Features that post last year’s data to this year’s return and automatically calculate retirement contributions and multiple home offices have turned my family’s complex calculations into a two-hour cakewalk. And I mean really complex: last year our return ran 21 pages.
I could make the next big leap and e-mail my forms to the Internal Revenue Service through the company that makes my software. This year that’s free. Or I could give up the software, head online and use the Intuit Web site to prepare and file my return. But I’m still storing my tax life on my own private hard drive, printing out my forms and mailing them in the old-fashioned way.
I may soon be among the few Americans who haven’t caught the e-filing bug. Nearly 30 million taxpayers filed electronically last year; this year do-it-yourselfers are filing online at twice last year’s rate. An additional 1 million people have begun preparing their returns at Web sites like turbo tax.com and hrblock.com. By 2003, more returns will be prepared online than at home, says Forrester Research. The IRS loves the trend: the tax man argues that electronically filed returns are more accurate, faster and cheaper to process. By 2007, it figures 80 percent of all returns will be e-filed; most of those will probably be prepared online, too.
So a wired tax season is good for the IRS and good for the software companies, which would rather sell you a Web service than a disk they have to put in a box and ship. But is it good for you? If you’re awaiting a refund, there might be a time-saving advantage to online filing. Otherwise, the rewards are pretty minimal, and some risks remain. For one thing, there’s a slight security risk to online tax prep, though I’m not all that worried about hackers reading my dull-as-dust Schedule C. The bigger issue is performance. Online tax preparation is just two years old, and the Web sites are more than a bit vulnerable to bugs, crashes and mistakes.
There have been plenty of problems this year, and we haven’t even hit the April 15 filing deadline. The IRS itself, usually tops on e-technology, mistakenly rejected some 40,000 child-credit-claiming e-returns because of a programming glitch. Then H&R Block–certainly not a fly-by-night company when it comes to tax preparation–advertised a site that couldn’t handle its own volume. Customers couldn’t get in, even to access returns they had already begun. Block’s effort to make midseason fixes blew up when customers started logging on and finding returns that weren’t their own. The TurboTax site, said to be problem-free with bandwidth to burn, wouldn’t work for me when I tried it last Wednesday morning.
There are, of course, satisfied e-filers. Florida insurance manager Michael Hartung, who has been doing his own taxes for years with Kiplinger’s TaxCut software, went all the way through the TurboTax site without any problems until he balked at the site’s $20 charge. He went to hdvest.com, run by H.D. Vest, an ad-visory firm that offers free tax returns in the hopes of snagging future financial-planning clients. There Hartung redid his admittedly simple forms in 20 minutes. He says he was delighted with the extra financial advice the company sent along.
If you have a fast and stable Internet connection and an up-to-date browser, you might enjoy doing your taxes online. You can call up forms from anywhere, your hard drive won’t get mucked up with video-heavy tax-prep software and you might even save some money. Online, Block will let you do your federal taxes for $9.95. TurboTax, which charges $19.90 for federal and state, will do them free if your income is $20,000 or less or if you just file a 1040EZ. But before you sign on at Intuit, check your own bank, broker and fund company. Some 350 firms, including Vanguard, Fidelity and E*Trade, are offering TurboTax free to their own investors.
Like the boxed software, online preparation will get better. Eventually banks, brokers and mutual-fund companies that are already good with Web transactions will license programs like TurboTax online and allow their clients to use the e-filing systems free. Even better, those institutions will probably also automatically post required capital-gains and dividend info to your form, predicts Forrester’s James Punishill. A few years after that, maybe your boss will automatically post your W-2 form, too. It will be harder to cheat, but mistakes and tax-season headaches will be rarer as well.
Still, the technology’s not all there yet, and neither am I. It’s true, I get impatient watching my printer dribble out two copies of that 21-page return. But prepare online? I’ll probably start doing that the day Intuit forces me–by refusing to put MacInTax in a box and mailing it.
