed and anxious,“ says Meighan; “they forget to include an item or transpose a number and … we can’t catch everything.” The first rule of a successful income tax return no matter how its filed—is gather all your financial documents—bank and credit card statements, last year’s returns, 1099s, out-of-pocket medical expenses, business or child care expenses — before you start typing.
- 3. Remember: You’re Responsible, Not the Software
One of the services an accountant can provide is to save you from yourself — because even the best software can’t discourage you from claiming crazy deductions or failing to report income. Nor can it make up for ignorance about tax laws or failure to include certain information. You are responsible for any information you file on your return. During his confirmation hearings, Treasury head Timothy Geithner blamed his failure to pay self-employment on his tax-prep software, but as the Federal Tax Court put it in Aileen Yat Muk Lam and Shaoping Chang vs. Commissioner of Internal Revenue; “We do not accept petitioners’ misuse of TurboTax, even if unintentional or accidental, as a defense.” - 4. Don’t Estimate Last Year’s Income
Before the IRS will accept your return, it needs to make sure you are who you say you are. So instead of a signature, the Tax Man requires e-filers to use their adjusted gross income from last year (On Form 1040, find it on line 37; on Form 1040A, line 21; on Form 1040EZ, on line 4. Again, if you use the same software from one year to the next, you won’t have to worry about this. - 5. Be Patient
Even though tax-refund loans are on their way out due to a FDIC crackdown, there are still a few online companies who offer them, though e-filers will avoid the hard sell a human preparer might give you. These loans give taxpayers fast access to cash, but they often charge the same punishing interest rates as payday
as high as 500 percent in annualized interest rates. Nor is it a good idea to get your refund transferred to a debit card like H&R Block’s Emerald Card or TurboTax’s Refund Card —the fine print reveals a fee schedule that would make a bank blush. Filing electronically and signing up for direct deposit from the IRS is already the fastest, safest way to get your money. So be patient and wait the 2 weeks or less it is likely to take to get your refund.
To read all of The Fiscal Times’ Tax Day Countdown Series click here .
Related Links:
Free and Low-Cost Options for Filing Taxes (WalletPop)
Tax Saving Tips for Procrastinating Filers (Huffington Post)
Tip of the Week: Using Tech for Your Taxes (Gadgetwise)
