Zapping Returns Gets Easier - and Cheaper

Electronic tax filing - transmitting your tax return directly to IRS computers - finally makes sense this year for a whole new class of taxpayers.

People who use tax software will find electronic filing hard to resist. In most cases, it will be free.

"Electronic filing is here. It just needs to be encouraged and promoted," says Gene Goldenberg, vice president and publisher of Kiplinger TaxCut from Block Financial Corp. The Kansas City, Mo., company picks up the tab for the usual filing fee in its software.

Popular demand

"Our customers are telling us they want the ability to file electronically," adds Monica Muilenburg, group product manager for TurboTax from Intuit. The San Diego company is rebating the $10 fee for people who buy the deluxe edition of TurboTax.

For both companies, filing is free for only one person per copy of the software.

Last year, 1 in 6 taxpayers zapped their returns to the Internal Revenue Service in paperless bits and bytes. From the early returns already filed this year, the total looks to increase by about 8 percent, according to the IRS. Among some segments of filers - such as taxpayers who prepare their own taxes with a personal computer - the number of electronic returns has tripled over last year.

"This isn't pioneering anymore," says Robert Barr, assistant commissioner for electronic-tax administration at the IRS. "We're trying to ... get substantially more people engaged in electronic filing."

Should you file electronically? Yes, tax experts say, if you expect a refund and plan to use tax software anyway.

Stretching the value of a refund

Here's how the math works out. Suppose you're among the 70 percent of taxpayers due money from the IRS (average refund: $1,643 so far this year).

Handling electronic returns is easier for the IRS, so you get your refund in half the time, perhaps three weeks instead of six. If you stick that money in a money-market fund yielding 5 percent, an extra three weeks of interest is $4.74.

Hardly earth-shattering, but if you pay down a credit-card bill, running the meter at 18 percent a year, you save more than $18. And you're better off with the money in your account than in Uncle Sam's.

Perks for electronic filers

There are other advantages to electronic filing. The IRS will acknowledge it has gotten your return.

And the agency is five times less likely to make a mistake on the return - no typos from workers transferring the information from paper to computer. Some of those errors create problems or cause long delays for the taxpayer, especially if an IRS employee punches in the wrong Social Security number.

Of course, the process isn't completely paperless yet. Electronic filers still have to send in a signature document by mail along with their W-2 forms.

The IRS is working on an online signature process that would eliminate that paper. It's encouraging taxpayers who don't get a refund to go the electronic route.

They can already file electronically and mail a check for taxes due by April 15. The IRS wants to give those filers a paperless option where their tax payment gets deducted from their bank account on the very last possible day.

"We need a simple and easy-to-use process," says Mr. Barr of the IRS. By 2002, it may still be hard to figure out one's taxes, but filing them could become downright easy.

Work The Web For Tax Help

If you fancy yourself a cyber-pioneer, head online to prepare your taxes.

Intuit (www.intuit.com - $9.95 for federal returns) and Block Financial (www.taxcut.com - $19.95) offer online versions of their tax software.

Another route is SecureTax (www.securetax.com). You work through your taxes online, coming and going from the site as often as you want.

You can print and electronically file federal and state returns for $14.95 or less. (20 states accept electronic filing. Otherwise, print and mail the forms.)

The site's popularity - plus the need to scramble the data for security - means it can be slow.

With another site, TaxLogic (www.taxlogic.com), you pay more but get more. Enter the basic information and, for $75 to $100, it goes to an accountant who calls with follow-up questions, then crunches the numbers. This site also excels in general information and links to other sites.

All the sites mentioned claim maximum security.